THE INTERNATIONAL
BETTING TECHNOLOGY
BUSINESS
OUR BRANDS
Sportech Racing and Digital
Winners and MyWinners.com
Bobby V’s Restaurant & Sports Bar
Bump 50:50
Lot.to
CelebLotto
Bet247
Striders
OUR OFFICES AND
OPERATIONAL CENTRES
Connecticut
Atlanta
New Jersey
Bristol
Athlone
Toronto
Chester
Singapore
Icarus House
Hawkfield Business Park
Bristol BS14 0BN
www.sportechplc.com
THE INTERNATIONAL
BETTING TECHNOLOGY
BUSINESS
Annual Report and Accounts 2018
Strategic Report
Governance
Financial Statements
Advisors and Corporate
Information
Company Secretary
SGH Company Secretaries Ltd
6th Floor
60 Gracechurch Street
London EC3V 0HR
Registered office
Sportech PLC
Collins House
Rutland Square
Edinburgh EH1 2AA
European head office
Sportech PLC
Icarus House
Hawkfield Business Park
Bristol BS14 0BN
North American head office
Sportech, Inc.
600 Long Wharf Drive
New Haven, Connecticut 06511
Company registration number
SC69140
Internet
The Group website can be found at
www.sportechplc.com. This site is regularly updated
to provide information about the Group. The Group’s
press releases and announcements can be found on
the site.
Stockbroker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Principal bankers
Bank of Scotland PLC
10 Gresham Street
London EC4M 9AF
Wells Fargo
420 Montgomery Street
San Francisco, California 94104
Solicitors as to UK law
Dickson Minto W.S.
Broadgate Tower
20 Primrose Street
London EC2A 2EW
Lawyers as to US law
Duane Morris LLP
1940 Route 70
East Suite 100
Cherry Hill, New Jersey 08003
Statutory auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
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:
E-mail:
0871 664 0300
enquiries@linkgroup.co.uk
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137
Highlights
Financial
� Revenues at £63.7 million, 3.9% lower than reported
for 2017 (2017: £66.3 million)
� Adjusted EBITDA1 at £8.0 million, 18.8% higher (prior
to sports betting investment) (2017: £6.7 million)
� Statutory loss before tax from continuing operations
of £2.4 million (2017: £23.2 million)
� Adjusted profit before tax2 from continuing
operations (prior to sports betting investment)
£2.0 million (2017: £1.5 million)
� Cash, net of customer balances at 31 December 2018
of £14.7 million (2017: £15.9 million)
2018 Group Developments
� Appointment of Richard McGuire as Interim
Executive Chairman
� Appointment of Thomas Hearne to the position of
Chief Financial Officer
� Completed sale of Sportech Racing BV in the
Netherlands and closed central London office
� Conducted independent technology review, which led
to acquisition of new digital tech business3
� Bump 50:50 division added twenty new professional
and collegiate sports teams to its customer roster
� Delivered US sports betting presentation to
numerous business clients, regulators and legislators
� Commenced campaign to provide sports betting
solutions to US clients
� Commenced campaign, seeking to extend current
Connecticut licensing to cover sports betting
1.
Excludes sports betting investments during the period, amounting
to £1,428k. Sports betting investment includes lobbying costs,
additional staff costs, travel and consultants, and also includes an
allocation of senior management time.
2. Adjusted profit before tax from continuing operations is the
aggregate of adjusted EBITDA pre sports betting investment,
normalised share option charges, depreciation, amortisation
(excluding amortisation of acquired intangibles), and net finance
income/(charges).
3. Announced intent in 2018 and completed acquisition of
Lot.to Systems Limited in 2019.
What’s inside this report
Strategic Report
Highlights
Overview
Business Model and Strategy
Executive Chairman’s Statement
Operating Review
Financial Review
Corporate Governance
Directors and Officers
Risk Management
Viability Statement
Corporate Social Responsibility Report
Corporate Governance Report
Report of the Remuneration Committee
Directors’ Report
Report of the Auditors
Financial Statements
Consolidated Financial Statements
Company Financial Statements
1
2
4
6
8
14
28
29
32
33
35
42
63
67
80
129
Advisors and Corporate Information
137
1
Overview
Sportech at a glance
Sportech Racing and Digital and Bump 50:50
Prominent supplier of technology solutions to the global regulated betting industry and of
electronic raffles and lotteries to sports and entertainment-affiliated charitable organisations.
Sportech seeks to maintain its global position in tote betting by leveraging its heritage,
gaming licences, technology, and client relationships to deliver further solutions to a
liberalising US market for sports betting and to charitable foundations seeking innovative
digital fundraising platforms, whilst promoting our enhanced Lottery and iLottery solutions.
The Group enters 2019 with
a renewed impetus to drive
operational efficiency across all
business divisions and deliver an
enhanced customer experience.
Growth opportunities exist
with the launch of new betting
products and features and a
resolute progress towards a future
in US sports betting across both
our business and our consumer-
facing divisions. The acquisition
of the Lot.to Systems platform
and talent show a clear focus
on developing digital initiatives
further, which supports our
continued evolution to deliver
growth and drive operational
efficiency.
Division
Information
Locations
Revenue
(£m)
Adjusted
EBITDA (£m)
Racing and
Digital Clients
Bump 50:50 Clients
Richard McGuire
Interim Executive Chairman
Capital
Expenditure (£m)
2
Sportech’s proprietary betting
solutions process $12bn in handle
annually for licensed customers in
37 countries. Bump 50:50 systems
generated charitable proceeds of
$17m for 75 clients in 2018.
Atlanta, Athlone, Bristol,
Connecticut, New Jersey,
Singapore, Toronto
2018
34.0
2018
8.6
2018
440
2018
75
2018
4.6
2017
35.5
2017
7.7
2017
440
2017
68
2017
5.2
Sportech PLC Annual Report and Accounts 2018 Sportech Venues
Operator of legal pari-mutuel betting in the State of Connecticut under an exclusive and in
perpetuity licence, the Division offers online, mobile, call centre, and in-venue retail betting
across 16 venues in major population centres in Connecticut and is well positioned to offer legal
sports betting as a regulated and ready partner to the State, should a licence be acquired.
Division
Information
Locations
Revenue
(£m)
Adjusted
EBITDA (£m)
Venues
Connecticut
Capital
Expenditure (£m)
In addition to 16 retail venues,
web, mobile and phone betting
in Connecticut, Sportech has the
capacity to expand to 24 venues in
the State and operates a licensed
betting bar/restaurant, Striders, in
San Diego, Southern California.
Connecticut and
California
2018
30.4
2017
31.6
2018
1.4
2018
16
2018
0.4
2017
1.5
2017
16
2017
5.6
3
Strategic ReportGovernanceFinancial Statements Business Model
and Strategy
The Group’s strategic aims for 2019 include:
1. Maintain and develop our position in our core Tote business, providing leading technologies and
services to our global client base
2. Develop key growth business units including
• Bump 50:50
• Sports betting solutions
• Lottery
3. Drive efficiencies across all divisions with an additional focus on digital development
4. Deliver an incredible consumer experience across our retail division
5. Promote a “challenge” culture with an entrepreneurial emphasis across the Group
Sportech PLC, the international betting technology
business, provides and operates betting technology
solutions for some of the world’s best-known gaming
companies, sports teams, and horse and greyhound
racetracks, as well as owning and operating its own
gaming venues in Connecticut under exclusive licences.
The Group focuses on regulated markets worldwide
and we have over 27,000 betting terminals deployed
to over 400 clients across 37 countries. Our global
systems process US$12 billion in betting handle
annually. In the US, we operate under 35 licences
across 37 states.
Sportech seeks to achieve long-term tangible
shareholder returns by reinforcing and maintaining
its global position in tote betting, leveraging its
heritage, gaming licences, technologies, and customer
relationships to deliver further solutions to a liberalising
US market for sports betting and to charitable
foundations seeking innovative digital fundraising
platforms, whilst promoting our enhanced Lottery and
iLottery solutions.
We have commenced a complete overhaul of our
public presence across all business and consumer
websites and are focusing attention on enhanced
communications across our numerous regional teams,
leveraging regional experiences and expertise in order
to ultimately deliver a comprehensive solution to our
client base.
The Group will leverage IP acquired with Lot.to to build
upon and expand the market for Sportech’s successful,
yet narrowly-deployed, numbers-based lottery product
currently offered through our Quantum™ System
software.
We are resolute in our intent to leverage the digital
development assets from the Lot.to acquisition to
significantly expand our slate of digital products, offer
new digital experiences through our consumer-facing
betting services, and address the growing demand for
mobile-first betting solutions.
The Group maintains an international focus with clients
in 37 countries and the majority of operations in the
US (Connecticut, Georgia, New Jersey), the UK (Bristol,
Chester), Ireland (Athlone), and Canada (Toronto). Most
of the Group’s underlying earnings are now in USD
and Euro. The Group does not currently hedge against
its USD or Euro earnings, but will report exchange
differences.
4
Sportech PLC Annual Report and Accounts 2018
Racing and Digital
Sportech Racing and Digital is the leading supplier of
technology and services to the global betting industry,
with systems that process US$12 billion in betting
handle annually for clients in 37 countries.
The Division’s proprietary Quantum™ System software,
which is extensively used by many of the world’s
tote operators, and its Global Quantum™ Data and
Operations Centre, the keystone of a global service
delivery network, together form the foundation
from which Sportech pursues growth initiatives
including international expansion and growth in global
commingling.
The Division’s digital technology strategy and the
extension of competitive digital technologies to
support the long-term reduction in capital and
operational costs is enhanced with the 2019 expansion
of the Group’s available digital development assets.
Bump 50:50
Included within Racing and Digital reporting, Bump
50:50 is the rapidly-growing sports raffle business.
Bump supplies in-stadia, web, and mobile electronic
lotteries to some of North America’s best-known major
league sports teams, collegiate sports organisations,
and entertainment venues. As of 31 December 2018,
Bump 50:50 has 75 clients in the US and Canada.
Bump 50:50 strategy calls for continued dedicated
customer acquisition activities and the leveraging of
web and mobile platforms to drive organic growth and
reach new markets, including non-sports clients and
expansion into new territories.
Venues
Sportech Venues operates all legal betting on
horseracing, greyhound racing and jai alai under
an exclusive and in perpetuity licence in the State
of Connecticut. It offers omni-channel betting
entertainment through 16 existing locations, web,
mobile, and phone and holds the right to expand to up
to 24 locations.
The Group is actively pursuing a sports betting licence
to complement its current exclusive tote wagering
platform across the State. Our Venues business
is regulated and ready to deliver sports betting
capabilities when enabled.
Venues also takes an aggressive stance to protect
its exclusive licence to betting in the State, putting
forward legislation to enforce the prohibition against
out-of-state betting operators accepting internet
bets on horseracing from Connecticut residents
and ensuring that consumers know that Sportech
is Connecticut’s exclusive home for legal betting on
racing and jai alai.
The Division is also implementing strategies to deliver a
return on the significant capital invested in recent years
developing venues to appeal to a wider clientele. In
July 2018 we added new highly-experienced Food and
Beverage and Group Sales Managers. We are looking to
both to deliver beneficial progress going forward and
especially into 2019, invigorating food and beverage
growth and profitability, especially at our Stamford
location.
Lottery
By 2022, the global gaming market will exceed $635
billion, with online lottery estimated to reach revenues
of more than $10 billion alone and growing at a CAGR
of around 8% as legislation develops in emerging
markets and new technology improves accessibility.
In early 2019, the Group acquired Lot.to Systems
Limited, enabling us to expand our successful lottery
product and capitalise on this explosive growth in
lottery. The Sportech brand and legacy provides
further market credibility and opportunities in the B2B
market, whilst Lot.to Systems’ range of products and
digital expertise enhances the capabilities we offer to
Sportech’s global client base.
Going forward we shall be reporting here
developments with Lot.to as we seek to deliver growth
via digital expertise and support, whilst leveraging
Sportech’s existing distribution channels to create new
revenue channels and significant business growth.
5
Strategic ReportGovernanceFinancial Statements Executive Chairman’s
Statement
Sportech faced many challenges in 2018.
Management attention was diverted early in
the year due to the Formal Sale Process, a
consequence of attracting interest from would-
be suitors. In addition, further senior leadership
changes were announced towards the end of the
period, which will result in numerous changes
to the way we will operate the Company going
forward.
In addressing these hurdles, we are focused
on executing a clear strategy to deliver growth
opportunities across all business lines, whilst
simultaneously and aggressively managing the cost
base. Cost reviews and reforms will continue into 2019
as we look to manage operational efficiencies across all
areas of our business.
The year brought some significant changes at the
executive and board level. Tom Hearne was appointed
as our new Chief Financial Officer and an Executive
Board member, and we also welcomed Chris Rigg as a
new Non-executive Director to the Board. In November
2018, CEO Andrew Gaughan announced that he would
be stepping down in early 2019. 2018 also recorded the
departure of Non-executive Director, Richard Cooper.
On behalf of the Group and the Board of Directors,
I offer thanks to Richard Cooper for his dedicated
service and to Andrew Gaughan for his leadership, not
only as CEO but also for many years as President of
Sportech Racing and Digital.
The Group concluded its strategic review in 2018
and we have commenced implementation of certain
tasks to manage the cost base. The results of this
initiative were vital to the Group’s net performance
in 2018 as we offset a marginal decline in revenues
with a 18.8% year on year increase in adjusted EBITDA
before sports betting costs. Our new management’s
vigilance in controlling costs will be a critical continued
focus, while challenging and changing previous
assumptions, behaviours, and processes. We see this
as a key component to shifting the Group’s market
position, and to supporting the development of our
entrepreneurial culture to quickly and adeptly explore
new opportunities as they arise.
The Racing and Digital division maintained its global
position in pari-mutuel betting solutions, recording
numerous contract successes and implementing
enhancements to our core technology base for
future growth. Bump 50:50, our digital sports raffle
business, continued its expansion programme, adding
new teams and events to its impressive roster while
renewing numerous relationships with key clients.
6
Sportech Venues, burdened with a significant fixed
cost base, is seeking emerging opportunities, including
the anticipated legalisation of sports betting in
Connecticut.
In implementing changes to the Group’s culture,
focus and prospects, we place significant emphasis
on providing a superior service to our clients while
demonstrating our team has the appropriate
dedication, determination, and skill sets to achieve this
goal. One step forward in delivering on this objective
was the Group’s announcement in December 2018 of
our interest in acquiring Lot.to Systems Limited
(Lot.to), a UK-regulated iGaming platform, and its
team.
This transaction was completed in early 2019. Although
Sportech delivers a successful lottery platform within
its Racing and Digital division, geographical growth
beyond a significant single client has eluded our
Company historically. This acquisition will immediately
support client growth initiatives and provide the
required depth to deliver solutions to a wider range of
clientele. The Lot.to team have already engaged with
numerous clients to develop solutions to meet their
needs under the Sportech banner and we anticipate
recording contractual successes through 2019 and
beyond.
In addition to the growth opportunities, the acquisition
adds a team of digital betting specialists with mobile-
first expertise and modular gaming technology
capabilities, enabling us to be more dynamic and agile.
This will position the business to adapt to different
geographical and operator demands more quickly than
others, and better serve a mobile-hungry audience
in real-time, essential for online gambling operators
addressing different markets. We are integrating the
businesses to enhance Sportech’s current lottery
product offering with digital and mobile-first options
and to introduce Lot.to’s innovative lottery games to
Sportech’s global customer base of licensed gaming
operators.
We are proud of our Bump 50:50 team’s continued
success and achievements. In adding 20 new clients
and renewing 20 standing clients’ contracts in
2018, Bump’s scope has expanded from a range of
professional and collegiate athletic organisations
to include coverage for other genres of large-scale
entertainment events. To further increase their
prospects, we continue to invest in their technology
platform and development team to facilitate future
geographic and online expansion. The Division
continues to deliver mobile and web platforms, where
permitted, and to explore other new opportunities in a
competitive environment.
Sportech PLC Annual Report and Accounts 2018 In prior years, we had highlighted our planning and
positioning for the introduction of sports betting
across the US. Following the repeal of the Professional
and Amateur Sports Protection Act of 1992 (“PASPA”)
in May 2018, this potential became a clear ambition for
the Company. We held a sports betting conference in
Connecticut attended by significant clients, regulators,
legislators, and partners from across the US to address
issues around the opportunity, and to introduce
Sportech’s position on sports betting in Connecticut,
and Sportech’s solutions to the industry. The Racing
and Digital division also commenced a B2B sales and
marketing campaign to customers considering sports
betting, as legal options in their states emerge.
In Connecticut, where sports betting has not yet been
legalised by the State Legislature, we commenced
a strategic communications campaign in 2018 that
expanded significantly into 2019 to drive our position
in seeking an appropriate right to deliver legal sports
betting across our Connecticut venues and through
the intra-state web and mobile betting service. The
campaign is extensive and consists of both legislator
and consumer-facing messaging, lobbying, and public
relations activities. Sports betting licence acquisition in
Connecticut remains a critical focus for the Group and
includes dedicated senior management engagement
to support our local efforts and initiatives in positioning
the business appropriately.
This year, the Group developed new branding for the
Connecticut MyWinners.com and Winners business to
ensure the Winners brand appeals to an anticipated
new and dynamic demographic in the Connecticut
market.
Management has continued our lobbying and
communications efforts for enforcement of protections
of Sportech’s exclusive Advance Deposit Wagering
(“ADW”) licence in Connecticut. Currently, unlicensed
and untaxed out-of-state ADW operators continue to
accept Connecticut wagers, in violation of Sportech’s
exclusive licence and despite being issued cease and
desist letters from the State’s Attorney General’s
office. Whilst the proposed bills were not successful
in the 2018 legislative session, we anticipate another
opportunity to address this loophole for illegal, out-of-
state competitors as the State’s attention is focused on
a variety of gambling-related and taxation topics.
The Group continues to implement changes designed
to streamline and enhance operations, including the
consolidation of accounting functions to Sportech’s
North American headquarters in Connecticut. We
have also created a task force led by Sportech Racing
and Digital’s Global Operations Director to identify,
evaluate, and pursue opportunities to optimise the
Division’s terminal hardware products.
Each year, we face contractual renewal challenges
as previous agreements mature in an extremely
competitive landscape. We are working on extending
contracts across our business lines, and we are
engaging with clients to secure long-term extensions
on mutually beneficial terms. We shall keep the market
and shareholders appraised of our progress.
The Group’s risk management strategy considers risks
arising from each area of the business and principal
risks to the Group are described in detail in the “Risk
Management” section of the Annual Report. The Group
view the potential risks associated with “Brexit” to be
immaterial to the business due to the global, primarily
North American, focus of our business operations and
our client base.
On behalf of all the shareholders, I extend our thanks to
our tireless staff. As a service business, our employees’
dedication, commitment and drive to deliver
superior products and exceptional service is, and
will continue to be, critical to our success. I applaud
our colleagues and their efforts as we transition to a
more entrepreneurial culture to face and conquer the
numerous challenges before us, twenty-four hours a
day, seven days a week.
The Group enters 2019 with determination to drive
capital efficiencies across every division and to convert
significant opportunities for growth in revenues and
client base. With the launch of new betting products
and features, the acquisition of an impressive iLottery
platform, and a clear focus on enhancing digital
initiatives, we are well positioned for the continued
evolution in our industry.
Richard McGuire
Interim Executive Chairman
20 March 2018
7
Strategic ReportGovernanceFinancial Statements Operating Review
Richard McGuire,
Interim Executive Chairman
8
2018 was a challenging period, resulting in a 0.9%
decline in revenue performance on a constant currency
basis. Our focus on the operational cost base, however,
resulted in a 22.3% improvement on adjusted EBITDA
before sports betting costs, on a constant currency
basis. In 2017, we invested heavily in our Venues
business in anticipation of likely growth from the
advent of legalised sports betting. 2018 brought further
investment towards developing our sports betting
opportunities both in B2B and in our Connecticut
consumer business. In Connecticut, the General
Assembly legislative session is expected to adjourn
on 5 June 2019, so whilst investment will continue in
2019, we anticipate starting to comment on returns
during 2019. We remain dedicated to meeting these
challenges by providing our clients with a superior
product and service delivery, and further enhancing
our product range and digital experience to meet our
expectations.
In 2018 the Group had two operating divisions,
Sportech Racing and Digital (including Bump 50:50)
and Sportech Venues.
Sportech Racing and Digital
Sportech Racing and Digital provides pari-mutuel
betting technologies and services to 293 racetrack,
off-track betting network, casino, lottery, and online
operator clients, plus an additional 147 commingling
clients, in 37 countries and 37 US states. The total net
client count remains unchanged from 2017, with lost/
closed clients offset by new contracts. The Division has
over 27,000 betting terminals, 26 white-label betting
websites, and 24 white-label mobile apps deployed
worldwide, and our pari-mutuel systems annually
process US$12 billion in betting handle.
£’000
Service revenue
Sales revenue
Total revenues
Contribution
Contribution margin
Adjusted operating
expenses (net)
2018
32,278
1,726
34,004
29,277
86.1%
Reported
2017
34,080
1,389
35,469
30,380
85.7%
(20,634)
(22,672)
Adjusted EBITDA
Internal software capitalised
Purchase of other intangibles
Purchase of PPE
Total capex in year
8,643
2,923
172
1,529
4,624
*Table above includes results of Bump 50:50
7,708
3,026
865
1,281
5,172
Sportech PLC Annual Report and Accounts 2018
Service revenues reflect higher Digital and Bump 50:50
revenues offset by contract losses in Canada and the
US in late 2017.
Developments during the year
Sportech Racing and Digital continues to evolve its
proprietary Quantum™ System software, the most
widely deployed pari-mutuel betting software in the
world. In 2018, the Division delivered a significant
system upgrade that included popular numbers-based
lottery games previously offered only to a single client
through a legacy system. The addition of these lottery
games to Quantum™ now makes them available to a
wider market, which we are focused on developing.
The menu of pools and bet types supported by
Quantum™ System was also significantly expanded
to include the full range of popular exotics offered by
Pari Mutuel Urbain of France, ZeTurf of France, Hong
Kong Jockey Club, and Macau Jockey Club. Continually
updating and expanding the list of pools and bet
types helps maintain interest in high-value global
commingling connections between Sportech’s clients.
Along with product and feature upgrades to Quantum™
System, the Division’s technology team also completed
critical regulatory and legal projects to allow our clients
to remain compliant with important requirements,
including the delivery of an audit solution to Danske
Spil of Denmark and a fully-automated IRS aggregation
for our US clients.
In digital products and services, the Division rolled out a
significant update of the G4 white-label betting website
to current G4 clients. We deployed new G4 platforms
for Parx Racing, Saratoga Casino Hotel, and Jockey
Club del Perú, and delivered new Digital Link® mobile
betting solutions to Parx Racing and Saratoga Casino
Hotel. The Division also introduced a tablet-based
update to its Walk About teller device, using Sportech’s
proprietary wireless teller software and off-the-shelf
hardware to deliver the full range of teller services.
Sportech Racing and Digital’s North American
footprint widened with the execution of new, long-term
contracts and the signing of contract extensions with
eighteen clients. This included tote contract extensions
with Nassau Regional Off-track Betting Corporation,
Monmouth Park, Camarero Racetrack of Puerto Rico,
and Saratoga Casino Hotel. It also includes a new
digital services agreement with Parx Racing, and a
contract with new client, Arizona Downs.
Sportech Racing and Digital’s footprint also expanded
in Europe, with new commingling client, Norsk Rikstoto,
the foundation that supervises pari-mutuel betting on
horseracing in Norway. In addition, the Division struck
a new contract with Ladbrokes/Coral for centralised
tote operation of their four UK greyhound racetracks,
and a service contract for terminal maintenance at
Ascot Racecourse. These new agreements leverage
Sportech’s Quantum™ System software, European
operations, and Global Quantum™ Data and Operations
Centre hosting and operational services.
Looking forward
The Group continues to pursue suitable sports
betting platform opportunities and build upon well-
established relationships with licensed operators
to offer an integrated solution that leverages
Sportech’s extensive infrastructure, operations, and
implementation expertise. With access to additional
digital development resources resulting from the
Lot.to acquisition, management sees an opportunity
to further drive digital innovation and to assertively
promote a mobile-first strategy for both pari-mutuel
and sports betting.
Sportech’s Global Operations Director is spearheading
an initiative in conjunction with the terminal hardware
engineering, terminal software, and digital software
teams, to demand greater efficiency out of our terminal
hardware capital, to identify hardware options that
will drive more returns from tote contract investments
in North America, and to deliver a reliable, easy-to-
maintain, appealing device.
In early 2019, the Division entered into a contract
to deliver 300 BetJet® Aero teller terminals to our
longstanding client, the Turkish Jockey Club. In
addition, contract extensions have been signed with
five North American customers.
9
Strategic ReportGovernanceFinancial Statements Operating Review continued
Bump 50:50
As of the end of 2018, the number of Bump 50:50
clients has grown to 75, including collegiate sports
programmes, entertainment venues and some of the
world’s largest sports team franchises. In providing
the technologies and services that allow charitable
foundations to run successful 50:50 raffles at their
events, Bump 50:50’s electronic raffle technologies and
proven marketing strategies help foundations maximise
the return on their charitable fundraising programmes,
dividing jackpots equally between the foundation and
the drawing winner.
Financial performance
Revenues, currently included within the Racing and
Digital division, were in 2018, up 26% at £1.5 million
(2017: £1.2 million). However, as the business invested in
technology enhancements and personnel, added new
clients, and positioned for future growth, the Adjusted
EBITDA eased marginally to £0.50 million (2017: £0.54
million).
Developments during the year
The Bump 50:50 business produced yet another year
of strong client growth in 2018, signing 20 new clients,
including the official charitable foundations of the
National Basketball Association’s Detroit Pistons and
San Antonio Spurs, Major League Baseball’s Pittsburgh
Pirates, and the Ultimate Fighting Championships
(UFC). The Division also secured a new contract with
Florida State University’s Athletics Department and
Seminole Boosters, Inc. to provide electronic 50:50
raffle programmes at select Seminole home games
and online during their football, men’s and women’s
basketball, baseball, and softball home games. These
new contracts bring the total number of Bump 50:50
customers to 75, representing foundations from 18
10
different professional and collegiate sports leagues.
We are proud to say Bump 50:50 helped our clients’
foundations raise US$17 million for their charitable
missions in 2018.
Bump 50:50 launched a new online and mobile raffle
programme to supplement in-stadia play and used
this new platform to help the Tampa Bay Lightning
Foundation reach a jackpot record of US$260,000
during the NHL® All-Star event. The Division also
successfully launched online and mobile platforms for
the National Basketball Association’s Chicago Bulls.
Bump 50:50’s developers continue to devise system
enhancements that give clients greater control over
the management of their raffle programs, reducing
overall customer service demands, and helping contain
costs. Finally, Bump 50:50 hosted its inaugural Bump
Academy event in 2018, sharing proven strategies for
effective program execution and sales maximisation
with clients from across North America.
Looking Forward
Bump 50:50 has already secured contracts with five
additional clients in early 2019, including the charitable
foundations of Major League Baseball’s LA Dodgers,
San Francisco Giants, and San Diego Padres, and the
National Football Association’s San Francisco 49ers.
Together, these charities represent an estimated 60%
of California’s sports raffle market. In addition, a new
contract has been signed with Major League Baseball’s
Cincinnati Reds and, with the signing of Florida State
University, Bump 50:50 increasingly views the US
collegiate fundraising market as a key opportunity for
growth. We will continue to pursue opportunities and
strategies in both US professional and collegiate sports,
while looking to expand our global reach in this core
Division.
Sportech PLC Annual Report and Accounts 2018 Sportech Venues
Sportech Venues offers legal betting on horseracing,
greyhound racing and jai alai across the State of
Connecticut under an exclusive and perpetual licence.
Digital betting services are offered across multiple
channels, including our myWinners.com online platform
and a mobile app powered by Sportech’s Digital
Link® mobile. Bets can also be wagered through our
traditional phone betting service featuring personal
tellers, and in person at any of our 16 venues. The
Venues division employs approximately 400 employees
across these 16 locations and our Sports Haven venue
in New Haven hosts our North American headquarters.
We are proud to have two of our premium venues
branded under the Bobby V’s Restaurant & Sports
Bar brand (bobbyvsrestaurant.com), in association
with local entrepreneur, philanthropist, and sports
personality Bobby Valentine.
£’000
F&B – Stamford
F&B – Other
F&B – Total
Wagering revenue
Total revenues
Contribution
Contribution margin
Reported
2017
1,471
2,561
4,032
27,574
31,606
15,482
49.0%
2018
2,272
2,452
4,724
25,655
30,379
14,886
49.0%
Adjusted operated expenses
(13,473)
(13,985)
Adjusted EBITDA
PPE – Stamford
PPE – Other
PPE – Total
1,413
–
398
398
1,497
5,238
370
5,608
In our Venues business, the new Bobby V’s Restaurant
& Sports Bar continues to grow, albeit at a slower
pace than we would prefer. In July 2018 we added new
highly-experienced Food and Beverage and Group
Sales Managers. We are looking to both to deliver
beneficial progress going forward and especially into
2019, invigorating food and beverage growth and
profitability, especially at our Stamford location. Total
food and beverage revenue increased by 17% over the
prior year.
Wagering revenues softness versus the prior year is
from a combination of lower VIP betting and a reduced
number of track racing days in key markets such as
New York, Florida and Pennsylvania. This was offset
somewhat by our successful Triple Crown where
turnover was up 25% over the previous year.
Developments during the year
Venues betting handle declined 7% (3.2% on a constant
currency basis) in 2018. This was influenced by a variety
of factors, including adverse weather conditions,
poor race card quality from certain locations at
the end of the year, and the competition from the
introduction of sports betting in neighbouring states.
Another consequential influence was the unchecked
competition from unlicensed and untaxed out-of-state
Advanced Deposit Wagering (‘ADW’) operators, which
continued to take its toll. We seek to address this
during this legislative session. Management continues
to identify cost saving measures across the Division,
including renegotiating leasehold property contracts
and exploring options around our freehold estates in
New Haven and Windsor Locks.
With the passage of a 2018 referendum in Florida to
ban greyhound racing effective 1 January 2021, and
a growing momentum across the US to do likewise,
we have commenced initiatives to seek alternative
11
Strategic ReportGovernanceFinancial Statements Operating Review continued
international products to satisfy customer demand for
quality greyhound racing at our Connecticut Venues.
In 2017, the Division successfully lobbied the
Connecticut legislature for licensing permission to
open additional venues, bringing the potential total to
24. Steps were not taken in 2018 to open new venues,
however, as the Division focused on a campaign to
secure the rights to offer sports betting once PASPA
was repealed in May 2018. Management anticipates
exploration of the Division’s full venue potential once
the position on sports betting is known.
12
Along these lines, Venues appointed new events/group
sales management last year and began developing
marketing campaigns to focus on mobile betting
opportunities across the estate. The team also created
and offered direct competitions around major sporting
events to develop a strong base of support for sports
viewing at the Bobby V’s locations, with a focus on
providing these customers a full product suite once the
State of Connecticut legalises sports betting.
Sportech Venues’ digital channels continue to face
illegal competition from unlicensed out-of-state
internet betting operators who accept wagers from
Connecticut residents, despite being issued cease and
desist letters by the State’s Attorney General’s office.
Management lobbied heavily for legislation that would
address this, but it did not pass in 2018. The Group is
once again aggressively pursuing protections during
the 2019 legislative session as we are Connecticut’s
only licensed and taxed operator. Management believes
that the increased focus on gambling in general in
the State will help Sportech elevate this issue in the
legislature.
Efforts to secure an extension of the Sportech
licence to include sports betting has been noted in
this report and remains a key strategic focus for our
management and staff. Lobbying, public relations,
and marketing efforts began in 2018 and have been
significantly enhanced into the 2019 legislative session.
Communications efforts were expanded to our venues,
digital channels, and social media with a consumer-
focused advocacy campaign drawing attention to
the issue and generating consumer support. The
positioning of the Bobby V’s Restaurant & Sports Bar
locations, particularly the location in Stamford, has
been helpful in the overall positioning of Sportech as a
logical option to deliver regulated sports betting in the
State.
Sportech PLC Annual Report and Accounts 2018 The Group has conducted a detailed evaluation of
current responsible gaming policies and procedures
in its consumer-facing businesses, as well as a
comprehensive survey of local and global best
practices. Recommendations to strengthen the
programme are under evaluation and will be rolled out
to the Group in 2019.
The Division makes annual statutory payments to
external responsible gaming agencies to support
responsible gaming awareness activities and to
develop a robust consumer protection program, and in
2018 alone the Division provided almost US$220,000
to these external responsible gambling agencies.
Sportech Venues undertook key projects to
reinvigorate its consumer brand, to position the brand
for the introduction of sports betting, and to deliver an
enhanced user experience to more effectively compete
at the digital level. In 2019, the Division launched
new Winners branding, developed by a Connecticut-
based digital marketing agency. In addition, Sportech
harnessed the digital development assets acquired
with Lot.to to launch a newly redesigned MyWinners
website. The betting module of the MyWinners
website received a refresh in 2018 with the upgrade of
Sportech’s G4 white label platform. The betting pages
now offer a fully responsive design, a streamlined
modern look and feel, and features designed to make
the user interface more intuitive and customisable by
the end user.
Corporate Management Structuring
and Focus
Sportech held fast to its dominance in the pari-
mutuel betting market in 2018, strengthening and
enhancing its core Quantum™ System product. In
experiencing yet another year of change in 2018,
the Group laid the groundwork for the extension
of sports betting, both through the Connecticut
operations and as a white label solution available in
other states. Once the decision on sports betting is
made by the State of Connecticut, Sportech Venues
is ready to deliver a sports betting solution across
the State, complementing its tote offering, and is
positioning itself for growth through a refreshed brand,
enhanced digital services, and increased responsible
gaming initiatives. The Bump 50:50 growth trajectory
continues, with opportunities in professional sports as
well as in collegiate and non-sporting charities. Finally,
the addition of Lot.to to the Sportech Group offers
new lottery games and iLottery platforms to Sportech
customers and strengthens the Group’s digital focus,
development, and expertise.
It is an incredibly busy time for our Company. We
are fortunate to have a dedicated and experienced
management team and workforce, without whom
our ambitions and aspirations would be impossible to
deliver. Together, we remain committed to enhancing
Sportech’s capabilities to our clients, expanding our
product range, and positioning the Group for efficient
sustainable growth. I am proud to be leading Sportech
at this exciting transformational time, as we address
numerous inherited challenges, however I am inspired
by what is possible as we boldly embrace the future of
Sportech PLC.
Richard McGuire
Interim Executive Chairman
20 March 2018
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Sportech PLC Annual Report and Accounts 2018
Financial Review
Income Statement – Statutory View
£’000
Revenue
Gross profits
Contribution
Operating costs (net)
Operating loss before JV result, interest and taxation
Income Statement – Detailed View
£’000
Service revenue
Sales revenue
Total revenues
Cost of sales
Gross profits
Marketing and distribution costs
Contribution
Contribution margin %
Adjusted operating expenses (net)
Impact of FX on reported earnings
Adjusted EBITDA
Spot the Ball (“STB”)
Exceptional items other than STB
Non-cash items:
Share option charges – normal
Share option charges – accelerated
Depreciation
Amortisation
Amortisation of acquired intangibles
Impairment of PPE
Impairment of intangible assets
Impairment of goodwill
Investments – loss on sale of NYX shares
Total – non-cash items
EBIT
Share of losses from JVs
Impairment of investment in JVs
Net finance charges
EBT
Taxation
Result after taxation – continuing ops
Discontinued – Football Pools
Discontinued – Holland
Loss for the year
Adjusted profit before tax for the year from continuing operations
14
Reported
2017
66,271
47,709
45,591
(67,238)
(21,647)
Constant
currency
2017
62,908
1,381
64,289
(17,885)
46,404
(2,040)
44,364
69.0%
(37,848)
191
6,707
2018
63,718
46,099
44,111
(47,023)
(2,912)
Reported
2017
64,886
1,385
66,271
(18,562)
47,709
(2,118)
45,591
68.8%
(38,884)
—
6,707
827
(5,603)
(666)
(3,765)
(2,740)
(1,540)
(350)
(874)
(12,040)
—
(1,603)
(23,578)
(21,647)
(300)
(1,184)
(19)
(23,150)
230
(22,920)
(1,696)
174
2018
61,992
1,726
63,718
(17,619)
46,099
(1,988)
44,111
69.2%
(37,571)
—
6,540
—
(3,453)
(1,222)
—
(2,860)
(1,917)
—
—
—
—
—
(5,999)
(2,912)
—
—
473
(2,439)
(2,019)
(4,458)
(32)
1,854
(2,636)
(24,442)
559
1,549
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Strategic Report
Governance
Financial Statements
Within the Adjusted EBITDA reported above are write-downs of inventory of £nil (2017: £126k) and release of a
bad debt provision carried over of £76k, where a previously provided receivable was recovered (2017: write down
of £762k).
A summary of the result by division is shown below:
Revenues
Adjusted EBITDA
£’000
Racing and Digital
Venues
Corporate (and inter-divisional elimination)
Total, before sports betting and with constant currency
impact of foreign exchange
Sports betting
Total, with constant currency impact of foreign exchange
2018
34,004
30,379
(665)
63,718
—
63,718
Note 1 – Revenues
£’000
Racing and Digital Service revenue
Racing and Digital Sales revenue
Bump 50:50 revenue
Venues wagering revenue
Venues F&B revenue
Inter-group elimination
Total revenues
Constant
currency
2017
34,613
30,459
(783)
64,289
—
64,289
2018
30,776
1,726
1,502
25,655
4,724
(665)
63,718
2018
8,643
1,413
(2,088)
7,968
(1,428)
6,540
Reported
2017
32,890
1,389
1,190
27,574
4,032
(804)
66,271
Constant
currency
2017
7,603
1,411
(2,498)
6,516
—
6,516
Constant
currency
2017
32,076
1,381
1,156
26,506
3,953
(783)
64,289
Group revenues at £63,718 were 4% down on reported revenues and down 1% in constant currency. The following
comparisons have been done at a constant currency level:
• Service revenues from Racing and Digital (excluding Bump 50:50) were down 4% at £30,776k, although
sales revenues from Racing and Digital were higher by 25% at £1,726k.
• Revenues from Bump 50:50 were up 30% at £1,502k and this sub-division continues to grow healthily as
more teams are signed up to the Bump shared raffle offering.
• Revenues from Venues continue to be primarily driven by wagering. Revenues from this source were down
3% at £25,655k.
• Food & Beverage (‘F&B’) revenues were up 20% at £4,724k. The increase in F&B revenues at the Stamford
location was the main contributor.
15
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Sportech PLC Annual Report and Accounts 2018
Financial Review continued
Note 2 – Cost of sales
Cost of sales represent those items which are most closely variable with the sales they represent and are shown
in both the aggregate and by division below.
£’000
Tote and track fees
Cost of inventory sold
Provision for obsolete inventory
Food and Beverage consumables
Ticket paper and programmes
Betting and gaming duties
Repairs of deployed terminals
Outsourced service costs
Total cost of sales
Reported
2017
Constant
currency
2017
12,166
1,134
126
1,322
1,327
480
402
1,605
18,562
11,703
1,091
131
1,286
1,287
464
392
1,531
17,885
2018
11,261
810
—
1,405
1,386
738
335
1,684
17,619
Note 3 – Contribution
Contribution is the Group’s measure of gross profits (revenues less costs of sales) less marketing and distribution
costs.
£’000
Racing and Digital
Contribution margin %
Venues
Contribution margin %
Total Contribution*
Contribution margin %
2018
29,277
86.1%
14,886
49.0%
44,111
69.2%
Reported
2017
30,380
85.7%
15,482
49.0%
45,591
68.8%
Constant
currency
2017
29,676
85.7%
14,925
49.1%
44,364
69.0%
*includes inter-divisional eliminations of £52k (see note 2 of the Financial Statements).
Contribution margins across the Group improved slightly 69.2% (2017: 69.0%). The Racing and Digital business
produced a contribution margin of 86.1% (2017: 85.7%) against the contribution margin in Venues of 49.0%
(2017: 49.1%).
Note 4 – Adjusted operating expenses
Adjusted operating expenses are those expenses largely of a cash nature which exclude:
• share option charges
• depreciation
• amortisation
• items which by nature or materiality or consistency with 2017 have been regarded by the company as
‘exceptional’. These items are discussed in further detail below.
Adjusted operating expenses, net of capitalised software, declined by £104k to £37,744k at constant currency,
due to reductions in bad debts.
16
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Strategic Report
Governance
Financial Statements
Note 4a – Group
£’000
Gross employment costs
Less: capitalised
Net Employment costs
Property costs
Professional fees
Travel & Entertainment
IT & Communications
Bad debts from prior periods
Other costs
Adjusted operating expenses*
Costs, gross of capitalised software
*excludes operating income of £173k (see note 1 of the Financial Statements).
2018
27,532
(2,923)
24,609
5,314
4,391
1,353
1,355
(76)
798
37,744
40,667
Reported
2017
28,562
(3,026)
25,536
5,454
3,249
1,524
1,351
762
1,008
38,884
41,910
Constant
currency
2017
27,788
(2,911)
24,877
5,226
3,200
1,495
1,313
748
989
37,848
40,759
Gross employment costs at £27,532k represented 68% of the aggregate of the adjusted operating expenses and
capitalised staff costs (2017: £28,562k, 68%). Gross employment costs increased 1% in the year at constant
currency. Gross employment costs include the cost of field service agents whose time and expense is incurred in
servicing terminals at customer sites. Net employment costs in this analysis exclude share-based payments
which are disclosed in note 7 below.
The North American employees are unionised and are entitled to annual wage rises.
As part of the restructuring exercise undertaken by the Non-executive Directors, the cost base of the corporate
function was reduced.
The composition of the costs, gross of capitalised software across the divisions, was as follows:
£’000
Racing and Digital (note 4b)
Venues (note 4c)
Sports betting costs
Corporate (and inter-divisional elimination)
Total
Note 4b – Racing and Digital
£’000
Gross employment costs
Less: capitalised
Net Employment costs
Property costs
Professional fees
Travel & Entertainment
IT & Communications
Bad debts from prior periods
Other costs
Adjusted operating expenses
Costs, gross of capitalised software
2018
23,731
13,473
1,428
2,035
40,667
Reported
2017
25,698
13,985
—
2,227
41,910
2018
18,760
(2,923)
15,837
919
1,848
911
854
(76)
515
20,808
23,731
Constant
currency
2017
24,951
13,507
—
2,301
40,759
Constant
currency
2017
18,868
(2,911)
15,957
898
1,554
1,037
781
685
1,128
22,040
24,951
17
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Sportech PLC Annual Report and Accounts 2018
Financial Review continued
Note 4c – Venues
£’000
Gross employment costs
Less: capitalised
Net Employment costs
Property costs
Professional fees
Travel & Entertainment
IT & Communications
Bad debts from prior periods
Other costs
Adjusted operating expenses
2018
7,567
—
7,567
4,263
790
71
391
—
391
Constant
currency
2017
7,584
—
7,584
4,088
755
162
379
104
435
13,473
13,507
The number of full-time equivalent staff employed (or on contracts) and including the Executive Directors at
31 December 2018 and 2017 is as shown below:
Racing and Digital (excluding Bump 50:50)
Bump 50:50
Venues
Corporate
Total
2018
294
5
229
14
542
2017
295
4
245
9
553
Staff numbers in Venues are related to staffing adjustments at particular venues where cost savings were
desired.
Note 5 – Adjusted EBITDA
Adjusted EBITDA is calculated as Contribution (note 3) less adjusted operating expenses (note 4).
£000’s
Racing and Digital
Venues
Central costs
Adjusted EBITDA before sports betting costs
Sports betting
Adjusted EBITDA
2018
8,643
1,413
(2,088)
7,968
(1,428)
6,540
Reported
2017
7,708
1,497
(2,498)
6,707
—
6,707
Constant
currency
2017
7,603
1,411
(2,498)
6,516
—
6,516
Sports betting costs are shown as a separate line item and excluded from the Venues trading numbers as these
costs are significant and separate from the Venues underlying trading. Following the announcement of the repeal
of PASPA in May 2018, the Group has invested heavily in positioning itself to take advantage of opportunities as
US States regulate sports betting, in particular, in Connecticut where we aim to obtain a B2C licence but also in
other states where we are targeting B2B arrangements with licence holders.
18
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Strategic Report
Governance
Financial Statements
Note 6 – Exceptional items
An estimation was recorded in prior years of the consideration arising from the disposal terms of the investment
in NYX Gaming LLC which was contingent on NYX signing new customers up to their wagering platform. NYX
have an obligation to inform Sportech each time a customer is acquired to this platform, with the Group entitled
to CAD $1 million for each customer signed up, up to a maximum of CAD $3 million. In discussions with
management the Group no longer believes these sales will come to fruition and has accordingly written down
the asset to £nil at 31 December 2018 resulting in an exceptional charge of £1,729k.
Other separately reported items are listed below:
£’000
Restructuring and redundancy costs (note a)
Costs of exit from California (note b)
Losses from and impairment in Striders Sports Bar (S&S JV) (note b)
Lobbying and licencing costs (note c)
Costs of implementing new VCP (note d)
Costs in relation to STB VAT refund (note e)
Costs in relation to legacy tax disputes (note e)
Impairment of contingent consideration re NYX Gaming
Legal costs re IP infringement
Other exceptional items (net)
2018
1,178
(291)
291
—
—
205
111
1,729
150
80
3,453
Reported
2017
2,291
2,740
—
264
150
—
—
—
—
158
5,603
Note a: In 2017, the Group announced the departure of the incumbent CEO and CFO. This was accompanied by a
strategic review and Formal Sale Process under the Takeover Code following a series of initial approaches made
to the Group. The costs of honouring the contracts of those departing executives along with some other staff in
senior positions represents the majority of the costs of restructuring and redundancy. £680k of these costs were
paid in 2018. In 2018 the Group announced the departure of its CEO effective February 2019, with the Chairman
assuming those duties in his role as Interim Executive Chairman.
Note b: The Group had a number of contractual arrangements in the State of California, none of which were
profitable and included real estate leases for a considerable duration with no benefit to the Group. As of 2017,
these have been provided for in full, with certain other items also written off. The costs incurred in the year
relating to these prior year provisions were £291k, as such, the provision has been released to offset these costs.
The costs incurred in the JV have been shown here in exceptional costs so as to net with the provision release
related to the costs.
Note c: In 2017 the costs of presenting the case for liberalising sports betting and gambling in Connecticut, along
with costs incurred in obtaining a licence in New Jersey, have been disclosed separately. In 2018 the costs of
lobbying for a Connecticut sports betting licence are in sports betting costs.
Note d: A new incentive plan was introduced in the year, the Value Creation Plan (“VCP”), as approved by
shareholders on 24 May 2017. The substantial cost of designing this scheme and implementing it is disclosed as a
separate item.
Note e: Following the successful Spot the Ball VAT reclaim, the Group is aware that HMRC are closely examining
all the Group’s tax affairs. The Board, after taking professional advice, believe that the liabilities recorded in these
financial statements are correct, and whilst they are open to challenge, the Group’s position will be defended
robustly.
The Group has made an ‘in escrow’ payment to HMRC of £1.3 million in Q1 2018 in order to progress an appeal
the Group is making against HMRC for VAT on head office costs going back a number of years. The Board,
having taken professional advice on this matter, have provided against this receivable in full.
19
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Sportech PLC Annual Report and Accounts 2018
Financial Review continued
Note 7 – Share based payments
£’000
Accelerated charge for departing Executives and Directors
Normalised charges
2018
—
(1,222)
(1,222)
Reported
2017
(3,765)
(666)
(4,431)
Under IFRS, charges arise from events at the date of grant, whether the options ultimately lapse or not. There
was a charge accelerated by the departure of the former CEO and CFO along with one other non-Board
executive.
The 2018 change arises from VCP grants made in 2017 and grants made during 2018 in addition to the final
charge on the remaining PSP grant from November 2016.
The modelling of the overall cost of the VCP was done by a ‘big-four’ accounting firm other than the auditors.
The option plan adopted by shareholders earlier in 2017 (the ‘VCP’) was essentially a 20% capital growth pool
over a 8% compound hurdle to the ex-div share price. The starting point was a cum-div price of 97.8 pence.
Black Scholes modelling was used.
The departing executives had between them, 52% of that £7 million pool. Together with other outstanding PSP
awards an accelerated charge of £3,765k was recognised in 2017. It is non-cash in nature.
Note 8 – Depreciation and amortisation
Tangible and intangible fixed assets are depreciated/amortised over their useful lives as disclosed in the notes to
the Consolidated Financial Statements. Both charges have reduced from prior year primarily due to impairment
charges made to certain assets in 2017. In 2018 there were no impairments in any of these asset classes.
Note 9 – Asset impairments
£’000
Impairment of PPE
Impairment of goodwill
Impairment of intangible assets
2018
—
—
—
Reported
2017
874
—
12,040
Site preparation and construction costs in the town of Norco, California were incurred by the Group in previous
years when a new venue build was anticipated. The Group is currently negotiating the exit of this lease (2017:
£874k).
The Group is obligated to conduct an impairment review of its business units each year based on events that
existed at the balance sheet date and not on events regarding legislation or liberalisation which might occur
after the balance sheet date. There were deemed to be no impairments in intangible assets in 2018. In 2017, the
softer level of betting transactions in the Venues business led to a downgrading of its accounting value and an
impairment charge was taken of £12,040k.
Note 10 – Joint ventures
In 2017, following the decision to exit from its business interests in California, the Board considers there to be
insufficient certainty around the recoverable value of the Group’s investment in its joint venture sports bar,
“Striders”, in San Diego, and a provision was made against the entire investment, £1.2 million.
20
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Strategic Report
Governance
Financial Statements
Note 11 – Taxation
The Group has recognised a net tax charge of £2,019k (2017: credit of £230k) due primarily to changes in tax
laws in the US which will impair the ability to offset foreign tax credits carried forward against future profits.
Deferred tax assets at 31 December 2018 are £5,979k (2017: £6,406k).
Note 12 – Discontinued activities
The contribution to earnings during 2018 was as below:
£’000
Football Pools – trading result excluding asset impairments
Football Pools – net profit/(loss) on disposal
Net result from Football Pools
Netherlands trading result
Netherlands gain on disposal
Net result from Venues, Netherlands
Net result from discontinued operations
2018
(91)
59
(32)
(475)
2,329
1,854
1,822
Reported
2017
6,771
(8,467)
(1,696)
174
—
174
(1,522)
The Group’s Football Pools business was sold in June 2017.
In July 2018 the Group completed the sale of its Venues business in the Netherlands. Accordingly, the results
from this business have been presented as a discontinued operation. The net gain on this disposal of £2,329k
was recognised in the 2018 financial statements.
Note 13 – Balance Sheet
The table below provides a bridge between 31 December 2017 and 31 December 2018.
Net assets at 31 December 2017
Loss for the period
Offsetting equity items
Foreign exchange movements
Movement in defined benefit pension obligation (net of tax)
Employer taxes paid on vesting of options
Net assets at 31 December 2018
A summary of the balance sheet is shown below:
£’000
Intangible fixed assets and PPE
Cash, net of customer liabilities
Trade receivables
Other receivables
Inventories
Deferred tax asset
Tax liabilities
Trade payables
Retirement benefits
Provisions
£’000
51,210
(2,636)
1,222
2,411
232
(67)
52,372
Non-current
Current
Combined
39,888
—
452
215
—
5,979
—
—
(902)
(1,434)
44,198
—
14,728
5,312
2,857
2,576
—
(6,563)
(9,759)
—
(977)
8,174
39,888
14,728
5,764
3,072
2,576
5,979
(6,563)
(9,759)
(902)
(2,411)
52,372
21
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Sportech PLC Annual Report and Accounts 2018
Financial Review continued
Note 14 – Trade receivables
Current asset trade receivables of £5,312k (2017: £7,339k) represent 30 days of revenue (2017: 40 days). Certain
provisions have been made for debtors significantly overdue, these amounted to £1,569k (2017: £1,606k). In
certain circumstances, arrangements have been reached with customers to spread significantly overdue debts
over a longer period.
Current and non-current trade receivables are combined in the table below:
£’000
Current trade receivables
– Racing and Digital
– Venues
Total current trade receivables
Total non-current trade receivables
Total trade receivables
Total debtor days
As at
31.12.18
4,911
401
5,312
452
5,764
33
As at
31.12.17
6,469
870
7,339
450
7,789
43
Current trade receivables within the Racing and Digital division total £4,911k (2017: £6,469k) representing 53
days of revenue (2017: 67 days). Within the Venues division, current trade receivables total £401k (2017: £870k),
which equates to 5 days of revenue (2017: 10 days).
Note 15 – Inventories
Inventory held was £2,576k (2017: £2,652k). This consists of work in progress, £103k (2017: £99k); Tote machines,
£256k (2017: £240k); and machine parts available for deployment, £2,217k (2017: £2,313k). The Group has a
significant number of terminals that are deployed on customer sites, many of which are older models. There is a
requirement therefore for the Group to hold a proportional amount of spare parts for the terminals that are
being used by customers.
Note 16 – Cash at bank
Cash at bank consists of a number of components, as shown below:
£’000
Group cash, excluding customer cash
Customer cash
As at
31.12.18
14,728
3,187
17,915
Of the cash held by the Group, it is estimated that approximately £3 million is required at any one time to
facilitate working capital requirements, including holding cash in venue tills and vaults. Those working capital
requirements do vary throughout the year dependant on the timing of inflows and outflows, including most
notably the timing of terminal builds, major races, and payment by customers for one-off sales.
The prime currencies in which the Group’s cash (excluding customer cash) was held at the balance sheet date
was:
£’000
GBP
USD
EUR
Other
22
As at
31.12.18
6,441
6,546
1,740
1
14,728
171843 1A Sportech Annual Report 2018 Front-end Financial Review_171843 1A Sportech Annual Report 2018 Front-end Financial Review 05/04/2019 19:51 Page 23
Strategic Report
Governance
Financial Statements
The cash was held in the following banks:
£’000
Lloyds/Bank of Scotland
Wells Fargo
Ulster Bank
Bank of America
Türkiye Garanti Bankası A.Ş.
BNP Paribas
Unicredit
Other banks
This represented cash of 7.9 pence per ordinary share at 31 December 2018.
Note 17 – Cashflow
The Group’s cash flow for the year is as follows:
£’000
Adjusted EBITDA
Add:
Less:
Sportech Racing BV Sale
Other Acquisition, disposal, and JV items
Capitalised software
Property plant and equipment
Exceptional items
Working capital and other
Tax paid and interest, net
FX impact
Net cashflows in year
Opening cash
Closing cash, excluding customer balances
As at
31.12.18
10,449
1,956
898
420
495
342
167
1
14,728
2018
6,540
2,411
(183)
(3,106)
(1,927)
(1,833)
(1,002)
(1,966)
(91)
(1,157)
15,885
14,728
Note 18 – Defined benefit pension liabilities
The Group retains the legacy obligation for the Football Pools pension scheme in which all 63 members are
retired. There is in an IAS19R surplus of £29k at December 2018 (2017: £9k) for this scheme. The Group is
actively trying to secure a buy-out for the scheme, not least as the actuarial, administration and trustee fees
each year of running this scheme are in excess of £80k. Payments into the scheme during the year totalled £55k
(2017: £305k). A one-off increase in the payments was made in 2017 to fully fund the scheme’s liabilities.
In addition, the Group’s US employees are enrolled in pension schemes which have a deficit of £931k (2017:
£1,546k). The payments made to the US scheme in the year were £637k (2017: £223k). US law requires that any
actuarial deficit as measured in any one year is funded to not less than 80% in the subsequent financial year.
There was an accelerated cash funding of these schemes in 2018. Funding was just under 80% at 31 December
2018 and so a small catch up is required in 2019 of approximately £15k.
23
171843 1A Sportech Annual Report 2018 Front-end Financial Review_171843 1A Sportech Annual Report 2018 Front-end Financial Review 05/04/2019 19:51 Page 24
Sportech PLC Annual Report and Accounts 2018
Financial Review continued
Note 19 – Liquidity: current assets (excluding inventories) less current and
non-current liabilities
The Group’s liquidity can be summarised as follows:
£’000
Current assets
Current liabilities
Net current assets
Non-current trade and other receivables
Non-current liabilities
Net non-current liabilities
Net position
Less: inventories held
Implied liquidity (long-term)
Amount per share
As at
31.12.18
28,660
(20,486)
8,174
667
(2,336)
(1,669)
6,505
(2,576)
3,929
2.1p
Reported
As at
31.12.17
32,529
(24,442)
8,087
2,443
(3,060)
(617)
7,470
(2,652)
4,818
2.6p
Note 20 – Taxation liabilities and items subject to challenge
Following the successful Spot the Ball VAT reclaim, the Group is aware that HMRC are closely examining all the
Group’s tax affairs. The Board, after taking professional advice, believe that the liabilities recorded in these
financial statements are correct, and whilst they are open to challenge, the Group’s position will be defended
robustly.
The Group has made an ‘in escrow’ payment to HMRC of £1.3 million in Q1 2018 in order to progress an appeal
the Group is making against HMRC for VAT on head office costs going back a number of years. The Board,
having taken professional advice on this matter, have provided against this receivable in full.
Note 21 – Contingent liabilities and litigation
The Group is engaged in certain disputes in the ordinary course of business which could potentially lead to
outflows greater than those provided for on the balance sheet. The maximum possible exposure considered to
exist, in view of advice received from the Group’s professional advisors, is up to £0.5 million. Management are of
the view that the risk of those outflows arising is not probable and accordingly they have been disclosed as
contingent items rather than recognised as liabilities in the financial statements.
Thomas Hearne
Chief Financial Officer
20 March 2019
24
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Strategic Report
Governance
Financial Statements
[Intentionally Left Blank]
25
Corporate
Governance
28
29
32
33
35
42
63
67
Directors and Officers
Risk Management
Viability Statement
Corporate Social Responsibility Report
Corporate Governance Report
Report of the Remuneration Committee
Directors’ Report
Report of the Auditors
26
2
.
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
27
US$12bn
global betting handle
processed annually.
Directors and
Officers
Richard McGuire
Chairman and Interim Executive Director
Tom Hearne
Chief Financial Officer
Nationality and residence
UK
Date appointed to the board
August 2016
Date appointed Chairman
May 2017
Richard has expertise in capital markets and the leisure
and gaming industries and has held a number of
non-executive directorships. Prior to joining Sportech,
Richard was Chairman at Timeweave PLC, the joint
owner of TurfTV. He also held the position of Non-
Executive Director at Mitchells and Butlers PLC, one of
the largest operators of restaurants and bars in the UK.
Nationality and residence
Canada
Date appointed to the board
May 2018
Tom has extensive experience in the fields of digital
technology and sports media, with a long track record
of driving growth, increasing profitability, and executing
successful M&A transactions. Prior to joining Sportech,
Tom was CFO for theScore, a sports digital media
focused company, and he has held multiple CFO and
Director roles within numerous companies.
Giles Vardey
Non-Executive Director and Chairman
of the Remuneration Committee and the
Nomination Committee
Chris Rigg
Non-Executive Director and Chairman
of the Audit Committee
Nationality and residence
UK
Date appointed to the board
December 2017
Giles brings more than 35 years of business and
boardroom experience, latterly in non-executive roles
at public and private companies, including President
and CEO of Fidelity Brokerage Services. He also held
senior investment banking positions at firms including
Salomon Brothers, County NatWest and Swiss Bank
Corporation. His gaming industry experience includes
the role of Non-Executive Chairman of Trident Gaming
Limited from 2005 to 2008.
Committees: Remuneration Committee,
Nomination Committee, Audit Committee
Nationality and residence
UK
Date appointed to the board
January 2019
Chris has considerable business and boardroom
experience in executive roles at public and private
companies. He has previously held both non-executive
and executive directorships at quoted companies
including Clinigen Group PLC and Quantum Pharma
PLC. During his time at Quantum Pharma, Chris held a
number of senior positions including Group Strategic
Director, Chief Financial Officer, and Chief Executive
Officer.
Committees: Audit Committee, Remuneration
Committee, Nomination Committee
Full details of Directors and Management Team is available at www.sportechplc.com/about-us
28
Sportech PLC Annual Report and Accounts 2018 Risk Management
Measuring risk
The Group’s risk management strategy is to consider risks arising from each area of the business through a top-
down approach. This is changed from prior years where a bottom-up approach was combined with a top-down
review. This is considered the most appropriate approach given the Board is now more closely involved with the
day-to-day activities of the trading entities and given the reduction in size and geographical spread of the Group.
The Board established and approved a risk appetite statement in 2015, which has been distributed to the
management teams of the operating segments. 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 management teams
in determining the appropriate balance of risk and return within their businesses.
The Board assesses risk and formally updates the Group risk register annually. 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
Principal risks to the Group are considered to be those
risks identified by the Board as having an overall rating
of six or higher or an impact of four despite the low
level of mitigated likelihood.
The table overleaf shows the principal risks identified
by the Board, an assessment of those risks including
the potential impact of such risks and the mitigating
activities that the Group carries out to reduce the
likelihood and impact of such risks.
29
Strategic ReportGovernanceFinancial Statements Risk Management continued
Risk area
Description
Mitigation
Mitigated
rating
The Group holds 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 could
result in fines and imprisonment of
Group personal as well as impacting
the Group’s reputation.
Data protection
Sportech holds personal data of
customers. If the Group’s security
systems and controls were breached
the Group would be subject to fines,
adverse media and reputational
damage.
The Group’s General Counsel oversees
regulatory and legal compliance
worldwide. The Group engages
third-party specialist legal counsel as
appropriate and specialist local advice
is available as may be required.
The Group recently renewed its data
protection policies and trained staff
on data protection procedures. There
are robust firewalls, anti-spyware and
virus-detection programs, strong
encryption, authentication and
password controls in place to reduce
risk.
Horserace wagering as a product has
challenges to delivering growth.
Following the US Supreme Court’s
decision in 2018 allowing States to
introduce Sports Betting there is
an additional competitive risk to
discretionary consumer spending on
betting opportunities as States roll out
Sports Betting choice to consumers.
New products are being innovated
and refreshed. The Group has invested
further in international simulcasting
technology and is pursuing new client
opportunities and markets to further
diversify revenue opportunities.
The Group is launching new sports
betting products to open new betting
markets.
The Group is dependent on the sale
of technology-led products and the
effective delivery of services through
such products.
Group revenue is at risk if the
technology products do not remain
competitive or experience failures.
These failures can include product
issues or issues with our data centres,
where we service our customers from.
Any disaster at our data centres could
cause significant outage times.
More and more products are being
consumed on mobile devices which
are in their infancy in the pari-mutuel
world.
The Group has developed mobile
applications and industry-leading self-
service betting terminals. The recent
acquisition of digital specialist group
Lot.to Systems will enhance our client
delivery across each business line.
Significant investment is made in
technology annually and the Group
employs skilled and experienced
system developers and operators. The
company is in the process of reviewing
and updating its disaster recovery plan
to mitigate any potential downtime.
4
9
6
Regulatory
Product
Technology
30
Sportech PLC Annual Report and Accounts 2018 Risk area
Description
Mitigation
Mitigated
rating
Client
concentration
and industry
competition
Whilst the Group has a broad base
of business clients and no client
accounts for more than 10% of group
revenue, there are certain clients
within the Group, which if lost, could
have a more significant impact on net
contributions and Group profits.
Competition for gambling revenues
is emerging in North America from
more casino openings and European
operators entering the market.
If US states do not enforce their
own laws they invite non-regulated
Competition. Advance Deposit
Wagering has permeated the
industry in the US without regulatory
challenge. Sportech has the exclusive
licence to take pari-mutuel bets in
Connecticut and pays state taxes on
all revenues. Non-regulated ADW
operators do not pay any state taxes
leaving Sportech disadvantaged.
Foreign
Exchange
The bulk of the business is generated
in North America.
Our European business is conducted
via an Irish company. The Group’s
results are reported in GBP.
If Sportech is not sufficiently
geared up to take advantage of the
opportunities in sports betting it may
fail to gain a foothold in the market
and deliver returns on investment.
Failure to
implement
sports betting
strategy
following the
repeal of PASPA
We constantly assess our competition
and strategy and use our global licence
positioning, regulatory status and
trading reputation to secure business.
The Group, where possible, seeks
to enter long-term contracts with
customers to secure revenue streams,
however, this is not always possible,
and a significant proportion of the
Group’s revenues are variable.
The Group continues to lobby the
states to enforce their laws in pain of
losing taxation revenues.
In 2019 the Group will table a Bill in
Connecticut seeking to protect its
exclusive pari-mutuel licence from
external parties.
The Group is evaluating whether
it should change its reporting to
USD and seeks to create natural
hedges wherever possible. The
Group considers hedging to mitigate
significant fluctuations.
With the repeal of sports betting
prohibition in the United States in
2018, US states now have the option
to introduce intra-state Sports Betting
and many states are considering
legalising sports betting. At the end
of 2018, seven states have legalised
sports betting and it is anticipated
that many more states will in 2019.
The Group is investing heavily in
repositioning itself to create a growth
business in this arena and deliver a
competitive product to our consumer
business in Connecticut and to our
business clients across the US. It is a
competitive landscape however and
there is risk to successful execution
and return on capital investment.
9
6
9
31
Strategic ReportGovernanceFinancial Statements Based on the results of this analysis, the Directors have
a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities, as
they fall due, over the period of their assessment.
On behalf of the Board
Thomas Hearne
Director
20 March 2019
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 64. The Board conducted this review for
a period up to December 2021, which was selected for
the following reasons:
i. The Group’s strategic review process generally
covers a three-year period.
ii. The Group’s operations are underpinned by largely
stable businesses and medium-term contracts,
allowing for sufficient certainty to forecast results
for this length of time. The most recent strategic
review, (completed 19 March 2019) considered the
Group’s cash flows, earnings, leverage, and other
key financial ratios over the period. The review also
considered the renewals of significant customers,
many of which have renewals in the window of
time being reviewed. These renewals represent a
significant element of the Group’s EBITDA. 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.
32
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Strategic Report
Governance
Financial Statements
Corporate Social
Responsibility Report
The Group endeavours to act responsibly for all its
stakeholders, including not only its shareholders,
employees, and its customers but the wider public
and the environment.
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 (until the sale of our Dutch business
in July 2018).
The Group General Counsel ensures 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.
Whilst the Company, and a number of its subsidiaries,
are incorporated in the UK, the bulk of the operations
are based in North America where standards and
regulation are different to the EU. The Group
therefore has to balance all its obligations under all
the jurisdictions it operates in, which imposes strains
on its cost base which we aim to mitigate through
efficiencies wherever possible.
In 2018 the company took comprehensive measures,
under the direction of its Chief Legal Officer and
Compliance Director, to ensure that its various
business and operating units in the EU were in
compliance with the new GDPR rules protecting user
data and further extended the policies and practices
to all divisions of the company regardless of
geographic location.
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. The
Racing and Digital division works to deploy
technologies for account wagering, mobile, and
tablet-based betting at racetracks and off-track
betting locations that eliminate or minimise the use of
paper betting slips and tickets. In 2019 the Group is
making online voting at Company meetings its
default method. Shareholders may still vote by paper
proxy if they desire, although this move towards
online voting will save printing and posting large
numbers of proxy forms which are never used. The
Group also continues to advocate to its shareholders
the use of electronic communications via its website.
The Company has an obligation under the UK
Companies Act 2006 to report on greenhouse gas
emissions. The Group has calculated an intensity ratio
for 2018 of 102.2 which is 6,510 tonnes of CO2 divided
by the Group’s total revenue of £63.7m, compared to
a prior year ratio of 85.5, which was calculated as
5,668 CO2 tonnes divided by revenue of £66.3m. On
a constant currency basis the prior year intensity ratio
would have been 88.1. Therefore, on a constant
currency basis the Group’s intensity ratio has
increased by 16.0% due to falling revenues on the
same base level of operations.
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 $17m for sports foundations in the US and
Canada in 2018, including those associated with the
Dallas Cowboys, Cleveland Cavaliers, and Vegas
Golden Knights.
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 launched an
33
171843 2 Sportech Annual Report 2018 Corporate Governance_171843 2 Sportech Annual Report 2018 Corporate Governance 05/04/2019 20:09 Page 34
Sportech PLC Annual Report and Accounts 2018
Corporate Social
Responsibility Report continued
employee newsletter “Sportech in Focus” and awards
programme “Sportech Champions”, in 2018 to reflect
the progressive transparency, 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 40.
It is the policy of the Group to comply with the
requirements of the UK Disability and Equality Act
2010 and the Americans with Disabilities Act 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 it has 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.
34
171843 2 Sportech Annual Report 2018 Corporate Governance_171843 2 Sportech Annual Report 2018 Corporate Governance 05/04/2019 20:09 Page 35
Strategic Report
Governance
Financial Statements
Corporate Governance
Report
Sportech is committed to a high standard of
corporate governance and, throughout the financial
year ended 31 December 2018, 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 practicable.
The Board has undergone significant changes in the
period under review, largely occasioned by the
historical decision to dispose of the Football Pools,
and the subsequent decision to undertake a strategic
review which involved a Formal Sale Process – an
event that terminated on 13 March 2018.
Director
Status
Richard McGuire NED from 24 August 2016 and
Giles Vardey
Chris Rigg
became Executive Chair on
13 November 2018. Not
independent
NED from 17 November 2017.
Independent
NED from 1 January 2019.
Independent
Richard Cooper NED from 24 May 2017, stepped
down from the Board 29 October
2018. Independent
Andrew Gaughan Executive Director from
27 January 2017, CEO from
14 March 2018, stepped down from
the Board 28 February 2019. Not
independent
Thomas Hearne
CFO from 24 May 2018. Not
independent
Giles Vardey is the Senior Independent Director.
Following the appointment of Chris Rigg on 1 January
2019, the Company now has two Independent
Directors. During the period from 29 October 2018 to
31 December 2018, the Company only had one
Independent Director following the resignation of
Richard Cooper on 28 October 2018. For this short
period, the company was not in compliance with the
Code in its requirement to have two independent
Directors as members of the Remuneration, Audit
and Nomination Committees.
On 13 November 2018 it was announced that Andrew
Gaughan, Chief Executive Officer, would step down
from the Board on 28 February 2019 and that Richard
McGuire would assume the role of Interim Executive
Chairman. The Board considered this to be a
temporary but necessary arrangement in order to
ensure the continuity of business. The Code requires
the roles of Chairman and Chief Executive to be
undertaken by different people. The Board is actively
pursuing the appointment of a Chief Executive
Officer.
The Company confirms that Richard Cooper had the
recent, relevant financial expertise required to
effectively challenge and review accounting
judgements and reporting. Together with the
extensive corporate experience of Richard McGuire
and Giles Vardey, the Company is comfortable that
the Committees have continued to function to a high
standard throughout, and robustly challenged
management in the preparation of the financial
statements. As of 1 January 2019, Chris Rigg who has
recent, relevant financial expertise assumed the chair
of the Audit Committee, as a consequence there were
two months during which the Company did not
comply with the Code in respect of having an Audit
Committee chairman with recent and relevant
financial expertise.
The search for a further new Independent
Non-executive Director is being undertaken and 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. The Chairman is not
a member of the Audit, Remuneration or Nominations
Committees.
Conflicts of Interest
The Board has a procedure in place to deal with
situations 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
35
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Sportech PLC Annual Report and Accounts 2018
Corporate Governance
Report continued
affected. Each Director is required to notify the
Company Secretary of any potential or actual conflict
situations requiring authorisation by the Board. Such
authorisations are reviewed annually.
Board Effectiveness
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
example, contain specific provisions and restrictions
regarding the Company’s power to borrow money. A
copy of the Articles is available on the Company’s
website.
Matters reserved for the decision of the Board
include:
i) Strategy and management: overall
management and oversight of operations,
approval of long-term objectives, commercial
strategy, annual budgets, major changes in
nature and scope of the business of the Group,
entry into significant new business areas and
the approval of any actions which would
require shareholder approval;
ii) Structure and capital: approval of major
changes to the Group’s capital structure,
corporate structure, management structure
control structure and changes to the
Company’s listing or status as a PLC;
iii) Financial reporting and controls: approval of
preliminary announcements of interim and
annual results, annual report and accounts,
dividend policy, declaration of dividends, and
significant changes to accounting policies and
changes in accounting reference date for any
material member of the Group;
iv) Approval to enter into significant contracts;
v) All communications with shareholders; and
vi) Board memberships, appointments and the
remuneration of Directors and senior
management.
The Board has undergone a series of changes in the
year and Richard McGuire assumed the role of Interim
Executive Chairman from 12 November 2018 in
anticipation of Andrew Gaughan stepping down from
the Board on 28 February 2019. Tom Hearne was
appointed CFO on 24 May 2018 and has quickly
integrated into the Group. The Group had two
independent Non-executives for the year up until
29 October 2018 when Richard Cooper stepped
down. As at 1 January 2019, following the
appointment of Chris Rigg, the Board has two
independent Non-executive Directors.
The Company maintains Directors and Officers
insurance cover.
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 in respect to their
skills, expertise and business acumen. 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
performance of Richard McGuire, the current
Chairman, appointed on 24 May 2017 was reviewed as
part of the Board Evaluation process, which was
supported by the Company Secretary, and concluded
in February 2019. The performance of Non-executive
Directors was also appraised as part of this evaluation
process. The results were analysed and a report was
presented to the Board for discussion at a
subsequent Board meeting. Following discussions at
a subsequent Board meeting, a number of proposed
recommendations were made and the Board agreed
to take them forward for implementation.
Board Meetings
The Board meets regularly. Certain matters are
considered at all Board meetings, including a business
update, a financial update, business development
opportunities and operational issues. Papers for each
scheduled board meeting are usually provided within
the week before the meeting and directors unable to
attend Board meetings have an opportunity to raise
and discuss any issue with the Chairman or any
Executive Director. The meetings held in the year
were as follows:
36
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Strategic Report
Governance
Financial Statements
Number of meetings held during 2018
Executive Directors
Andrew Gaughan
Thomas Hearne
Appointed 24 May 2018
Non-executive Directors
Richard McGuire
Richard Cooper
Resigned 29 October 2018
Giles Vardey
Main Board
Remuneration
Committee
Audit
Committee
Nomination
Committee
6
6
5
6
5
6
4
—
—
4
3
4
2
—
—
1
2
2
1
—
—
1
—
1
Board Committees
The Committees of the Board are:
• Audit Committee
was rectified, however no Committee meetings were
held during that period. Members of the senior
finance team are regularly invited to attend
Committee meetings.
• Remuneration Committee
Financial reporting
• Nomination Committee.
Audit Committee
The Audit Committee currently comprises two
independent Non-executives, Chris Rigg, as the
Chairman, and Giles Vardey. Richard Cooper chaired
the Committee during the year and up until his
resignation on 29 October 2018.
The Committee is scheduled to meet at least three
times a year. The December meeting in 2018 was
deferred to January 2019 given the appointment of
Chris Rigg on 1 January 2019. The Committee’s main
responsibilities include reviewing the Annual Report
and Accounts and the Interim Report. This includes
considering significant financial reporting issues and
judgements as contained within. 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
authority from the Board to review 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 systems and procedures.
The Group acknowledges that DTR 7.1.1A (2) was
breached during the period 1 November 2018 to
31 December 2018, in relation to the requirement of
having a member of the Audit Committee with
competence in accounting or auditing or both.
Following the appointment of Chris Rigg that breach
The primary role of the Committee in relation to
financial reporting is the review of (in conjunction
with both management and the external Auditor) 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 financial reporting.
The Committee considered internal reports from the
senior finance staff together with the external
Auditors’ report in their half-year review and annual
audit of the Group’s financial reporting function.
37
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Sportech PLC Annual Report and Accounts 2018
Corporate Governance
Report continued
The primary areas of judgement considered by the
Committee in relation to the 2018 financial statements
were:
• the assumptions underlying impairment testing
of the Group’s intangible assets;
• the exposure to tax liabilities; and
• the assumptions underlying impairment testing
of the Company’s investment in Sportech
Group Holdings Limited.
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.
In testing assets for impairment, the key assumptions
underpinning their value-in-use were 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 not recognising
an impairment in the current year. In addition, the
Committee considers the findings of the work carried
out by the Auditors in these areas.
In reviewing the exposure to potential tax liabilities,
the Audit Committee reviews the key assumptions
and liaises with its external advisors to understand
the range of possible outcomes given change in
particular judgements. Correspondence from tax
authorities, if any, is also reviewed. The
reasonableness of management’s judgement is also
considered with respect to the work of the Auditors.
In assessing the carrying value of the Company’s
investment in Sportech Group Holdings Limited, the
Committee reviewed financial projections for all
divisions. These projections are inherently judgemental
and the Committee robustly challenged management
on the assumptions included in the models.
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 maintain objectivity and have
access to applicable technical expertise to obtain
value for money. In order to avoid the objectivity and
38
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 complies
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 Board must approve spend on discrete
projects in excess of £10k. 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 7 in the Notes to
the financial statements. There were no non-audit
fees paid to the auditors in 2018 (2017: £248k).
Effectiveness
The effectiveness of the external audit process is
dependent on appropriate audit risk identification
and at the start of the audit cycle the Company
receives from PricewaterhouseCoopers LLP a detailed
audit plan (‘Audit Strategy Memorandum’), identifying
their assessment of these key risks. For 2018 the
significant and elevated risks identified were in
relation to:
• intangible asset impairment;
• uncertain tax positions; and
• Investment impairment (Company only).
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Strategic Report
Governance
Financial Statements
The Committee meets 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 2018. 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 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 for the
reappointment of PricewaterhouseCoopers LLP as
external Auditors for the year ending 31 December
2019 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 would be put to shareholders at the
upcoming 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. Regular reforecasts are
undertaken and 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 30 and 31 of the
Strategic report.
To manage lower-level risks, a risk management
programme was put in place and 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
39
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Sportech PLC Annual Report and Accounts 2018
Corporate Governance
Report continued
risk appraisal process is regularly reviewed by the
Board and complies 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 2018 and up to the date of approval of
the Annual Report and Accounts. This review covers
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
was no such requirement. 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 (the ‘Code’) in
this regard which states that the Audit Committee
should review arrangements by which staff of the
Group may, in confidence, raise concerns about
possible improprieties in matters of financial
reporting or other matters. An appropriate policy
which encourages and enables staff to raise any such
concerns has been in place throughout the year. No
instances of serious wrongdoing were reported to the
Audit Committee during the period.
Remuneration Committee
The Remuneration Committee of the Board currently
comprises the Non-executive Directors. It is Chaired
by Giles Vardey. The purpose of the Committee is to
ensure that the remuneration together with the terms
and conditions of employment of Executive Directors
and senior Executives, 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 42 to 62.
Nominations Committee
The Nomination Committee currently comprises the
Non-executive Directors. Giles Vardey replaced
Richard McGuire as Chair in November 2018.
40
Objectives
The Committee’s main objectives are to lead the
process for any new appointments to the Board,
whether Executive or Non-executive, 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.
Activities
The Nomination Committee’s activities are
underpinned by the principle that all appointments 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 Tom Hearne as CFO with
effect from 24 May 2018; and
• the appointment of Chris Rigg as an
Independent Non-executive Director and
Chairman of the Audit Committee with effect
from 1 January 2019.
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 754 employees,
40% are female and out of 13 members of senior
management 31% 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, the Board seeks to appoint new Directors
who fit the skills criteria and gender balance that is in
line with the Company’s policy.
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Strategic Report
Governance
Financial Statements
The Board continues to focus on encouraging
diversity of business skills and experience, and also
recognises that Directors with diverse skill sets,
capabilities and experience gained from different
geographic and cultural backgrounds enhances the
Board.
Investors
There is regular dialogue with shareholders through a
planned programme of investor relations which
includes formal presentations of the Group’s results
by members of the Board. Meetings also take place
with institutional investors and analysts on a regular
basis and there is regular communications with
shareholders through the Annual and Interim Reports
and Sportech’s corporate website
(www.sportechplc.com). There are also other
opportunities outside of close periods to enter into
dialogue with shareholders. All shareholders have the
opportunity to question the Board at the AGM both
formally and informally. The Non-executive Directors
have taken steps to develop an understanding of
major shareholders’ views of the Company through
face-to-face contact, analyst and broker briefings.
All resolutions at the 2018 AGM held on 24 May 2018
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’ was not a vote in law and would not
be counted in the calculation of the proportion of the
votes for or against the resolution.
The Board recognised the high level of votes against
in relation to the Directors’ Remuneration Report
(resolution 2) and the reappointment of Richard
McGuire (resolution 3) at the 2018 AGM. The Board
also recognised the high level of withheld votes and
abstentions in relation to the Directors’ Report,
Auditors’ report and financial statements (resolution
1) and reappointment of the Auditors (resolution 7) at
the 2018 AGM. In response. the Board identified
shareholders’ comments and clarified certain issues in
relation to values attributed to departing senior
executives. The Board, Nomination Committee and
Remuneration Committee continue to value
shareholder engagement and welcome the
opportunity to debate, with shareholders, any points
within this Annual Report.
The Board endeavours to ensure the Annual Report
and accounts present a fair, accurate and balanced
view and welcomes feedback from shareholders on
its content.
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
Ben Harber
Company Secretary
SGH Company Secretaries Limited
20 March 2019
41
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee
Letter from the Remuneration
Committee Chairman
Dear Shareholder,
As Chairman of Sportech’s Remuneration Committee,
I am pleased to present the Directors’ Remuneration
Report.
This report comprises an annual report on
remuneration which describes how the shareholder
approved Directors’ remuneration policy was
implemented for the year ended 31 December 2018
and how we intend for the policy to apply for the
year ending 31 December 2019. This report, together
with this annual statement, will be put to an advisory
shareholder vote at the 2019 AGM.
Our approach to remuneration is governed by our
directors’ remuneration policy which, along with a
long-term incentive arrangement, the Value Creation
Plan (“VCP”), received binding shareholder approval
at the General Meeting on 24 May 2017 and came into
formal effect from that date. The current intention is
for the policy to operate over the three-year period to
2020 and shareholders will not therefore be asked to
approve any revisions at the 2019 AGM. However, to
ensure clarity and transparency we have republished
our Directors’ Remuneration Policy report herewith
(pages 44 to 53).
The Board and the Remuneration Committee value
shareholder interaction and met with many of our key
shareholders during 2018. The Board noted the votes
recorded against the Remuneration Policy at the
previous AGM, identified shareholders’ comments and
clarified certain issues around values attributed to
departing senior executives. The Board and
Remuneration Committee continue to value
shareholder engagement and welcome the
opportunity to debate any points within this Annual
Report.
Changes to the Board
We announced on 13 November 2018 that our Chief
Executive, Andrew Gaughan, would leave Sportech.
He stepped down from the Board and left the
Company on 28 February 2019. The Remuneration
Committee determined that as part of the terms of
his settlement agreement he would be treated as a
Good Leaver for the purpose of the PSP and VCP. He
remained eligible for a discretionary annual bonus for
the year ended 2018. His outstanding 2016 PSP
awards were not prorated. For the VCP, his leave date
42
was agreed to be 31 December 2019 and accordingly
will reduce pro-rata to maturity.
Tom Hearne was appointed to the Board as Chief
Financial Officer in May 2018 on a salary of
CAD$340,000.
Christian Rigg was appointed to the Board as an
Independent Non-executive Director on 1 January
2019 and Richard Cooper stepped down from the
Board as a Non-executive Director on 29 October
2018. Richard Cooper voluntarily waived his
three-month severance payment entitlement.
Richard McGuire returned to his position of
Non-executive Chairman on 14 March 2018 having
temporarily been appointed to Executive Chairman
during the strategic review period from 4 December
2017. He was again appointed temporarily to the
position of Interim Executive Chairman on
13 November 2018, following the announcement that
Andrew Gaughan would be leaving the Group in
February 2019. Richard’s fixed remuneration
arrangements have remained the same throughout
the year, i.e. an annual fee of £120,000.
Performance and remuneration for
2018
Annual bonus
Our FY2018 performance-related bonus was subject
to adjusted Group EBITDA targets alongside several
strategic objectives aligned with the KPIs of the
business. The threshold level of EBITDA was not met,
and no bonus was therefore payable for this element.
The Strategic measures set by the Remuneration
Committee were not achieved by Andrew Gaughan
and although for some measures, were achieved by
Tom Hearne, the Committee determined that due to
the poor financial performance no bonus would be
payable to either Andrew Gaughan or Tom Hearne.
Long term incentives
Following his appointment as Chief Financial Officer,
Tom Hearne received a one-off award in June 2018 of
1,250 shares under the VCP. This represents 6.25% of
the pool and, subject to meeting the stretching
performance targets, will vest on 31 December 2021.
The FY2016 Performance Share Plan (“PSP”) awards
were granted on 3 November 2016, subject to a
relative total shareholder return (100% of the award)
target measured over a three-year performance
period from 3 March 2016 as described in the 2016
Annual Report. Total shareholder return did not
exceed the median performance of the benchmark
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Strategic Report
Governance
Financial Statements
FTSE Small Cap Index (excluding investment trusts)
over the performance period and therefore the
awards lapsed in March 2019.
Implementation of remuneration policy
for 2019
The remuneration package for our Executive
Directors will continue to be made up of base salary,
plus pension contributions and benefits, and, subject
to stretching performance conditions, an annual
bonus paid in cash. Following his VCP award in 2018,
it is not currently intended that any further long-term
incentive plan awards will be made to Tom Hearne in
2019. Within this framework we will be taking the
following approach to the implementation of the
remuneration policy for the year ending 31 December
2019:
– Salary – Andrew Gaughan left the Company on
28 February 2019. He was paid his 2018 level of
basic annual salary until this date of
CAD$500,000. Tom Hearne was paid
CAD$340,000 from the date of his
appointment in May 2018. His basic annual
salary will rise by 5% to CAD$357,000
(approximately £200,000) from 1 January 2019.
– Bonus – The maximum annual bonus will
remain at 100% of salary for the Chief
Executive Officer and 75% of salary for other
executive directors. The majority of the bonus
will be based on financial performance
measures and the minority on strategic
objectives aligned with the KPIs of the
business.
– Long-term incentives – The VCP was
introduced in 2017 to replace the PSP. Awards
under the VCP were first made in 2017. The
Committee retains the right to make further
awards, from the shareholder approved pool
and limits, to personnel identified as key to
delivering incremental value or executing a
strategy to deliver tangible returns to
shareholders. The VCP is an uncapped
arrangement and the Board is aware that,
potentially therefore, the plan could pay out at
significant levels; however, significant value will
only accrue to participants in the event of truly
exceptional sustained long-term performance.
– Enhancing shareholder alignment – In addition
to ensuring that the short and long-term
performance measures and targets we set are
closely linked to the achievement of the
Company’s key strategic and business
objectives, pay is subject to recovery and
withholding provision. The VCP is measured
over a five-year period and significant share
ownership guidelines apply – all features
intended to enhance the alignment of interest
between executive directors and shareholders
and to contribute to an appropriate level of risk
mitigation.
The Board is satisfied that the policy continues to
provide a good balance between potential rewards to
Executive Directors on the one hand, and, on the
other, measures and targets which are appropriately
stretching and that are aligned with the delivery of
the overall long-term success of the Company.
The Committee has taken steps to ensure compliance
with the new Corporate Governance Code effective
from 1 January 2019. In particular, with regards to
enhanced Remuneration Committee remit and
post-employment shareholdings amongst other
changes. Compliance is under review through 2019
and will be reported on in the Directors’ Remuneration
Report next year, in addition to the Remuneration
Policy being updated and put to shareholders for
approval at the 2020 AGM.
On behalf of the Committee, I thank shareholders for
their support last year and hope you will be able to
support the advisory vote on our Directors’
Remuneration Report at the 2019 AGM.
Giles Vardey
Independent Non-executive Director and Chair
of the Remuneration Committee
20 March 2019
43
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
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 2016 issued
by the Financial Reporting Council (the “Code”).
PricewaterhouseCoopers LLP has audited the
contents of the Report to the extent required by the
Regulations.
Directors’ Remuneration Policy
This part of the Directors’ Remuneration report sets
out the key parts of the Directors' Remuneration
Policy which was approved by shareholders in a
binding vote at the General Meeting held on 24 May
2017. The policy took formal effect from the date of
approval and is currently intended to apply until the
2020 AGM.
A full version of the original shareholder approved
policy can be found in the notice of General Meeting
at
http://www.sportechplc.com/investors/shareholder-
information/meetings-and-voting.
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;
44
– 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.
Remuneration for Executive Directors
The main component parts of the remuneration
packages for Executive Directors are detailed in the
table on pages 54 to 55, which should be read in
conjunction with the recruitment/promotion policy on
page 52, and the “Detailed remuneration policy for
2018” section of the Annual report on remuneration,
which starts on page 53.
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Strategic Report
Governance
Financial Statements
Policy table
Remuneration element and purpose Operation
Opportunity
Performance metrics
Base salary
To attract and retain key
individuals.
Reflects the relevant skills
and experience in role.
– Salaries are 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 53.
− Annual increases will
A broad-based assessment
of individual and Company
performance is considered
as part of any salary
review.
typically be
commensurate with
those of the wider
workforce (in
percentage of salary
terms).
− 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.
Pension
To provide cost-effective,
yet market competitive,
retirement benefits.
– Contribution to a
personal pension
arrangement or cash in
lieu of pension by way
of a salary supplement.
– Up to 8% of salary for
Not applicable.
UK Executive Directors.
Only basic annual salary
is pensionable.
45
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Performance metrics
Not applicable.
Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
Remuneration element and purpose Operation
Opportunity
Benefits
To provide cost-effective,
yet market competitive,
benefits.
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.
Benefits may include a
combination of the
following:
– Car or car allowance for
travel.
− 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.
46
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Strategic Report
Governance
Financial Statements
Remuneration element and purpose Operation
Opportunity
Performance metrics
Annual bonus plan
– Bonus is typically paid
– Maximum bonus
To motivate Executive
Directors and incentivise
the achievement of key
financial and strategic
goals and targets over the
financial year.
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.
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.
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.
47
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
Remuneration element and purpose Operation
Opportunity
Performance metrics
Value Creation Plan
To motivate Executive
Directors and incentivise
delivery of performance
over the long term.
To encourage greater
shareholder alignment and
to facilitate share
ownership.
– The Value Creation Plan
will provide participants
with a share in a pool of
shares with a value
equal to 20% of any
cumulative shareholder
value created above an
annual hurdle.
– Ian Penrose as CEO was
awarded 25% of the
pool.
− Mickey Kalifa and
Andrew Gaughan; the
CFO and President
Sportech Racing and
Digital in 2017, were
awarded 12.5% of the
pool each.
Additional information
applicable to the Policy:
− Tom Hearne was
awarded 6.25% of the
pool following his
appointment to the
Board in 2018.
− Assuming the Plan runs
to maturity December
2021. Messrs. Penrose,
Kalifa and Gaughan’s
entitlements will reduce
to 10%, 5% and 7.5%
respectively.
− The remainder of the
pool will be distributed
between other
participants and
reserved for allocation
to new joiners.
− To the extent that the
element of the pool that
is reserved for new
joiners is not allocated,
this may be shared
amongst current
participants as
determined by the
Committee.
– Performance will be
measured once at the
end of a five-year
period, unless there has
been a change of
control before the end
of the performance
period or at the
Committee’s discretion
where an Executive
Director is deemed a
“Good Leaver” (as
defined in the Rules of
the Value Creation Plan).
− Performance will be
measured from a base
share price of 95 pence,
being the base level of
the 2017 LTIP award, as
at the start of the
performance period.
Awards are subject to a
TSR performance
condition.
− No award will vest for
TSR performance below
the compound hurdle
rate of 8% per annum.
However, in the event of
a change of control that
results in accelerated
vesting in 2017 or 2018,
or in the case of an
Executive Director being
deemed a “Good
Leaver” (as defined in
the Rules of the Value
Creation Plan) in 2017 or
2018, the compound
hurdle rates for vesting
will be 12% and 10%
respectively.
− 20% of any cumulative
shareholder value
created above the
hurdle rate will be
distributed between
participants.
48
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Strategic Report
Governance
Financial Statements
Performance metrics
Not applicable.
Not applicable.
Remuneration element and purpose Operation
Opportunity
Executive share ownership
To align Executive
Directors’ and
shareholders’ interests.
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.
The Group is a highly
regulated and licensed
entity in various
jurisdictions and
Non-executive Directors
are subject to personal
licensing assessments and
if appropriate consents by
numerous US authorities.
– The Chief Executive is
expected to hold an
investment of at least
200% of base salary in
the Company, other
Executive Directors are
expected to hold 150%
of base salary in the
Company, using 50% of
net awards under the
Company’s long-term
incentive plans to
achieve the
shareholding, if required.
– 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.
– 200% of salary for the
Chief Executive and
150% of salary for all
Executive Directors.
– The Non-executive
Chairman’s fee and
Non-executive Directors'
fees are set out in the
Annual report on
remuneration on
page 54.
− 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.
49
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
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
that 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 condition applicable to the VCP
award has been selected by the Committee on the
basis that share price is the best indicator of how the
market values the efficiency with which the
management team uses the available capital, so it
implicitly recognises only those activities that are
value-enhancing. In addition, the Committee
considers the Plan provides:
– stronger alignment between Executives and
shareholders, since the participants will share
directly in the growth of the Company, albeit
only for meeting stretching targets;
− a simple and transparent incentive focused on
the achievement of high levels of growth in
shareholder value; and
− a genuinely long term (five-year performance
period) single measurement which ensures
performance is sustained.
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 Policy Table), and when and how much
should vest;
− who receives an award or payment;
− dealing with a change of control or
restructuring of the Group;
50
− 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 other than the
awards granted in March 2017 which lapsed as a
condition of participation in the VCP during 2017, on
the terms applicable at the time each such
commitment was made.
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
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Strategic Report
Governance
Financial Statements
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 CEO contract remains
consistent with prior terms, requiring twelve months’
notice in writing.
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.
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, the VCP
and participation levels in the all-employee plans.
51
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
Policy on Executive Director recruitments/promotions
In relation to an external executive recruitment or an internal promotion the Committee will follow the principles
outlined in the table below:
Element of remuneration
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.
A new appointment would be offered the same benefits package (or equivalent in
line with local market practice) as that provided to current Executive Directors.
Where considered necessary, the Committee may be required to pay certain
relocation expenses, legal fees and other costs incurred by the individual in relation
to their appointment.
A defined contribution or cash supplement (or equivalent in line with local market
practice) at up to the level provided to current Executive Directors may be
provided.
The Committee would envisage the annual bonus for any new appointment
operating as set out in the Policy Table for current Executive Directors.
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.
A new Executive Director may be entitled to participate in the VCP, albeit
potentially with different performance awards and depending on the timing of the
appointment. 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.
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 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.
Benefits
Pension
Annual bonus
Long-term incentives
Buy-out awards
52
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Financial Statements
The fee structure and quantum for Non-executive Director
appointments will be based on the prevailing Non-executive
Director fee policy.
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 2019
Basic annual salary
The Committee has reviewed base salaries for 2019
taking into account the role, responsibilities,
performance and experience of the individual, the
overall employee salary budget and wider inflationary
indicators.
The base salaries for 2019 are as follows:
Director
2019
2018 % change
Chief Executive
Officer1
Chief Financial
Officer
CAD$500,0002
CAD$500,000
—
CAD$357,000
CAD$340,000
5%
1Andrew Gaughan was promoted to the position of Chief Executive
Officer on 14 March 2018 from his previous position as President -
Sportech Racing//Digital. Andrew's salary on appointment to the
Board on 25 January 2017 in his position as President – Sportech
Racing//Digital was set at CAD$400,000 (approximately £240,000
at an exchange rate of 1.67 CAD:GBP) and his salary was increased
from this level on his promotion to Chief Executive to CAD$500,000
(approximately £300,000 at an exchange rate of 1.67 CAD:GBP).
2Andrew Gaughan’s base salary remains unchanged from 2018 and is
paid until his leaving date of 28 February 2019.
Performance related bonus
The maximum bonus potential for Tom Hearne for
2019 is 75% of basic salary. Andrew Gaughan is not
due a bonus for his time of employment with the
Group during 2019.
Tom Hearne’s performance related bonus will be
based on Group financial performance, delivering on
Group strategic objectives and meeting personal
targets. The sustainable financial based proportion of
the potential bonus, which represents a majority of
Tom’s bonus entitlement, is operated with a range set
around an agreed budgeted objective. Strategic and
personal objectives are designed to protect and
enhance the Company’s position across key
geographical regions and enhance shareholder value.
The objectives themselves are considered
commercially sensitive and will therefore be disclosed
on a retrospective basis 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 matches to a limit of 50% of the first
6% of Canadian Directors’ contributions up to a
maximum of CAD$8,000. The Company paid in the
maximum for Andrew Gaughan during the year but
as Tom Hearne made no contributions, the Company
did not make any contributions for him.
Other benefits
Tom Hearne is entitled to the following other main
benefits; private health and disability insurance for
himself, his spouse and children and life insurance for
himself.
Long Term Incentive Plan and Value Creation Plan
(“LTIP” and “VCP”)
The VCP was introduced in 2017 to replace the
Performance Share Plan ("PSP"). Awards under the
VCP were first made in 2017 and it was intended that
these awards would be one-off in nature to cover the
five-year vesting period of the plan. The Committee
retains the right to make further awards, from the
shareholder approved pool and limits, to personnel
identified as key to delivering incremental value or
executing a strategy to deliver tangible returns.
However, the previous VCP awards made to current
Executive Directors will not increase. Tom Hearne was
awarded 1,250 units under the scheme in June 2018
and it is not intended that he will receive any further
awards under this plan in 2019.
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
Non-executive Directors’ fees
The Non-executive Director fee for 2019 is £60,000
which is unchanged since May 2017. This is intended
to cover all Board duties and no separate Committee
fees are payable.
Richard McGuire was appointed temporarily to the
position of Executive Chairman on 4 December 2017
from his previous position as Non-executive
Chairman. His salary on appointment to the position
of Executive Chairman was set at £120,000 per
annum (the same level as his fee as Non-executive
Chairman had been). Richard reverted to his
Non-executive Chairman role on 14 March 2018.
Richard was appointed again to Executive Chairman
on 13 November 2018 and his fee has remained at
£120,000 throughout.
The fees of the Non-executive Directors are set to
take account of the time commitment and complexity
of the role reflecting, in particular, the onerous
international regulatory environment for Sportech and
that Board meetings will be held in both the US and
the UK, necessitating additional travel and time
commitments.
Details of each Director’s remuneration for the year ended 31 December 2018 are given in the table below.
Directors’ remuneration for 2018 (audited)
Executive Directors
Richard McGuire (stepped down to Non-executive Chairman
14 March 2018, appointed to Interim Executive Chairman on
13 November 2018)
Andrew Gaughan
Tom Hearne (appointed 14 May 2018)
Non-executive Directors
Richard McGuire (14 March 2018 to 13 November 2018)
Richard Cooper (Stepped down from the Board
30 October 2018)
Giles Vardey
Aggregate emoluments
Year of
appointment
Fees/
salary
£000
Taxable
benefits
£000
Pension
£000
2018
Total
£000
2017 & 2018
2017
2018
2016
2017
2017
140
266
115
80
50
60
711
—
2
1
—
—
—
3
—
5
—
—
—
—
5
140
273
116
80
50
60
719
– Richard McGuire was paid a basic annual salary of £120,000 per annum with effect from 4 December 2017 on becoming Executive Chairman, the
same as the fee he was paid in his previous role as Non-executive Chairman (a role to which he was appointed on 24 May 2017). He also received
£100,000 in additional fees in the period 1 January 2018 to 14 March 2018 and 13 November 2018 to 31 December 2018 in relation to significant
additional work undertaken following the previous Chief Executive and the Chief Financial Officer resignation announcements and leading the
Strategic Review and Formal Sale Process and the transition required during Andrew Gaughan’s notice period. Richard returned to his role as Non-
executive Chairman between 14 March 2018 and 13 November 2018 following the appointment of Andrew Gaughan as Chief Executive Officer and
his subsequent resignation. Richard was asked to re-engage full time in the business, since November 2018 and to support US growth initiatives he
relocated to the Group’s US business in Connecticut. There was no entitlement to any additional typical employment benefits or bonus
consideration for efforts during 2018.
– Andrew Gaughan, in his position as President - Sportech Racing // Digital, was paid a basic annual salary of CAD$400,000 per annum with
effect from 1 January 2017 which was not subsequently increased on his appointment to the Board on 25 January 2017. His basic annual salary
was increased to CAD$500,000 on his appointment to Chief Executive Officer on 14 March 2018.
– Tom Hearne was paid a basic annual salary of CAD$340,000 from his appointment on 14 May 2018.
– Richard Cooper and Giles Vardey, Non-executive Directors, were paid a basic annual fee of £60,000 per annum. In addition to the figures in
the table Richard Cooper also received £75,000 in the period 1 January 2018 to 11 May 2018 in relation to additional work undertaken following
the previous Chief Executive and the Chief Financial Officer announced resignations and fulfilling the role of senior financial officer in the
Group until the appointment of Tom Hearne.
54
171843 2 Sportech Annual Report 2018 Corporate Governance_171843 2 Sportech Annual Report 2018 Corporate Governance 05/04/2019 20:10 Page 55
Strategic Report
Governance
Financial Statements
Directors’ remuneration for 2017 (audited)
Year of
appointment
Fees/
salary
£000
Taxable
benefits
£000
Pension
£000
Bonuses
£000
Long- Other (pay
in lieu
of notice)
£000
term
incentive
£000
2017
Total
£000
Executive Directors
Richard McGuire
(appointed to an executive
role 4 December 2017)
Ian Penrose
(stepped down from the Board
31 December 2017)
Mickey Kalifa
(stepped down from the Board
18 September 2017)
Andrew Gaughan
(appointed 25 January 2017)
Non-executive Directors
Roger Withers
(stepped down from the
Board 24 May 2017)
Richard McGuire
(appointed Non-executive
Chairman 24 May 2017)
Richard Cooper
(appointed 24 May 2017)
Giles Vardey
(appointed 4 December 2017)
Aggregate emoluments
2017
10
2005
399
2016
2017
2011
2016
2017
2017
180
219
60
79
40
5
992
—
18
1
1
—
—
—
—
20
—
32
14
5
—
—
—
—
51
—
—
—
10
160
223
520
1,352
82
7
—
—
—
—
47
50
—
—
—
—
309
—
30
—
—
—
633
282
90
79
40
5
249
320
859
2,491
– Richard McGuire was paid a basic annual salary of £120,000 per annum with effect from 4 December 2017 on becoming Executive Chairman,
the same as the fee he was paid in his previous role as Non-executive Chairman (a role to which he was appointed on 24 May 2017). Prior to
becoming Non-executive Chairman he was a Non-executive Director for which he received fees of £19,000 for the period from 1 January 2017.
In addition to the figures in the table he also received £60,000 in consultancy fees in the period to 4 December 2017 and £20,000 during the
period 4 December 2017 to 31 December 2017 in relation to significant additional work undertaken following the previous Chief Executive and
the Chief Financial Officer resignation announcements and leading the Strategic Review and Formal Sale Process. Richard returned to his role
as Non-executive Chairman on 14 March 2018 following the appointment of Andrew Gaughan as Chief Executive Officer.
− Ian Penrose, Chief Executive, was paid a basic annual salary of £399,000 per annum, with effect from 1 January 2017. He received £520,000 in
relation to his leaving arrangements, full details of which are provided in last year’s Annual Report.
− Mickey Kalifa, Chief Financial Officer, was paid a basic annual salary of £254,000 per annum with effect from 1 January 2017. He received
£309,000 in relation to his leaving arrangements full details of which are provided in last year’s Annual Report.
− Andrew Gaughan, in his position as President - Sportech Racing // Digital, was paid a basic annual salary of CAD$400,000 per annum with
effect from 1 January 2017 which was not subsequently increased on his appointment to the Board on 25 January 2017. He earned a bonus of
£1,000 in relation to performance for the period prior to his Board appointment. This is in addition to the figures set out above. Figures have
been converted from CAD$ to GBP at an exchange rate of 1.67 (the weighted average rate for the period).
− Roger Withers stepped down from the Board on 24 May 2017 and received £30,000 for payment in lieu of contracted notice.
− Richard Cooper and Giles Vardey, Non-executive Directors, were paid a basic annual fee of £60,000 per annum each with effect from 1 May
2017 and 4 December 2017 respectively. In addition to the figures in the table Richard Cooper also received £66,000 in relation to additional
work undertaken following the previous Chief Executive and the Chief Financial Officer announced resignations and fulfilling the role of senior
financial officer in the Group.
55
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
entities. Although some of these targets were
achieved, the Committee determined that due to the
poor financial performance no bonus for strategic
targets should be paid either, resulting in an award of
zero% out of a maximum target of 30% of potential
bonus.
The table below summarises the overall bonus result.
Individual
Total bonus: % Maximum (% salary payable)
Chief Executive
(Andrew Gaughan)
zero% out of the maximum entitlement
(zero% of salary payable) on pro-rated
salary
Chief Financial Officer zero% out of the maximum entitlement
(Tom Hearne)
(zero% of salary payable), pro-rated
per date of appointment to 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.
Pension arrangements
The Company paid CAD$8,000 into a defined
contribution scheme for Andrew Gaughan and CAD
$nil for Tom Hearne (Tom did not make employee
contributions).
Long-Term Incentive Plans (“LTIPs”)
Awards vested in relation to performance ending
2018
The performance period of awards granted in
November 2016 were substantially complete in the
year under review, with 100% of awards subject to
relative TSR (performance period measured to 3
March 2019). The vesting period for these awards
ends on 3 November 2019. Summary details of the
full conditions applying to the 2016 awards are
included as a footnote to the PSP table on page 58.
It was determined that Andrew Gaughan will be
treated as a Good Leaver and his 2016 award would
not be pro-rated.
The assessment of the TSR measure was made
independently by Aon who advised that TSR over the
three-year performance period to 3 March 2019 was
(12.9)% which resulted in the Company being ranked
below the median position on a relative basis. As a
result, none of this award will be eligible to vest.
Performance related bonus
The maximum bonus potential for the Chief Executive
in the year under review was 100% of basic salary,
and for the Chief Financial Officer was 75% of basic
salary. For each Executive Director, their performance
related bonus was based on (i) the adjusted EBITDA
less capitalised software and debtors over 3 months
old and (ii) strategic objectives aligned with Group
strategic goals. Following his agreed departure the
Remuneration Committee agreed that Andrew
Gaughan would be eligible to receive a bonus award
in respect of 2018.
Adjusted EBITDA performance
The Committee considered the Group’s adjusted
EBITDA performance for these purposes and in this
respect, achievement was determined to be nil out of
a maximum of 70% of overall potential bonus as the
threshold was not met. The targets set were to
achieve adjusted EBITDA of between threshold £8.5m
(20% of this element of bonus achievement) and
£10.0m (100% of this element of bonus achievement),
with target set at £9.5m (50% of this element of
bonus achievement).
Strategic objectives
With regards to Andrew Gaughan, his personal 2018
targets related to: Reducing Capital Expenditure
within Racing and Digital Business (from the
budgeted capex in this division), achieving a specific
EBITDA contribution from Bump 50:50 during the
year, delivering and executing a plan for growth from
Venues in H2, reducing the size of exposures in the
2017 accounts for items such as Norco and San Diego
amongst others, and subject to the repeal of PASPA,
securing a competitive sports wagering licence in
Connecticut and acquiring two B2B clients to our
Sports Betting Platform. Achievement against each of
these targets was assessed by the Committee,
resulting in an award of zero% out of a maximum
target of 30% of potential bonus.
The 2018 strategic targets relating to Tom Hearne
were in relation to: setting up a B2B and B2C model
for the remainder of 2018 and for 2019, improving the
EPICOR system, fixing connection issues and
completing the business process improvements
required, effecting the successful transition of the UK
office from London to Bristol, improving business unit
review processes on a monthly or quarterly basis and
producing a well-documented tax plan to utilise best
the US tax losses and initiate an amalgamation
process to consolidate the company’s corporate
56
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Strategic Report
Governance
Financial Statements
In summary the total number of awards for each Executive is shown in the table below.
Performance Share Plan – 2018 vesting
Measure
Condition
Threshold
Maximum
Actual
Vesting
Relative TSR
TSR measured against the
constituents of the FTSE Small
Cap Index (excluding
investment trusts) over the
three years from 3 March 2016
Median
rank
64
Upper
quartile
rank
32.25
Actual
rank
91
0%
Executive
Ian Penrose
Mickey Kalifa
Andrew Gaughan
Award
2016
2016
2016
Number of Dividend
adjust-
ment1
awards
granted
607,636
290,135
239,679
203,558
97,195
80,292
Leaver
pro-rating
(270,398)
(153,163)
—
Adjusted
number of
awards
540,796
234,167
319,971
Number of
shares
vesting
Value of
awards
vesting (£)
—
—
—
—
—
—
Vesting
0%
0%
0%
1The number of shares comprised in each award have been adjusted to take account of the impact of the special dividend using a theoretical ex-
price rights adjustment factor of 1.335.
2It was agreed in Ian Penrose and Mickey Kalifa’s settlement agreements that pro rating of the 2016 PSP would be from 9 March 2016 rather than
the award date of 2 November 2016, given the award date was delayed from March to November due to protracted close periods.
LTIP awards granted during 2018
Value Creation Plan (“VCP”)
The Committee has granted during the year awards giving participants a future right to acquire ordinary shares
in Sportech PLC under the VCP as detailed below.
Executive
Tom Hearne
The performance period for the 2018 Award comprises
the five years commencing on 1 January 2017. The
award size was determined taking due account of fact
that he would be joining the scheme part way through
its five year life. The VCP provides Participants,
including the Executive Directors, with a pool of
ordinary shares with a value equal to 20% of any
cumulative shareholder value created above a
compound hurdle rate of 8% per annum. However, in
the event of a change of control that results in
accelerated vesting in 2017 or 2018, or in the case of
an Executive Director being deemed a “Good Leaver”
(as defined in the VCP rules) in 2017 or 2018, the
compound hurdle rates for vesting will be 12% and 10%
respectively. The Chief Executive, Chief Financial
Officer and President Sportech Racing and Digital
share 50% of this pool. This will be measured from a
base ordinary share price of 95 pence, being the base
level of the 2017 LTIP award, as at the start of the
Performance Period.
Type of award
Restricted share award
Number
of units
awarded
1,250
% of overall
VCP pool
6.25%
The Committee will have the discretion to settle, up to
50% of Awards in cash.
A clawback provision is in place whereby the
Committee may require a Participant to transfer to the
Company all or some of the ordinary shares acquired,
or pay certain amounts to the Company, in the period
of two years following the vesting of an Award, where
the Committee determines that one or more of the
following trigger events have occurred:
(a) the discovery of a material misstatement
resulting in an adjustment in the audited
consolidated accounts of the Company or the
audited accounts of any Group company; and/or
(b) action or conduct of a Participant which, in the
reasonable opinion of the Committee, amounts
to fraud or gross misconduct.
57
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
Directors’ share-based incentives
The share-based incentives held by the Directors are as follows:
PSP
The following table shows PSP 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
2018
Dividend
Number Adjustment3
Awarded
during
the year
Number
Date of
grant
Exer-
cised
during
the year
Number
Lapsed
during
the year
Number
As at 31
December
2018
Number
Market
price
on date
of grant
Pence
Date
from
which
exerci-
sable
Share
Price at
date of
exercise
(pence)
Award
expiry
date
Andrew
Gaughan
Total PSP
awards
09.03.151
03.11.162
131,895
239,679
44,185
80,292
371,574
124,477
—
—
—
(88,040)
—
(88,040)
—
—
319,971
66.50
64.625
24.04.18
03.11.19
09.03.19
03.11.20
n/a
n/a
(88,040)
(88,040)
319,971
12015 awards were subject to relative TSR and EPS growth performance targets each applying to one-half of the awards the structure for which
was outlined in full in the 2015 Annual Report.
22016 awards were deferred until November, because of certain ongoing anticipated corporate activity which delayed their grant and were
subject to a relative TSR performance target subject to a financial underpin which was outlined in full in 2016 Annual Report.
3Adjustment of 0.335 made to awards to compensate for dividend paid in December 2017.
The market price of the ordinary shares at 31 December 2018 was 39.75p and the range during the year was 32.45p to 86.30p.
VCP
The following table shows VCP awards outstanding at the start of the year, awarded during the year and
remaining outstanding at the end of the year.
Ian Penrose
Mickey Kalifa
Andrew Gaughan
Tom Hearne
Total
Ian Penrose and Mickey Kalifa’s entitlement to the
VCP shares will reduce pro rata to maturity, following
their departure from the Company as set out in the
2017 report. Andrew Gaughan's entitlement to the
VCP will reduce pro-rata to maturity as noted below.
Payments to departing directors including
payments for loss of office
Andrew Gaughan stepped down from the Board and
left the employment of the Company on 28 February
2019. As part of his settlement agreement Andrew
received CAD$500,000 by way of payment in lieu of
Date
of grant
24.07.17
24.07.17
24.07.17
29.06.18
As at
1 January
2018
Number
5,000
2,500
2,500
—
10,000
Awarded
during
the year
Number
As at
31 December
2018
Number
—
—
—
1,250
1,250
5,000
2,500
2,500
1,250
11,250
% of
bonus pool
25%
12.5%
12.5%
6.25%
56.25%
notice (which equates to 12 months’ salary and
benefits under his contract of employment), and he
remained eligible for a discretionary 2018 annual
bonus (CAD zero). He was determined to be a Good
Leaver for the purpose of outstanding PSP and VCP
awards and his 2016 PSP awards were not prorated.
For the purpose of the VCP his leave date was
agreed to be 31 December 2019 and will reduce
pro-rata to maturity. He continued to accrue his usual
employment benefits until 28 February 2019.
58
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Strategic Report
Governance
Financial Statements
Payments to past directors
Steve Cunliffe, a past director, was paid £245,000 in May 2018 in relation to an employment litigation claim,
relating to the Spot the ball VAT repayment claim success. There were no other payments to past directors in the
year other than those fully outlined in last year’s report in relation to Ian Penrose (amounts of which were paid in
January 2018 payroll).
A company related to Mickey Kalifa, a past director, was paid £121,000 in July 2018 and £78,000 in January 2019
in relation to a consultancy contract entered into with the Company to progress the completion of the sale of
Sportech Racing BV, which was successfully closed in July 2018. Mr Kalifa delivered consulting services on a
success only fee basis.
Director interests and shareholding guidelines
The following table shows Directors’ interests in the Company along with the percentage of the shareholding
guideline that is currently met:
Total
share-
holding
at 31
December
2018 (or on
stepping
down from
the Board
if earlier)
588,954
25,000
770,000
125,000
—
Total
share-
holding
at 31
December
2017
545,111
—
270,000
—
—
PSP
award held
unvested
Share
ownership
guideline
319,971
—
—
—
—
200%
150%
N/A
N/A
N/A
% of
guideline
met by 31
December
2018
70.4%
5.4%
N/A
N/A
N/A
Director
Andrew Gaughan
Tom Hearne
Richard McGuire
Richard Cooper*
Giles Vardey
*Interests frozen at the Director’s leaving date.
The Chief Executive is expected to hold an investment
of at least 200% of base salary in Company shares and
any other Executive Directors of at least 150% of
salary. Until this requirement is met 50% of shares
vesting from the LTIP must be held (on a net of tax
basis).
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.
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
External directorships
Andrew Gaughan and Tom Hearne do not hold any
external directorships.
59
171843 2 Sportech Annual Report 2018 Corporate Governance_171843 2 Sportech Annual Report 2018 Corporate Governance 05/04/2019 20:10 Page 60
Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
Performance graph and Chief Executive pay chart
This graph shows the value, by 31 December 2018, 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:
Total shareholder return
Source: Datastream (Thomson Reuters)
Sportech PLC
FTSE SmallCap
)
d
e
s
a
b
e
r
(
)
£
(
e
u
a
V
l
450
400
350
300
250
200
150
100
50
0
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
This graph shows the value, by 31 December 2018, of £100 invested in Sportech PLC on 31 December 2008, compared with the value of £100
invested in the FTSE SmallCap Index on the same date.
The other points plotted are the values at intervening financial year-ends.
The FTSE Small Cap Index has been chosen as it is the index most closely aligned to Sportech PLC.
The following table sets out the Chief Executive’s total remuneration for the current financial year and the
preceding nine years:
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Remuneration before
LTIPS (£000)
LTIPS (£000)
Total remunerations
(£000)
Annual bonus
LTIP vesting
416
—
416
33%
—
542
—
542
74%
—
502
—
502
50%
—
542
233
775
25%
62.0%
575
836
1,411
40%
82.7%
515
158
673
21.25%
29.7%
517
—
517
20.5%
—
1,2331
—
6093
223
1,233
39.2%2
—
832
40.0%
50.0%
2684
—
268
—
—
1Including exceptional bonus of £637,000
2Excluding exceptional bonus
3Excluding loss of office and pay in lieu of notice payments of £520,000
4Relates to Andrew Gaughan, all prior years related to Ian Penrose.
60
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Strategic Report
Governance
Financial Statements
Percentage increase in the remuneration of the Chief Executive (unaudited)
Chief Executive (£000)
- Salary
- Bonus (excluding exceptional bonus)
- Benefits
Average of Group full-time employee (£000)
- Salary
- Bonus
- Benefits
2018
266
—
2
62
2
12
2017
% change
399
160
18
64
5
11
(33.3)%
(100.0)%
(88.8)%
(3.1)%
(60.0)%
9.1%
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
Distributions to shareholders
Dates of appointment of Directors
2018
£000
25,576
—
2017
£000
26,162
74,761
% change
(2.2)%
N/A
Details of the service contracts and letters of appointment in place as at 31 December 2018 for Directors are as
follows:
Richard McGuire
Andrew Gaughan
Tom Hearne
Richard Cooper
Giles Vardey
Christian Rigg
Shareholders’ vote on remuneration
Date of Appointment Notice period
24.08.16
25.01.17
14.05.18
24.05.17
04.12.17
01.01.19
3 months
12 months
12 months
3 months
3 months
3 months
At the last Annual General Meeting on 24 May 2018, votes on the Directors’ Remuneration Report were cast as
follows:
To approve the Directors’ Remuneration Report for the year ended
31 December 2017
In favour
Against
Withheld
87,435,243
(75.11%)
28,967,979
(24.89%)
1,649
Votes on the Directors’ Remuneration Policy and VCP were cast at the General Meeting held on 24 May 2017 as
follows:
To approve the Directors’ Remuneration Policy
To approve the rules of the Sportech PLC Value Creation Plan
In favour
Against
Withheld
113,839,245
(84.03%)
113,839,245
(84.03%)
21,634,427
(15.97%)
21,634,427
(15.97%)
nil
nil
The Board noted the votes recorded against the Remuneration Policy at the previous AGM, identified shareholders’ comments
and clarified certain issues around values attributed to departing senior executives. The Board and Remuneration Committee
continue to value shareholder engagement and welcome the opportunity to debate, with shareholders, any points within this
Annual Report.
61
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Sportech PLC Annual Report and Accounts 2018
Report of the Remuneration
Committee continued
Non-executive Director was appointed to the
Committee on 1 January 2019.
The Chief Executive is invited to attend meetings
although he is not present when matters affecting his
own remuneration are discussed. The Company
Secretary or their nominee acts as secretary to the
Committee.
Wholly independent advice on executive
remuneration is received from the Executive
Compensation practice of Aon PLC who in the year
under review advised on the drafting of the DRR and
provided TSR performance monitoring and IFRS2
accounting calculations. Aon is a member of the
Remuneration Consultants Group and is a signatory
to its Code of Conduct. Aon has no connection with
Sportech. The terms of engagement with Aon 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
£22,000 (excluding VAT).
The Committee also received advice from KPMG for
the 2018 grant under the VCP, various completion
activities for the 2017 grant and ongoing activities for
the scheme. Fees paid for this independent advice
were £58,000.
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:
Giles Vardey
Independent Non-executive Director and Chairman
of the Remuneration Committee
20 March 2019
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 three times during the year and
the following key activities have been undertaken:
− review of best practice;
− approval and grant of awards under the VCP in
the year under review;
− approval of bonus awards for achievement of
FY2017 targets, and approval of bonus
measures and targets for 2018;
− review of base salaries for the Executive team;
− approval of vesting determination for the 2015
PSP awards; and
− approval of remuneration terms for Tom
Hearne.
The Committee’s recommendations in 2018 and early
2019 were all accepted and implemented by the
Board.
The Committee has taken steps to ensure compliance
with the new Corporate Governance Code effective
from 1 January 2019, in particular, with regards to
enhanced Remuneration Committee remit and post-
employment shareholdings amongst other changes.
Compliance is under review through 2019 and will be
reported on in the Directors’ Remuneration Report
next year, in addition to the Remuneration Policy
being updated and put to shareholders for approval
at the 2020 AGM.
Composition of the Remuneration Committee
During the year, the Committee consisted of (i) Giles
Vardey (Chairman from March 2018), (ii) Richard
McGuire, (Chairman until Giles Vardey was appointed
Chairman in March 2018); and (iii) Richard Cooper
(until he stepped down from the Board on
30 October 2018). Each of Richard Cooper and Giles
Vardey are Independent Non-executive Directors.
Richard McGuire remained a member of the
Committee given his executive role was temporary
and for a short period of time. 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. Chris Rigg, Independent
62
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Strategic Report
Governance
Financial Statements
Directors’ Report
The Directors present their report and the audited
consolidated financial statements for the year ended
31 December 2018. General information of the
Company can be found in the Accounting Policies on
page 86.
The Strategic Report and Corporate Governance
Report are set out on pages 1 to 77. This Directors’
Report does not include information on trading in the
year or principal risks. As set out under section
414C(11) of the Companies Act 2006, this information
is included on pages 1 to 31.
Directors and their interests in the
shares of the Company
The Directors who held office at 31 December 2018
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.
At
At
20 March 31 December 31 December
2017
Number
2018
Number
2019
Number
Andrew Gaughan*
588,954
588,954
545,111
Thomas Hearne
(appointed 24 May 2018)
25,000
25,000
—
Richard McGuire
870,000
770,000
270,000
Giles Vardey
—
—
Richard Cooper
(resigned 29 October
2018)*
Christian Rigg
(appointed 1 January 2019)
*At date of resignation.
125,000
125,000
—
—
—
—
—
Details of Value Creation Plan and Performance Share
Plan (“PSP”) awards granted during the year ended
31 December 2018 are set out in the Remuneration
Report on pages 42 to 62.
Directors’ third-party indemnity
provisions
During the year, qualifying indemnity insurance was
provided to the Directors. Such insurance remained in
force throughout the year and 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 employee
involvement are set out in the ‘Employees’ section of
the Corporate Social Responsibility Report on page 34.
Substantial shareholdings
13 March 2019
31 December 2018
Ordinary
shares
of 20p
34,314,924
26,750,000
15,065,705
11,441,177
10,887,671
10,189,128
9,864,700
Lombard Odier Asset Mgt
Harwood Capital
Artemis Investment Mgt
AXA Investment Mgrs
Schroder Investment Mgt
Mr Richard I Griffiths
Aviva Investors
Canaccord Genuity
9,715,308
Wealth Mgt
HSBC Securities
8,314,641
Bank of America Merrill Lynch 8,282,294
6,255,226
Deutsche Bank
% of
issued
share
capital
18.37
14.32
8.07
6.13
5.83
5.46
5.28
5.20
4.45
4.43
3.35
Ordinary
shares
of 20p
32,662,050
25,750,000
15,065,705
11,441,177
10,887,671
10,189,128
9,882,046
9,715,308
8,314,641
8,319,120
6,255,226
% of
issued
share
capital
17.49
13.79
8.07
6.13
5.83
5.46
5.29
5.20
4.45
4.45
3.35
Total of substantial
shareholdings
All other shareholdings
151,080,774
37,670,483
80.90 148,482,072
38,269,185
19.10
79.51
20.49
Total shares in issue
188,751,257
100.00
186,751,257
100.00
Dividend
No dividend is proposed for 2018 (2017: £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 33.
Greenhouse gas emissions are monitored closely by
management, and disclosure of those emissions can
be found in the Strategic Report on page 33.
Corporate governance
The Group’s statement on corporate governance is
set out on pages 35 to 41 and forms part of this
Directors’ Report.
Respect for human rights
Sportech are committed to respecting human rights
as embodied in the Universal Declaration of Human
Rights and its two corresponding covenants, The
International Covenant on Civil and Political Rights
and The International Covenant on Economic, Social,
and Cultural Rights. We endeavour to ensure that we
do not infringe on human rights, avoid complicity in
the human rights abuses of others, and comply with
the laws of the countries in which we do business.
63
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Sportech PLC Annual Report and Accounts 2018
Directors’ Report continued
Anti-corruption and anti-bribery
matters
Sportech is committed to conducting business in an
ethical and honest manner, and is committed to
implementing and enforcing systems that ensure
bribery is prevented. Sportech has zero-tolerance for
bribery and corrupt activities. We are committed to
acting professionally, fairly, and with integrity in all
business dealings and relationships, wherever in the
country we operate.
Sportech will constantly uphold all laws relating to
anti-bribery and corruption in all the jurisdictions in
which we operate. We are bound by the laws of the
UK, including the Bribery Act 2010, in regards to our
conduct both at home and abroad.
Sportech recognises that bribery and corruption are
punishable by up to ten years of imprisonment and a
fine. If our company is discovered to have taken part
in corrupt activities, we may be subjected to an
unlimited fine, be excluded from tendering for public
contracts, and face serious damage to our reputation.
It is with this in mind that we commit to preventing
bribery and corruption in our business, and take our
legal responsibilities seriously.
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, however, 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
preapprove 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.
64
Share capital and authority to Issue
shares
The Company has one class of ordinary shares. The
nature of the holdings of the Company’s individual
Directors and individually significant shareholders are
disclosed on page 63. There are no restrictions on the
transfer of shares.
As part of the resolutions approved at the 2018 AGM,
shareholders’ authority was given to the Directors to:
(i) allot shares in the Company and grant rights to
subscribe for or convert any security into
shares in the Company (“Rights”) up to an
aggregate nominal value of £12,583,417. This
represents approximately one-third of the share
capital of the Company in issue at the date of
this document.
And in line with the Share Capital Management
Guidelines issued by the Investment Association:
(ii) allot shares in the Company and grant Rights
up to a further aggregate nominal value of
£12,583,417 in connection with a rights issue.
This amount represents approximately
one-third of the share capital of the Company
in issue at the date of this document.
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 32 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 2020.
Accordingly, it is deemed appropriate to prepare the
financial statements on a going concern basis for the
financial year ended 31 December 2018.
Financial risk management
The Group’s activities expose it to a variety of
financial risks:
• liquidity risk;
• credit risk; and
• foreign exchange risk.
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Strategic Report
Governance
Financial Statements
Where appropriate the Group uses derivative financial
instruments to hedge certain risk exposures. Details
of the policy for each of the above risks can be found
in note 25 of the consolidated financial statements.
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the group and company will
continue in business.
Disclosure of information to Auditors
So far as each Director is aware, at the date of the
approval of the financial statements there is no
relevant audit information of which the Company’s
Auditors are unaware. Each Director has taken all the
steps that they ought to have taken as a Director in
order to make themselves aware of any relevant audit
information and to establish that the Group and
Company’s Auditors are aware of that information.
The Auditors, PricewaterhouseCoopers LLP, indicated
their willingness to continue in office, and a resolution
for their reappointed would be proposed at the
Annual General Meeting.
Statement of Directors’ responsibilities
in respect of the financial statements
The Directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the Directors to prepare
financial statements for each financial year. Under
that law the Directors have prepared the group
financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by
the European Union and 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 company and of the
profit or loss of the group and company for that
period. In preparing the financial statements, the
Directors are required to:
• select suitable accounting policies and then
apply them consistently;
• state whether applicable IFRSs as adopted by
the European Union have been followed for the
group financial statements and IFRSs as
adopted by the European Union have been
followed for the company financial statements,
subject to any material departures disclosed
and explained in the financial statements;
• make judgements and accounting estimates
that are reasonable and prudent; and
The Directors are also responsible for safeguarding
the assets of the group and company and hence for
taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the group and company's transactions and
disclose with reasonable accuracy at any time the
financial position of the group and company and
enable them to ensure that the financial statements
and the Directors’ Remuneration Report comply with
the Companies Act 2006 and, as regards the group
financial statements, Article 4 of the IAS Regulation.
The Directors are responsible for the maintenance
and integrity of the company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the annual report and
accounts, taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the group and
company’s position and performance, business model
and strategy.
Each of the Directors, whose names and functions are
listed in the Board of Directors section on page 28
confirm that, to the best of their knowledge:
• the company financial statements, which have
been prepared in accordance with IFRSs as
adopted by the European Union, give a true
and fair view of the assets, liabilities, financial
position and loss of the company;
• the group financial statements, which have
been prepared in accordance with IFRSs as
adopted by the European Union, give a true
and fair view of the assets, liabilities, financial
position and loss of the group; and
• the Strategic report and other reports
contained in the Annual Report includes 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 it faces.
65
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Sportech PLC Annual Report and Accounts 2018
Directors’ Report continued
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 28
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 (“AGM”)
The Notice convening the AGM of the Company on
22 May 2019 will be sent to shareholders by 15 April
2019. In accordance with good corporate governance
practice, this year, each of the Directors will
voluntarily stand for re-election in line with the
provisions of the UK Corporate Governance Code,
save for Thomas Hearne and Christian Rigg who were
appointed to the Board since the last AGM, and are
required to retire and offer themselves for
reappointment. The profiles of those Directors appear
on page 28. Resolutions will also be proposed at the
AGM to receive the Accounts and the Directors’ and
Independent Auditors’ Reports, to approve the
Remuneration Report set out on pages 53 to 62, to
reappoint the Auditors and to authorise the Directors
to determine their remuneration.
On behalf of the Board,
Ben Harber
Company Secretary
SGH Company Secretaries Limited
20 March 2019
66
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Strategic Report
Governance
Financial Statements
Independent auditors’ report to the
members of Sportech PLC
Report on the audit of the financial statements
Opinion
In our opinion, Sportech PLC’s group financial statements and company financial statements (the “financial
statements”):
• give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2018
and of the group’s loss and the group’s and the company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union and, as regards the company’s financial statements, as applied in
accordance with the provisions of the Companies Act 2006; and
• 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.
We have audited the financial statements, included within the Annual Report, which comprise: the group and
company Balance Sheet as at 31 December 2018; the Income Statement and Statement of Comprehensive
Income, the group and company Statement of Cash Flows, and the group and company Statement of Changes
in Equity for the year then ended; the accounting policies; and the notes to the financial statements.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the
audit of the financial statements section of our report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the group or the company.
Other than those disclosed in note 7 to the financial statements, we have provided no non-audit services to the
group or the company in the period from 1 January 2018 to 31 December 2018.
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Sportech PLC Annual Report and Accounts 2018
Independent Auditors’ Report to the
Members of Sportech PLC continued
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
•
•
•
•
•
•
•
•
Overall group materiality: £160,000 (2017: £230,000), based on 2.5%
of Adjusted EBITDA.
Overall company materiality: £440,000 (2017: £430,000), based on
0.5% of Net Assets.
Our audit focused on the reporting packs for full scope entities
being: Sportech PLC (the parent company), Sportech Racing LLC,
Sportech Venues Inc and Racing Technology Ireland Limited.
We have performed limited procedures and desktop reviews over
other entities within the Group.
The components where we performed audit procedures accounted
for 90% of Group revenue and 97% of Group adjusted EBITDA.
Intangible asset impairment (Group)
Uncertain tax provisions (Group)
Investment impairment (Company)
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance
with laws and regulations related to the Listing Rules, Pensions legislation, US Gaming regulations and UK and
US tax legislation, and we considered the extent to which non-compliance might have a material effect on the
financial statements. We also considered those laws and regulations that have a direct impact on the preparation
of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls),
and determined that the principal risks were related to posting inappropriate journal entries to overstate the
financial performance of the Company and management bias in accounting estimates. The group engagement
team shared this risk assessment with the component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit procedures performed by the group engagement team
included, but were not limited to: review of the financial statement disclosures to underlying supporting
documentation, review of correspondence with regulators, review of correspondence with legal and tax advisors
and enquiries of management.
There are inherent limitations in the audit procedures described above and the further removed non-compliance
with laws and regulations is from the events and transactions reflected in the financial statements, the less likely
we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than
the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through collusion.
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Strategic Report
Governance
Financial Statements
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in
the audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by the auditors, including those which had the
greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of
the engagement team. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks
identified by our audit.
Key audit matter
Intangible asset impairment
Refer to page 38 (Audit Committee Report), page 86
(Significant Accounting Policies) and pages 106 to 108
(notes).
Intangible assets associated with the perpetual gaming
licence held by Sportech Venues Inc. (‘Venues’) have a
carrying value of £6.0m and require an annual
impairment assessment. The assessment performed by
the Directors concluded that no impairment is required.
In assessing the carrying value, the directors have also
taken into account other Venues assets of £15.1m. In
their discounted cash flow forecast the directors have
made three key assumptions. They 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, although only declining by 1% per year
on average from 2018 onwards. Further, they have
assumed the level of net handle in respect of internet
gambling in Connecticut will grow by 40% in 2020 and
10% in 2021 following an expectation that illegal
operators will be forced out of the State of
Connecticut. The directors have also made assumptions
in respect of the growth in profitability of the newly
opened Stamford venue, both in respect of the level of
handle generated and the food and beverage sales.
We focused on these areas due to the judgments and
estimates involved.
How our audit addressed the key audit matter
We evaluated and challenged the Directors’ future cash
flow forecasts, together with the process by which they
were drawn up and the key assumptions made, and
tested the underlying value-in-use calculation. 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 evaluated the key assumptions over the net handle
generated by the land based Venues in 2019 and
beyond by reference to the trend in total handle in
recent years, after removing the impact of one off
events. We have evaluated the growth assumptions
adopted by the directors in respect of online handle,
with reference to historic growth rates and considering
the likelihood that the company’s rights held under the
exclusive perpetual gaming license will be enforced. We
have also assessed the reasonableness of the directors’
forecasts for the profitability of the Stamford venue,
with reference to the current performance of the venue
and to operational plans to increase the profitability of
that venue. The directors’ assumptions are considered
to be reasonable estimates, supported by information
currently available.
In addition, we have evaluated the post-tax discount
rate used within the impairment model (9.1%) to assess
whether it is appropriate. This was done primarily by
comparison to the weighted average cost of capital of
other comparable companies within the same industry
or with a similar business model. The discount rate was
found to be supportable.
Whilst inherent uncertainty exists around many of the
key assumptions used by the directors in the
impairment review, our procedures indicated that the
key assumptions were supportable and reasonable
within the context of the evidence we obtained. We did
not identify any material inconsistencies in the
directors’ estimation techniques and forecasting in
these areas.
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Sportech PLC Annual Report and Accounts 2018
Independent Auditors’ Report to the
Members of Sportech PLC continued
Key audit matter
How our audit addressed the key audit matter
Furthermore, we performed sensitivity analysis to
assess whether reasonably possible changes to key
assumptions could result in an impairment. 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. We have determined that the directors’
disclosure (see note 13) appropriately reflects this fact
and is consistent with the requirements of accounting
standards.
We have evaluated the directors’ conclusions
surrounding whether a provision is required in respect
of these uncertain tax provisions and where applicable
the judgements adopted in determining the quantum of
the provision and related disclosures.
Football Pools disposal
In respect of the calculation of tax on disposal of the
Football Pools division we obtained management’s
intangible asset valuation model and assessed the
appropriateness of the methodology and assumptions
adopted in determining the valuation to be assigned to
each of the intangibles disposed of. We also evaluated
the judgements adopted by the directors in
determining the period in which those intangibles
arose, in the context of our understanding of the Group.
We performed sensitivity analysis to assess the
potential incremental tax liability should different
assumptions be adopted. We determined that, while
the directors’ assumptions are not inappropriate, there
were alterative judgements which could result in a
materially different tax liability, and hence agree that
the directors’ disclosures (see note 26) adequately
reflect this.
Spot the ball income
In respect of the taxation of the Spot the Ball income
we have understood the relevant tax legislation,
recalculated the tax payable based on the assumptions
adopted by management, reviewed correspondence
with HMRC and consulted with tax specialists to assess
the appropriateness of the position taken by
management. On balance we consider the judgement
taken to be supportable.
Uncertain tax provisions
Refer to page 38 (Audit Committee Report), page 87
(Significant Accounting Policies) and page 103, 122 and
123 (notes).
Over recent years the Group has experienced a number
of one off transactions that have significant tax
implications. These include the disposal of the Football
Pools division and the gain arising from the successful
Spot the Ball claim.
Football Pools disposal
The disposal of the Football Pools division was
structured as a share sale of three companies and sales
of the core business trade and assets of other
companies, which remain in the Group. Where certain
intangible assets are disposed of by the Group the
quantum of the tax liability, which crystallises, is subject
to management judgement both in respect of the
consideration, which relates to the assets disposed of,
the value of those assets and the periods in which
those assets arose.
Spot the ball income
The tax in respect of the net Spot the Ball exceptional
income recognised in the prior year was provided at
20%, being the UK tax rate enacted for the year ended
31 December 2016. It is possible that capital losses can
be offset against the gain to reduce the tax on this
gain. A judgement therefore exists as to whether a
provision is required for the £4.6m, which could be
reduced to nil should the conclusion be reached that it
is appropriate to treat the gain as a capital gain. The
directors’ have acknowledged exposure to additional
liabilities and have provided for this matter in full.
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Strategic Report
Governance
Financial Statements
Key audit matter
HMRC VAT challenge
During 2017, Sportech PLC has received a challenge
from HMRC in respect of the value of economic
activities that they provide to their trading subsidiaries,
including the exempt Football Pools business.
Assessments have been received totalling £3.5m for the
period ended 30 June 2017. Management have
provided £1.7m in relation to this matter and on the
basis of legal and tax advice have taken the judgement
that no further provision is required in respect of this
assessment or for any subsequent periods.
Together these create a number of material tax
judgements and we have therefore focussed on the
assumptions adopted by management in determining
the appropriate provisions required as at the
31 December 2018.
How our audit addressed the key audit matter
HMRC VAT challenge
In respect of the VAT claim we have reviewed the
advice that the directors have received from their
external tax and legal advisors and evaluated the
supporting calculations, which have been prepared by
management in reaching their conclusion that no
provision is required. Whilst the future outcome of the
appeal against HMRC is uncertain we determined that
the directors’ judgement in respect of this item is
reasonable. Further, we have confirmed that the
contingent liability in respect of this item is
appropriately disclosed (see note 26).
Company only key audit matter Investment impairment
Refer to page 38 (Audit Committee Report) and
page 134 (notes to the Company Financial Statements).
We evaluated and challenged the Directors’ future cash
flow forecasts, together with the process by which they
were drawn up and the key assumptions made, and
tested the underlying value-in-use calculation.
During the year management have identified
impairment indicators within the investment balance
held by Sportech PLC (PLC) in its direct subsidiary
Sportech Group Holdings Limited (SGHL), an entity
which ultimately holds the trading entities within the
Sportech Group and which was previously carried at
£235.4m. This impairment arose primarily from the
payment of a dividend from SGHL to PLC of £150m
during the year.
Management have performed an impairment review as
required by IAS36 and have concluded that the fair
value of the investment is £92.7m and have therefore
recognised an impairment of £142.7m.
The valuation is based on the expected future
performance of the trading entities in the US and
Europe and as such is judgemental due to the
estimation involved in predicting future cash flows.
We have focused on entities that contribute a
significant proportion of the value and considered the
main assumptions and estimates involved.
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 evaluated the key
assumptions, such as the continued growth of the
Dominican Republic, Ireland and Bump businesses. We
have checked management’s key assumptions against
available evidence and consider this to corroborate the
view taken by management. We do note that
management has reducing the forecast level of
international sales and services to be more in line with
historical trends, given the forecasts are based on
opportunities that remain uncertain at this stage. We
have also checked that the expected cash flows of the
Venues business are consistent with those included in
the Venues impairment model. The directors’
assumptions are considered to be reasonable estimates,
supported by information currently available.
71
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Sportech PLC Annual Report and Accounts 2018
Independent Auditors’ Report to the
Members of Sportech PLC continued
Key audit matter
How our audit addressed the key audit matter
In addition, we have evaluated the discount rate used
within the impairment review to assess whether it is
appropriate. This was done primarily by comparison to
the weighted average cost of capital of other
comparable companies within the same industry or
with a similar business model, with adjustments to
reflect the different regions in which the underlying
trading entities operate. The discount rate was found to
be supportable.
Whilst inherent uncertainty exists around many of the
key assumptions used by the directors in the
impairment review, our procedures indicated that the
key assumptions were supportable and reasonable
within the context of the evidence we obtained. We did
not identify any material inconsistencies in the
directors’ estimation techniques and forecasting in
these areas.
We note that given an impairment charge has been
recognised and there remains a material residual
carrying value of the investment balance, it is highly
sensitive to future adverse variances against forecast.
Overall we have concluded that management have
determined their valuation on a reasonable basis, driven
by management’s reasonable estimates of the present
value of future cash flows of the business.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on
the financial statements as a whole, taking into account the structure of the group and the company, the
accounting processes and controls, and the industry in which they operate.
The Group is managed divisionally, with the two operating divisions being Racing and Digital and Venues, with
the head office function incurring certain central costs on behalf of the Group.
The directors operate the Group divisionally and so we have scoped our audit at a reporting level. The Group
comprises 19 reporting units. We performed full scope audits over four reporting units, being Sportech PLC (the
Parent Company), Sportech Racing LLC, Sportech Venues Inc and Racing Technology Ireland Limited, which we
regarded as being financially significant components of the Group given their contribution to the Group’s
revenue and adjusted EBITDA.
The components where we performed full scope audit procedures accounted for 90% of Group revenue and 97%
of Group adjusted EBITDA.
Additionally we performed work in another five reporting units 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.
72
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Strategic Report
Governance
Financial Statements
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 in aggregate 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 materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£160,000 (2017: £230,000).
£440,000 (2017: £430,000).
2.5% of Adjusted EBITDA.
0.5% of Net Assets.
Based on the benchmarks disclosed
within the Annual Report, adjusted
EBITDA is the primary measure used
by the shareholders in assessing the
performance of the group.
Management’s view is that adjusted
EBITDA is the closest proxy to cash
generation for underlying performance,
and adding back share option charges,
depreciation, amortisation and
exceptional items to operating profit is
appropriate.
Net Assets is considered to be
appropriate as it is not a profit
oriented company. The main source
of income is dividend income
provided by other group companies.
The company holds all investments
in subsidiaries and therefore Net
Assets is deemed a generally
accepted auditing benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall
group materiality. The range of materiality allocated across components was between £60,000 and £152,000.
Certain components were audited to a local statutory audit materiality that was also less than our overall group
materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit
above £8,500 (Group audit) (2017: £10,000) and £22,000 (Company audit) (2017: £21,000) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to
add or draw attention to in respect of the directors’
statement in the financial statements about whether the
directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial
statements and the directors’ identification of any
material uncertainties to the group’s and the company’s
ability to continue as a going concern over a period of at
least twelve months from the date of approval of the
financial statements.
We have nothing material to add or to draw
attention to.
However, because not all future events or conditions
can be predicted, this statement is not a guarantee
as to the group’s and company’s ability to continue
as a going concern. For example, the terms on which
the United Kingdom may withdraw from the
European Union, which is currently due to occur on
29 March 2019, are not clear, and it is difficult to
evaluate all of the potential implications on the
group’s trade, customers, suppliers and the wider
economy.
73
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Sportech PLC Annual Report and Accounts 2018
Independent Auditors’ Report to the
Members of Sportech PLC continued
Reporting obligation
We are required to report if the directors’ statement
relating to Going Concern in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
Outcome
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements
and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we do not express an audit opinion
or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent
material inconsistency or material misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report, Directors’ Report and Corporate Governance Report, we also considered
whether the disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the
Companies Act 2006 (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require
us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise
stated).
74
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Strategic Report
Governance
Financial Statements
Strategic Report and Directors’ Report
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 year ended 31 December 2018 is consistent with the
financial statements and has been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and company and their environment obtained in
the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’
Report. (CA06)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the
Corporate Governance Statement (on pages 35 to 41) about internal controls and risk management systems
in relation to financial reporting processes and about share capital structures in compliance with rules 7.2.5
and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) is consistent
with the financial statements and has been prepared in accordance with applicable legal requirements.
(CA06)
In light of the knowledge and understanding of the group and company and their environment obtained in
the course of the audit, we did not identify any material misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the
Corporate Governance Statement (on pages 35 to 41) with respect to the company’s corporate governance
code and practices and about its administrative, management and supervisory bodies and their committees
complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility to report if a corporate governance statement has
not been prepared by the company. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the
solvency or liquidity of the group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 32 of the Annual Report 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.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or
mitigated.
• The directors’ explanation on page 32 of the Annual Report 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 to report having performed a review of the directors’ statement that they have carried out
a robust assessment of the principal risks facing the group and 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 UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the group and
company and their environment obtained in the course of the audit. (Listing Rules)
75
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Sportech PLC Annual Report and Accounts 2018
Independent Auditors’ Report to the
Members of Sportech PLC continued
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 65, that they consider the Annual Report taken as a whole
to be fair, balanced and understandable, and provides the information necessary for the members to assess
the group’s and company’s position and performance, business model and strategy is materially
inconsistent with our knowledge of the group and company obtained in the course of performing our
audit.
• The section of the Annual Report on page 37 describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee.
• The directors’ statement relating to the company’s compliance with the Code does not properly disclose a
departure from a relevant provision of the Code specified, under the Listing Rules, for review by the
auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in
accordance with the Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 65, the directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for
being satisfied that they give a true and fair view. The directors are also responsible for such internal control as
they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the group or the company or to
cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
76
171843 2 Sportech Annual Report 2018 Corporate Governance_171843 2 Sportech Annual Report 2018 Corporate Governance 05/04/2019 20:10 Page 77
Strategic Report
Governance
Financial Statements
Other required reporting
Companies Act 2006 exception reporting
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 company, or returns adequate for our audit have
not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the 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.
Appointment
The predecessor audit firm of PricewaterhouseCoopers LLP, Deloitte Haskins & Sells were appointed to audit the
financial statements prior to 1984. The period of total uninterrupted engagement is over 20 years.
Nigel Reynolds (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 March 2019
77
Financial
Statements
80
Consolidated Financial Statements
129
Company Financial Statements
137
Advisors and Corporate Information
78
3
.
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
79
US$17m
generated in 2018 for
team foundations.
171843 3 Sportech Annual Report 2018 Financial Statements_171843 3 Sportech Annual Report 2018 Financial Statements 05/04/2019 19:54 Page 80
Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements
Income Statement
for the year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Marketing and distribution costs
Contribution
Operating costs
Other income
Operating loss
Finance costs
Finance income
Other financial income
Share of loss after tax and impairments of joint ventures and associates
Loss before tax from continuing operations
Tax – continuing operations
Loss for the year – continuing operations
Net profit/(loss) from discontinued operations
Loss for the year
Attributable to:
Owners of the Company
Non-controlling interests
Earnings per share attributable to owners of the Company from continuing operations
Basic
Diluted
Earnings per share attributable to owners of the Company from discontinued operations
Basic
Diluted
Adjusted earnings per share attributable to owners of the Company
Basic
Diluted
Note
2
3
3
3
4
8
8
8
15
9
10
14
11
11
11
11
11
11
2018
£000
63,718
(17,619)
46,099
(1,988)
44,111
(47,196)
173
(2,912)
(67)
85
455
—
(2,439)
(2,019)
(4,458)
1,822
(2,636)
(2,636)
—
(2,636)
(2.4)p
(2.4)p
1.0p
1.0p
0.3p
0.3p
2017
£000
66,271
(18,562)
47,709
(2,118)
45,591
(68,065)
827
(21,647)
(212)
—
193
(1,484)
(23,150)
230
(22,920)
(1,522)
(24,442)
(24,300)
(142)
(24,442)
(12.0)p
(12.0)p
(0.8)p
(0.8)p
2.9p
2.9p
See note 1 for a reconciliation of the above statutory income statement to the adjusted performance measures
used by the Board of Directors to assess divisional performance.
80
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Strategic Report
Governance
Financial Statements
Statement of Comprehensive Income
for the year ended 31 December 2018
Loss for the year
Other comprehensive income/(expense):
Items that will not be reclassified to profit and loss
Actuarial gain/(loss) on retirement benefit liability
Deferred tax on movement on retirement benefit liability
Items that 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
Currency translation differences
Total other comprehensive income/(expense) for the year, net of tax
Total comprehensive income/(expense) for the year
Attributable to:
Owners of the Company
Non-controlling interests
Note
24
17
2018
£000
2017
£000
(2,636)
(24,442)
315
(83)
232
(171)
55
(116)
—
2,500
2,411
2,643
7
7
—
7
(4,935)
(2,551)
(26,993)
(26,862)
(131)
(26,993)
81
171843 3 Sportech Annual Report 2018 Financial Statements_171843 3 Sportech Annual Report 2018 Financial Statements 05/04/2019 19:54 Page 82
Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Balance Sheet
As at 31 December 2018
ASSETS
Non-current assets
Intangible fixed assets
Property, plant and equipment
Trade and other receivables
Deferred tax assets
Current assets
Trade and other receivables
Inventories
Assets held for sale
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Provisions
Financial liabilities
Current tax liabilities
Net current assets
Non-current liabilities
Retirement benefit liability
Provisions
TOTAL LIABILITIES
NET ASSETS
EQUITY
Ordinary shares
Other reserves
Retained earnings
TOTAL EQUITY
Note
2018
£000
2017
£000
13
14
16
17
16
18
19
20
21
22
23
9
24
22
27
13,551
26,337
667
5,979
46,534
8,169
2,576
—
17,915
28,660
75,194
11,629
25,705
2,443
6,406
46,183
10,342
2,652
778
18,757
32,529
78,712
(12,946)
(977)
—
(6,563)
(16,058)
(1,103)
(175)
(7,106)
(20,486)
(24,442)
8,174
8,087
(902)
(1,434)
(2,336)
(22,822)
52,372
37,350
25,971
(10,949)
52,372
(1,537)
(1,523)
(3,060)
(27,502)
51,210
37,123
22,400
(8,313)
51,210
The financial statements on pages 80 to 128 were approved and authorised for issue by the Board of Directors on
20 March 2019 and were signed on its behalf by:
Richard McGuire
Director
Thomas Hearne
Director
Company Registration Number: SC069140
82
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Strategic Report
Governance
Financial Statements
Statement of Changes in Equity
for the year ended 31 December 2018
At 1 January 2018
Comprehensive income/(expense)
Loss for the year
Other comprehensive items
Actuarial gain on defined benefit pension liability*
Currency translation differences
Total other comprehensive items
Total comprehensive items
Transactions with owners
Share option charge
Employer taxes paid on vesting of options
Shares issued in relation to the PSP (note 27)
Total transactions with owners
Total changes in equity
At 31 December 2018
*Net of deferred tax
**Foreign exchange reserve
Other reserves
Capital
redemp-
tion
reserve
£000
Ordinary
shares
£000
37,123
10,312
Share
option
reserve
£000
6,608
—
—
—
—
—
—
—
227
227
227
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,222
(67)
(227)
928
928
37,350
10,312
7,536
Pension
reserve
£000
FX** Retained
reserve earnings
£000
£000
Total
£000
(646)
6,126
(8,313)
51,210
—
232
—
232
232
—
—
—
—
232
(414)
— (2,636)
(2,636)
—
2,411
2,411
2,411
—
—
—
—
—
—
—
(2,636)
—
—
—
—
2,411
(2,636)
232
2,411
2,643
7
1,222
(67)
—
1,155
1,162
8,537 (10,949)
52,372
83
171843 3 Sportech Annual Report 2018 Financial Statements_171843 3 Sportech Annual Report 2018 Financial Statements 05/04/2019 19:54 Page 84
Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Statement of Changes in Equity (continued)
for the year ended 31 December 2017
Other reserves
Capital
redemption
reserve
£000
Share
option
reserve
£000
Pension
reserve
£000
FX**
reserve
£000
Available-
for-sale
reserve
£000
Retained
earnings
£000
NCI***
£000
Total
£000
2,198
(530)
11,072
(2,500)
35,323
131
148,813
Ordinary
shares
£000
103,119
—
—
—
—
—
—
—
—
—
—
At 1 January 2017
Comprehensive income
Loss for the year
Other comprehensive items
Actuarial loss on defined
benefit pension liability*
Realised fair value losses
on available for sale
Currency translation
differences
Total other comprehensive
items
Total comprehensive items
Transactions with owners
Share option charge,
excluding accelerated
IFRS 2 charge
Acceleration of IFRS 2
charge for departing
management
Employer taxes paid on
vesting of options
Share buyback (note 27)
Cancellation of share
capital (note 27)
Capital reduction
(note 27)
Special dividend
(note 27)
Total transactions
with owners
Total changes in
equity
At 31 December 2017
*Net of deferred tax.
**Foreign exchange reserve
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
666
3,765
(21)
—
—
—
—
—
—
—
—
2,500
—
(116)
—
—
(4,946)
—
(116)
(116)
(4,946)
(4,946)
2,500
2,500
—
(24,300)
(142)
(24,442)
—
—
—
—
—
—
11
11
(116)
2,500
(4,935)
(2,551)
(24,300)
(131)
(26,993)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(21,192)
—
55,684
—
—
—
—
—
—
666
3,765
(21)
(21,192)
—
—
(53,828)
— (53,828)
(19,336)
— (70,610)
(10,312)
10,312
(55,684)
—
—
—
(65,996)
10,312
4,410
(65,996)
37,123
10,312
10,312
4,410
6,608
(116)
(4,946)
2,500
(43,636)
(131)
(97,603)
(646)
6,126
—
(8,313)
—
51,210
***Non-controlling interests, representing stakes not held in Norco, California by the Sportech Group
84
171843 3 Sportech Annual Report 2018 Financial Statements_171843 3 Sportech Annual Report 2018 Financial Statements 05/04/2019 19:54 Page 85
Strategic Report
Governance
Financial Statements
Statement of cash flows
for the year ended 31 December 2018
Cash flows from operating activities
Cash generated from operations, before exceptional items
Interest received
Interest paid
Tax paid
Net cash generated from/(used in) operating activities before exceptional items
Exceptional cash inflows
Exceptional cash outflows
Cash generated from/(used in) operations – continuing operations
Cash used in operations – discontinued operations
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Investment in joint ventures and associates
Disposal of shares in NYX Gaming Group
Disposal of Football Pools division
Disposal of Sportech Racing BV (net of transaction costs)
Contingent consideration paid for Bump (Worldwide) Inc
Investment in intangible fixed assets
Purchase of property, plant and equipment
Cash (used in)/from investing activities – continuing operations
Cash used in investing activities – discontinued operations
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Distributions to shareholders
Net cash used in financing activities
Net 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
Less cash held by asset held for sale
Group cash and cash equivalents at the end of the year
Represented by:
Cash and cash equivalents
Less customer funds
Adjusted net cash at the end of the year
Note
28
15
10
10
23
13
14
27
19
20
20
20
20
2018
£000
2017
£000
5,890
85
(22)
(2,029)
3,924
487
(2,320)
2,091
(37)
2,054
(291)
—
275
2,411
(167)
(3,106)
(1,927)
(2,805)
—
(2,805)
—
—
(751)
(91)
18,757
17,915
—
17,915
17,915
(3,187)
14,728
6,418
—
(235)
(15,859)
(9,676)
3,685
(8,391)
(14,382)
(7,114)
(21,496)
(173)
2,333
86,200
—
—
(3,948)
(6,905)
77,507
(1,104)
76,403
(75,020)
(75,020)
(20,113)
(357)
39,640
19,170
(413)
18,757
18,757
(2,872)
15,885
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Notes to the financial statements
for the year ended 31 December 2018
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 2018 comprise the Company, its subsidiaries, joint ventures and associates (together referred to as
the ‘Group’). The principal activities of the Group are the provision of pari-mutuel betting (B2C) and the supply
of wagering technology solutions (B2B).
Going concern
As discussed in the Directors’ report on page 64, 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 2020.
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 Standards Interpretation Committee (‘IFRS IC’) 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.
Amounts presented in the financial statements have been rounded to the nearest £1,000.
Critical judgements and estimates
Critical judgements and estimates have been made in the following areas:
Carrying value of Sportech Venues intangible assets
To determine whether an impairment of the intangible assets held by the Sportech Venues division has occurred,
the key assumptions the Group uses in estimating future cash flows for value-in-use measures are:
– success of a recently-built large venue in growing both its handle and F&B earnings;
– the enforcement by the State of Connecticut of the Company’s exclusive rights to operate online
wagering;
– rates of industry handle growth/decline impacting the retail and online product; and
– 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
assumption and discount rates applied, which are reviewed annually. Further details are disclosed within note 13
of the Annual Report.
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Financial Statements
Tax
The Group’s activities in recent periods have resulted in material tax liabilities crystallising. The ultimate tax
liability due, in all instances, is subject to a degree of judgment. The judgments which are made are done so in
good faith, with the aim of always paying the correct amount of tax at the appropriate time. Management work
diligently with the Group’s external financial advisors in quantifying the anticipated accurate and fair tax liability
which arises from material one-off events such as the Spot the Ball legal case and the disposal of the Football
Pools (see notes 9 and 26).
Critical judgments include the valuation of assets disposed of in the Football Pools deal and the period in which
those assets arose. The use of capital losses to offset the Spot the Ball gain is also a critical judgment, and the
uncertainty of this results in a provision of £4.6m for corporation tax. There is a further £2.0m of provisions for
uncertain tax positions including the Football Pools disposal, transfer pricing and judgements made in the US tax
filings. Both provisions are included in the current tax liability.
The Group has modelled its tax projections to support the recoverability of its deferred tax assets in the US (net
operating losses in particular). Those projections require judgement and if the forecasts are not achieved, the
recoverability of the deferred tax assets may be in doubt.
In addition, the Irish revenue have assessed the Group for €106k for income tax allegedly underpaid in relation to
subsistence claims of Irish field crew. Management believe that this assessment is incorrect and that all
subsistence claims paid were made without tax deduction in accordance with relevant regulations. An appeal is
being pursued and no provision has been recorded in these financial statements.
Finally, the Group has been assessed for VAT amounting to £3.5m in relation to the fully taxable status of
Sportech PLC as a holding company which makes management charges to its subsidiaries for services provided
by the Executives and Group management team. The Group is appealing the assessments and has serviced
evidence to the First-tier Tax Tribunal supporting its position. We will update shareholders on the progress of the
appeal during 2019. A liability of £1.7m has been recorded in the financial statements representing management’s
best estimate of the probable liability. £1.3m has already been paid to HMRC in order to progress the appeal. This
is recorded as a receivable in the financial statements and is offset against the £1.7m liability, therefore the net
payable in accruals is £0.4m.
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.
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
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Consolidated Financial Statements continued
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
The Group recongnises revenue when it transfers control over a product or service to a customer. The following
is a description of principal activities (separated by reportable segment), from which the Group generates its
revenues.
Sportech Venues:
This division operates betting venues in the state of Connecticut, USA and a website for online wagering from
Connecticut residents under an exclusive and perpetual licence. Its revenues are derived from handle (betting
stakes) net of winnings paid for wagering on horse and greyhound racing and jai alai, and is recognised on the
day the event takes place. It also generates revenue from:
Other revenue type
Recognition policy
Providing a full turn-key service for the operation of
racebooks at casinos
Food and beverage sales in venue
Programme sales
Revenue is a percentage of handle processed through
the racebooks and services included are settlement,
negotiating fee structure with tracks and audio visual
and other equipment provision in some cases. Revenue
is recognised on the day the event occurs.
Revenue is recorded as the price charged for the
goods on the date the food/beverage is consumed.
Revenue is recorded as the goods are transferred to
the customer.
Rental of space in venues for parties/events
Revenue is recorded on the date of the event.
Sale of lottery tickets on behalf of the state lottery
ATM transaction fees
Sportech retains a percentage of the ticket sales,
revenue is recorded at the time the ticket is sold.
We receive a fee per transaction, recorded as the
transaction occurs.
Parking lot rental for events e.g. carnival, rodeo
Revenue recorded as each event occurs.
Sportech Racing and Digital:
This division provides pari-mutuel wagering services and systems worldwide, principally to the horseracing
industry. It derives its revenues from various contractual models as follows:
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Financial Statements
North America
Contracts with tote customers are structured based on the supply of a turn-key service where both hardware
and services are provided throughout the period of the contract. Revenue is generated over the contract term
from; the provision of our tote software, operation of the tote for the customer and maintenance of the hardware
and software in use. If there is a sale of hardware or software upfront, which is rare and generally not material to
the contract as a whole, then this is recognised when the risks and rewards transfer to the customer, generally
following the receipt of an acceptance form or confirmation of delivery. The service fees are either fixed monthly
fees, percentages of handle through the tote software or a combination of both and most contracts have fixed
monthly “minimums”. Revenue is recognised as the service is delivered.
Europe and rest of world
In Europe and the rest of the world, the sales model is different in that most sales are for an upfront system and
hardware and revenue is recognised when performance obligations have been satisfied. Sales which involve
significant customisation are recognised on a percentage of completion basis. Where contracts are long-term
development projects for bespoke software delivery to a customer, revenue is recognised over time using the
inputs method (labour hours expended) for progress towards complete satisfaction calculations.
Following initial delivery of hardware and software, we then generate revenue from maintenance services (of the
hardware and software) and in some cases operation of the tote. The value of revenue delivered under service
contracts is generally based on either a percentage of amounts wagered or on a predetermined fixed amount
depending on contract terms. Revenue is recognised as the service is delivered to the customer.
Under multiple performance condition 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.
Bump 50:50
Bump 50:50 contracts are principally service contracts where revenue is recognised over the contract term in
line with the supply of services, revenue is generally a percentage of the total raffle takings.
(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 Board which makes strategic and
operational decisions.
The Group has identified its business segments as follows:
– 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 overall management 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.
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Consolidated Financial Statements continued
Tax is recognised in the income statement, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that, at the time of the transaction, affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where
the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority, on either the same or different taxable entities, where there is an intention
to settle the balances on a net basis.
(g) Foreign currencies
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (the ‘functional currency’). The consolidated
financial statements are presented in Sterling (£), which is the Company’s functional currency and the Group’s
presentation currency.
Transactions and balances
Transactions in foreign currencies are translated into the functional currency at the rate of exchange ruling at the
date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of
exchange ruling at the balance sheet date. Foreign exchange gains and losses, resulting from the settlement of
such transactions and from the translation at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies, are recognised in the income statement, except where deferred in other
comprehensive income as qualifying cash flow hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the
income statement within finance income or costs. All other foreign exchange gains and losses are presented in
the income statement within operating profit.
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
– assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
– income and expenses for each income statement are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the rate on the dates of the
transactions); and
– all resulting exchange differences are recognised in other comprehensive income.
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Financial Statements
(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 as following period:
Long leasehold and owned land
Long leasehold and owned buildings
Short leasehold land and buildings
Plant, equipment and other fixtures and fittings
Not depreciated
Over 25 years
Over the period of the lease
Between 3 and 12 years
Assets in the course of construction are not depreciated until they are ready for use.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
(j) Goodwill
Goodwill arising on consolidation represents the excess of the fair value of consideration given over the fair value
of the separately identifiable net assets acquired. Goodwill arising on acquisitions before the date of transition to
IFRSs (4 January 2005) has been frozen at the previous UK GAAP net book value at the date of transition,
subject to being tested for impairment annually at the year end date.
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.
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Consolidated Financial Statements continued
Directly attributable costs that are capitalised as part of the software product include the software development
employee costs and an appropriate proportion of relevant overhead. Other development expenditure that does
not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an
expense are not recognised as an asset in a subsequent period.
Software development costs are amortised over their estimated useful lives, which do not exceed 12 years.
Licences
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.
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.
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Governance
Financial Statements
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.
(p) Share-based payments
The fair value of employee options awarded under the Value Creation Plan 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.
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Consolidated Financial Statements continued
(t) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment, being the difference between the assets’ carrying
amounts and the present value of the estimated future cash flows, discounted at the original effective interest
rate. Individually significant receivables are considered for impairment when they are past due or when other
objective evidence is received that a specific customer will default or delinquency in payment will arise. Any
subsequent recovery of amounts written off is credited to the income statement.
(u) Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method.
(v) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in, first out
method. Net realisable value is the estimated selling price in the ordinary course of business.
(w) Provisions
Provisions for onerous contracts, onerous leases, 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. Provisions payable over a period greater than 12 months are discounted using an appropriate market
risk-free discount rate.
(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
A number of amendments to Standards have become effective for financial periods beginning on (or after)
1 January 2018, and are therefore applicable for the 31 December 2018 financial statements. The amendments
listed below have been included in these consolidated financial statements (where applicable) as if they had
been applied for the first time as at 1 January 2018.
New standards and amendments effective for periods beginning on or after 1 January 2018 and therefore
relevant to these financial statements:
IFRS
IFRS 9 (2014) Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRS 2 Share Based Payments (Amendment – Classification and Measurement of Share
Based Payment Transactions)
IFRS 4 Insurance Contracts (Amendment – Applying IFRS 9 Financial Instruments)
Annual Improvements to IFRSs 2014 – 2016 Cycle (IFRS 1 First-time Adoption of IFRS and
IAS 28 Investments in Associates and Joint Ventures)
IAS 40 Investment Property (Amendment – Transfers of Investment Property)
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
Effective date
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
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Of the pronouncements above, the amendment to IFRS 4 and IAS 40 are not relevant to the Group. All of the
other pronouncements are relevant, but only the application of IFRS 9 and IFRS 15 results in the accounting
applied by the Group changing. The impact of these standards on the recognition and measurement of items in
the financial statements is not material and no adjustments have been made to the Group’s financials for the
current or prior periods.
IFRS 15 requires the Group to recognise revenue to depict the transfer of goods or services to customers in an
amount that reflects the consideration that it expects to be entitled to in exchange for transferring those goods
or services to the customer. The Group carried out a thorough review of all customer relationships to determine
the timing and value of revenue to be recognised and has determined that no adjustments to the reported
revenue in 2017 is required. The Group applied the modified retrospective approach to its application of IFRS 15.
(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 Leases
IFRS 9 (2014) Financial Instruments (Amendment – Prepayment Features with Negative
Compensation and Modifications of Financial Liabilities)
IAS 28 – Investments in Associates and Joint Ventures (Amendment – Long-term Interests
in Associates and Joint Ventures)
Annual Improvements to IFRSs 2015 – 2017 Cycle (IFRS 3 Business Combinations and IFRS 11
Joint Arrangements, IAS 12 Income Taxes, and IAS 23 Borrowing Costs)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
Amendment to IAS 19 Employee Benefits
IFRS 17 Insurance Contracts
Applicable
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2021
Of the pronouncements above, the IFRS 9 and IFRS 17 are not relevant to the Group. All of the other
pronouncements are relevant, but only the application of IFRS 16 is expected to result in the accounting applied
by the Group changing.
IFRS 16 “Leases” will replace IAS 17 “Leases” and sets out the principles for the recognition, measurement,
presentation and disclosure of leases and will be effective for the Group from 1 January 2019. The Directors have
reviewed all of the lease contracts in the year. The Company holds only leases classified as operating leases
under the current standard, and acts only as a lessee, not a lessor. Under IFRS 16 the main difference for the
Group will be that all leases that the Group holds as a lessee will be recognised as an asset on the balance sheet,
with a corresponding lease liability.
On the income statement the Company will recognise a depreciation charge and an interest charge instead of a
straight-line operating cost. This changes the timing of cost recognition on the lease, resulting in extra cost in
early years of the lease, and reduced cost towards the end of the lease. Had the Company adopted IFRS 16 on
31 December 2018 the cumulative impact to net assets would have been a reduction of £1.2m. A right-to-use
asset with a net book value of approximately £8.6m will be recorded at the date of transition together with a
lease liability of approximately £9.8m. The Company will use the modified retrospective approach in adopting
IFRS 16. Estimated income statement impacts are that Adjusted EBITDA will increase by £1.5m, depreciation will
increase by £1.2m and finance costs will increase by £0.4m, meaning profit before tax will be approximately
£0.1m lower than under IAS 17 principles.
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
1. Adjusted Performance Measures
The Board of Directors 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. This measure provides the most reliable indicator of underlying
performance of each of the trading divisions. This is considered the most reliable indicator as it is the closest
approximation to cash generated by underlying trade, excluding the impact of one-off items of a material nature
and working capital movements.
Adjusted EBITDA is not an IFRS measure, nevertheless it is widely used by both the analyst community to
compare with other gaming companies and by management to assess underlying performance.
A reconciliation of the adjusted operating expenses used for statutory reporting and the adjusted performance
measures is shown below:
Operating costs per income statement
Add back:
Depreciation
Amortisation, excluding acquired intangible assets
Amortisation of acquired intangible assets
Impairment of intangible assets
Impairment of property, plant and equipment
Share option charge, excluding acceleration of charge for departing management
Accelerated IFRS 2 charge for departing management
Fair value losses realised on shares held in NYX Gaming Group
Exceptional items
Adjusted operating costs
Other operating income*
Total adjusted net operating costs
Note
2018
£000
2017
£000
(47,196)
(68,065)
14
13
13
13
14
27
27
25
4
4
2,860
1,917
—
—
—
1,222
—
—
3,453
2,740
1,540
350
12,040
874
666
3,765
1,603
5,603
(37,744)
173
(37,571)
(38,884)
—
(38,884)
*Note prior year other operating income is included in exceptionals and therefore is not included in adjusted net operating cost. Other operating
income of £173k in 2018 was an insurance payout for business interruption following hurricane Maria and is considered to be non-exceptional
operating income and is included in adjusted net operating costs.
Adjusted EBITDA is calculated as below.
Revenue
Cost of sales
Gross profit
Marketing and distribution costs
Contribution
Adjusted operating income and costs (pre sports betting investment)
Adjusted EBITDA pre sports betting investment
Sports betting investment
Adjusted EBITDA
2018
£000
63,718
(17,619)
46,099
(1,988)
44,111
(36,143)
7,968
(1,428)
6,540
2017
£000
66,271
(18,562)
47,709
(2,118)
45,591
(38,884)
6,707
—
6,707
Sports betting investment includes lobbying costs, additional staff costs, travel and consultants, and also
includes an allocation of senior management time. Of these costs, £508k were external costs and £920k were
internal.
Contribution is also an adjusted performance measure disclosed in the financial statements, being the revenue
less directly variable costs of trade. This is presented to explain the underlying profit margins earned by the
Group from its trade.
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Adjusted profit is also an adjusted performance measure used by the Group. This uses adjusted EBITDA, as
defined above as management’s view of the closest proxy to cash generation for underlying divisional
performance, and deducting share option charges, depreciation, amortisation of intangible assets (other than
those which arise in the acquisition of businesses) and finance charges. This provides an adjusted profit before
tax measure, which is then taxed by applying an estimated adjusted tax measure. The adjusted tax charge
excludes the tax impact of income statement items not included in adjusted profit before tax.
2018
2017
Continuing Discontinued
£000
£000
Total
£000
Continuing
£000
Discontinued
£000
Adjusted EBITDA
Share option charge
Depreciation
Amortisation (excluding amortisation
of acquired intangibles)
Net finance income/(charges)
Adjusted profit before tax
Tax at 22.7% (2017: 21.6%)
Adjusted profit after tax
6,540
(1,222)
(2,860)
(1,917)
18
559
175
—
(93)
—
(18)
64
6,715
(1,222)
(2,953)
(1,917)
—
623
(139)
484
6,707
(666)
(2,740)
(1,540)
(212)
1,549
6,172
—
(179)
(561)
—
5,432
Profit before tax from continuing operations prior to sports betting investment of £1,428k is £1,987k.
Sportech
Racing and
Digital
£000
Sportech
Venues
£000
Corporate
costs
£000
Inter-
segment
elimination
£000
1,770
32,234
34,004
(3,991)
30,013
(736)
29,277
(20,634)
8,643
—
8,643
—
(1,715)
(1,743)
5,185
(2,214)
2,971
—
30,379
30,379
(14,241)
16,138
(1,252)
14,886
(13,473)
1,413
(1,428)
(15)
—
(1,115)
—
(1,130)
(65)
(1,195)
—
—
—
—
—
—
—
(2,088)
(2,088)
—
(2,088)
(1,222)
(30)
(174)
(3,514)
(1,174)
(4,688)
(44)
(621)
(665)
613
(52)
—
(52)
52
—
—
—
—
—
—
—
—
—
2. Segmental reporting
2018
Revenue from sale of goods
Revenue from rendering of services
Total revenue
Cost of sales
Gross profit
Marketing and distribution costs
Contribution
Adjusted net operating costs (note 1)
Adjusted EBITDA (pre sports betting investment)
Sports betting investment
Adjusted EBITDA
Share option charge
Depreciation
Amortisation
Segment result
Exceptional costs
Operating profit/(loss)
Net finance income
Share of loss after tax and impairment of joint ventures
Loss before taxation
Taxation
Loss for the year – continuing operations
Net profit from discontinued operations
Loss for the year
Segment assets
Segment liabilities
102,967
(37,007)
28,815
(12,901)
16,196
(45,698)
(72,784)
72,784
75,194
(22,822)
Other segment items
Capital expenditure – Intangible assets
Capital expenditure – Property, plant and equipment
3,095
1,529
—
398
11
—
—
—
3,106
1,927
97
Total
£000
12,879
(666)
(2,919)
(2,101)
(212)
6,981
(1,508)
5,473
Group
£000
1,726
61,992
63,718
(17,619)
46,099
(1,988)
44,111
(36,143)
7,968
(1,428)
6,540
(1,222)
(2,860)
(1,917)
541
(3,453)
(2,912)
473
—
(2,439)
(2,019)
(4,458)
1,822
(2,636)
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Sportech
Racing and
Digital
£000
Sportech
Venues
£000
Corporate
costs
£000
Inter-
segment
elimination
£000
1,389
34,080
35,469
(4,335)
31,134
(754)
30,380
(22,672)
7,708
—
(1,738)
—
31,606
31,606
(14,760)
16,846
(1,364)
15,482
(13,985)
1,497
—
(928)
(1,400)
—
4,570
(350)
—
569
—
(12,914)
—
—
—
—
—
—
—
(2,498)
(2,498)
(666)
(74)
(140)
(3,378)
—
—
—
—
(3,765)
—
—
(1,701)
2,519
(1,603)
—
(1,634)
(15,582)
—
827
(2,268)
(8,584)
(4)
(800)
(804)
533
(271)
—
(271)
271
—
—
—
—
—
—
—
—
—
—
—
—
98,316
(68,265)
28,200
(12,357)
16,138
(10,822)
(63,942)
63,942
Group
£000
1,385
64,886
66,271
(18,562)
47,709
(2,118)
45,591
(38,884)
6,707
(666)
(2,740)
(1,540)
1,761
(350)
(12,914)
(3,765)
(1,603)
827
(5,603)
(21,647)
(19)
(1,484)
(23,150)
230
(22,920)
(1,522)
(24,442)
78,712
(27,502)
3,891
1,281
—
5,608
57
16
—
—
3,948
6,905
Revenues from
external customers
Non-current assets
2018
£000
4,271
53,806
4,890
751
63,718
2017
£000
3,889
56,750
4,706
926
66,271
2018
£000
1,038
44,953
543
—
46,534
2017
£000
1,497
43,852
834
—
46,183
2017
Revenue from sale of goods
Revenue from rendering of services
Total revenue
Cost of sales
Gross profit
Marketing and distribution costs
Contribution
Adjusted operating costs (note 1)
Adjusted EBITDA
Share option charge, excluding acceleration
of charge for departing management
Depreciation
Amortisation (excluding amortisation of
acquired intangible assets)
Segment result before amortisation of
acquired intangibles and impairment of assets
Amortisation of acquired intangibles
Impairment of assets
Acceleration of IFRS 2 charge for
departing management
Fair value losses realised on sale of shares
held in NYX Gaming Group
Exceptional income
Exceptional costs
Operating profit/(loss)
Net finance costs
Share of loss after tax and impairment of joint ventures
Loss before taxation
Taxation
Loss for the year – continuing operations
Net loss from discontinued operations
Loss for the year
Segment assets
Segment liabilities
Other segment items
Capital expenditure – Intangible assets
Capital expenditure – Property, plant and equipment
Information by geographical area
United Kingdom
North and South America
Europe
Other
Total
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3. Expenses by nature
Cost of sales
Tote and track fees
F&B consumables
Betting and gaming duties
Repairs and maintenance cost of sales
Ticket paper
Programs
Outsourced service costs
Cost of inventories sold, including provision for obsolete inventory
Total cost of sales
Marketing and distribution costs
Marketing
Vehicle costs
Freight
Total marketing and distribution costs
Operating costs
Staff costs – gross, excluding share option charges
Less amounts capitalised
Staff costs – net
Property costs
IT & Communications
Professional fees
Travel and entertaining
Banking transaction costs and FX
Provision for doubtful debts
Other costs
Adjusted operating costs
Share option charge, excluding exceptional accelerated charges
Acceleration of IFRS 2 charge for departing management
Realised loss on sale of shares held in NYX Gaming Group
Depreciation
Amortisation, excluding amortisation on acquired intangibles
Amortisation of acquired intangibles
Impairment of property, plant and equipment
Impairment of intangible assets
Exceptional costs
Total operating costs
Note
16
14
13
13
14
13
4
2018
£000
11,261
1,405
738
335
888
498
1,684
810
17,619
1,517
232
239
1,988
27,532
(2,923)
24,609
5,314
1,355
4,391
1,353
310
(76)
488
37,744
1,222
—
—
2,860
1,917
—
—
—
3,453
47,196
2017
£000
12,166
1,322
480
402
855
472
1,605
1,260
18,562
1,664
234
220
2,118
28,562
(3,026)
25,536
5,454
1,351
3,249
1,524
271
762
737
38,884
666
3,765
1,603
2,740
1,540
350
874
12,040
5,603
68,065
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
4. Exceptional items
Included in operating costs:
Note
2018
£000
2017
£000
Redundancy and restructuring costs in respect of the rationalisation and
modernisation of the business
Onerous contract provisions and other losses resulting from exit from
Californian operations
Losses from and impairment in Striders Sports Bar (S&S JV)
Compensation received in relation to 2017 New Jersey data outage
Costs in relation to the Spot the Ball VAT refund
Costs in relation to legacy tax disputes
Licensing costs in New Jersey in respect of the acquisition of Sportech Racing
One off start up costs of new ventures, including new venue builds and
joint ventures
Costs in relation to exiting the Group’s interests in India
Impairment of contingent consideration in relation to NYX Gaming
Legal costs in relation to intellectual property infringement law suit
Earn out and similar costs required to be recognised as an expense
Release of provisions which did not arise during period of Sportech ownership
Professional fees associated with new remuneration arrangements approved
by shareholders
Costs of lobbying the state of Connecticut for expanded gaming and enforcement
of exclusive licence
4(a)
4(b)
15
4(c)
4(d)
4(e)
4(f)
Included in other operating income:
Net gain on successful outcome of Supreme Court Spot the Ball ruling
Net exceptional costs
1,178
2,291
(291)
291
—
205
111
—
29
51
1,729
150
—
—
—
—
2,740
—
(45)
—
—
110
390
—
—
—
74
(261)
150
154
3,453
5,603
—
3,453
(827)
4,776
*Note: £173k of other operating income in 2018 is not exceptional and therefore excluded from the above table.
(a) Redundancy and restructuring costs in respect of the rationalisation and modernisation of the business
Costs of completing the strategic review including further severance costs, office closure costs and continuing
costs of Non-executive Directors performing executive duties during periods of transition.
(b) Onerous contract provision and other losses resulting from exit from California operations
The Group recoded a provision in 2017 against its contractual arrangements in the State of California, including a
loss making joint venture and real estate leases. The provision has been released in the year to the value of the
losses incurred in the joint venture company (see note 15). The losses of the joint venture company and the
impairment of the additional capital injected during the year, has been included in exceptional costs rather than
within the share of joint venture losses line on the income statement, so as to match the provision release with
the costs it was provided to cover.
(c) Costs in relation to Spot the Ball (“STB”) VAT refund
The Group settled a claim from a former director during the year and paid costs. Further costs were incurred in
claiming costs from HMRC and tax advice has been sought in relation to treatment of the refund for corporation
tax purposes.
(d) Costs in relation to legacy tax disputes
The Group has received assessments for underpaid VAT in the holding Company, Sportech PLC, the Group is
robustly defending its position but incurring advisor fees in doing so.
(e) Impairment of contingent consideration in relation to NYX Gaming
The Group has received confirmation from the current owners of NYX Gaming that there are no sales in the
pipeline for 2019 which would result in contingent consideration being payable to Sportech PLC. The contingent
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Financial Statements
consideration period ends in May 2020 and as such it is management’s expectation that no consideration will be
received in relation to the asset, which has therefore been impaired in full.
(f) Legal costs in relation to intellectual property (“IP”) infringement law suit
The Group believes its IP in Datatote (England) Limited has been infringed and is seeking to prevent further
infringement and damages for lost revenues and costs incurred. The costs of defending this position are being
expensed as incurred and no expected income has been accrued due to the uncertainty given the case is in early
stages.
5. Employment costs
Average number of monthly employees (full-time equivalents) including Executive Directors, excluding
employees of discontinued operations, 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 24)
Pension costs – defined benefit scheme (note 24)
Employee remuneration, excluding share option charges
Share option expense, including acceleration of IFRS 2 charge for departing management
Total remuneration
6. Directors and key management remuneration
2018
Number
2017
Number
12
462
68
542
2018
£000
21,538
3,764
177
97
25,576
1,222
26,798
13
470
73
556
2017
£000
21,872
3,878
323
89
26,162
4,431
30,593
Short-term employee benefits
Consultancy fees
Share-based payments
Accelerated IFRS 2 charge for departing management
Pay in lieu of notice
Post-employment benefits
Total remuneration
Directors
Key management
2018
£000
714
76
388
—
—
5
1,183
2017
£000
1,261
146
373
3,567
859
51
6,257
2018
£000
752
76
388
—
—
5
1,221
2017
£000
1,438
146
373
3,567
964
51
6,539
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration
report on pages 42 to 62. This information forms part of the financial statements. Retirement benefits are
accruing under defined benefit pension schemes for nil Directors (2017: nil). One Director exercised share options
in the year (2017: nil).
Key management is considered to be the Directors of the Company (Executive and Non-executive). Consultancy
fees are amounts payable to Richard Cooper in providing additional services to Group companies in his capacity
as Non-executive Director following the resignation of Mickey Kalifa, as detailed in the Remuneration report on
pages 54 to 62. Consultancy fees of £100k in 2018, paid to Richard McGuire are included in short-term employee
benefits.
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
7. Auditor remuneration
Fees paid to the Auditors of the consolidated financial statements during the period comprise:
Audit fees
Other assurance services
Total fees
8. Net finance costs
Finance costs:
Interest payable on bank loans, derivative financial instruments and overdrafts
Interest on defined benefit pension obligation (net)
Total finance costs
Finance income
Other financial income:
Foreign exchange gain on financial assets and liabilities denominated in foreign currency
Unwinding of interest on discounted non-current balances
Total other financial income
Net finance costs
9. Taxation
Below is disclosure in respect of the Group’s tax charge from continuing operations.
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 tax charge/(credit)
2018
£000
294
—
294
2018
£000
(22)
(45)
(67)
85
363
92
455
473
2018
£000
1,977
(570)
1,407
(1,089)
53
(13)
1,661
612
2,019
2017
£000
306
248
554
2017
£000
(159)
(53)
(212)
—
97
96
193
(19)
2017
£000
1,245
2,381
3,626
(7,114)
3,245
13
—
(3,856)
(230)
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The taxation on the Group’s loss before taxation differs from the theoretical amount that would arise using the
weighted average tax rate applicable to profits and losses of the consolidated entities as follows:
Loss before tax
Tax calculated at domestic tax rates applicable to (losses)/profits 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
– deferred tax not previously provided
– deferred tax not recognised
– derecognition of previously recognised deferred tax assets
Total tax charge/(credit)
2018
£000
(2,439)
(527)
1,519
53
(570)
(13)
(104)
—
1,661
2,019
2017
£000
(23,150)
(7,635)
1,480
3,245
2,381
13
(97)
383
—
(230)
Included within permanent differences are the foreign taxes taken as a deduction rather than a carried forward
credit (prior to the subsequent downward revaluation of the deferred tax asset) and the share option charges
expensed in the period as well as certain other non-deductible expenses.
US deferred tax assets have been revalued downwards by £1,661k following a review of the recoverability of
credits for foreign taxes paid (predominantly in the Dominican Republic).
As the Group’s year end is after the substantive enactment date (15 September 2017) of the Finance Act 2017,
these financial statements account for the change in the UK Corporation Tax rate from 19% to 17% for financial
years beginning 1 April 2020. Deferred tax in the UK is provided at a blended rate, depending on when the
deferred tax is expected to unwind. There are no changes expected in the US federal income tax rate from the
current rate of 21%.
Included within the Group’s current tax liabilities are provisions for uncertain tax positions in relation to; the
treatment of the gain included in the 2016 financial statements for the Spot the Ball VAT refund; the treatment of
the disposal of the trade and assets of the Football Pools division in 2017, and; other positions taken (in “open
years”) within tax returns across the jurisdictions in which the Group files.
10. Discontinued operations
Results from discontinued operations includes the Football Pools division, disposed of in June 2017, and also the
Venues business in The Netherlands, Sportech Racing BV and its subsidiaries (“Sportech Holland”). Sportech
Holland was disposed of in full on 26 July 2018. The sale of this business to RBP Luxembourg SA was structured
as a locked box, with an effective date of 1 January 2018. The risks and benefits of its cash generation are
therefore transferred to the purchaser from that date. Control of the entity did not however transfer until
completion of the deal on 26 July 2018, and accordingly its results have been included in the financial statements
for the year ended 31 December 2018 as those of a discontinued operation.
The Board considered its Venues business in the Netherlands, Sportech Racing BV and subsidiaries, to be an
asset held for sale as at 31 December 2017, with a sale being considered probable within 12 months from the
reporting date.
103
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
A reconciliation of the net profit/(loss) on discontinued operations is shown below.
Revenue
Cost of sales, marketing and distribution
and adjusted operating expenses
Adjusted EBITDA
Depreciation and amortisation
Exceptional items
Finance costs
Profit/(loss) before tax
Tax, excluding tax arising on disposal
(Loss)/profit after tax
Gain/(loss) on disposal (note 10a)
Net result from discontinued operations
FP
£000
—
78
78
—
—
—
78
(169)
(91)
59
(32)
2018
Holland*
£000
3,065
Total
£000
3,065
FP*
£000
13,971
2017
Holland
£000
6,038
Total
£000
20,009
(2,968)
(2,890)
(8,226)
(5,611)
(13,837)
97
(93)
(461)
(18)
(475)
—
(475)
2,329
1,854
175
(93)
(461)
(18)
(397)
(169)
(566)
2,388
1,822
5,745
(523)
917
—
6,139
632
6,771
(8,467)
(1,696)
427
(216)
(37)
—
174
—
174
—
174
6,172
(739)
880
—
6,313
632
6,945
(8,467)
(1,522)
*Holland results for 2018 are to the date of disposal of 26 July 2018. Football Pools results for 2017 are to the date of disposal of 26 June 2017.
Exceptional costs incurred in the period by Sportech Holland are redundancy and restructuring costs in respect
of a rationalisation of this business.
For Football Pools: £78k of income in the period relates to a £115k release of a provision no longer required, net
of £37k of costs incurred in the year. No further costs are expected going forward within this legacy division. The
tax charge related to tax on the income in the year plus a prior year adjustment to write off a deferred tax asset
which is no longer recoverable.
10a) Net gain/(loss) on disposal
Consideration, net of working capital adjustments
Net assets disposed of
Goodwill relating to the Football Pools division
Transaction costs incurred in the year
Pre-tax gain/(loss) on disposal
Tax arising on disposal
Gain/(loss) on disposal
Note
19
FP
2018
£000
73
—
—
—
73
(14)
59
Holland
2018
£000
3,007
(318)
—
(360)
2,329
—
2,329
Total
2018
£000
3,080
(318)
—
(360)
2,402
(14)
2,388
FP
2017
£000
86,149
(3,124)
(81,849)
(3,248)
(2,072)
(6,395)
(8,467)
At 31 December 2017, £202k was accrued as a receivable from Op Capita, the acquirers of The Football Pools.
During the year, an amount of £275k was agreed as payable (and was paid in December 2018), and therefore
further consideration of £73k has been credited to the income statement as gain on disposal. The additional
proceeds are taxed at 19%.
Of the consideration receivable for Sportech Racing BV, £2,692k was received in cash during the year and £314k
was recorded as contingent consideration receivable and was paid in January 2019. Transaction costs of £79k
were also paid in January 2019, the rest having been settled in cash in 2018. No tax is payable on the disposal of
Sportech Racing BV as Substantial Shareholder Relief is being applied.
104
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Governance
Financial Statements
11. Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit/(loss) attributable to equity holders of the Parent
Company by the weighted average number of ordinary shares in issue during the year.
Continuing Discontinued
£000
£000
Total
£000
Continuing
£000
Discontinued
£000
Total
£000
2018
2017
(Loss)/profit attributable to the owners of
the Company
Weighted average number of ordinary
shares in issue (’000)
(4,458)
1,822
(2,636)
(22,778)
(1,522)
(24,300)
186,393
186,393
186,393
190,135
190,135
190,135
Basic (loss)/earnings per share
(2.4)p
1.0p
(1.4)p
(12.0)p
(0.8)p
(12.8)p
(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. Where there is a loss attributable to
owners of the Company, the earnings per share is not diluted.
Continuing Discontinued
£000
£000
2018
Total
£000
2017
Continuing Discontinued
£000
£000
Total
£000
(Loss)/profit attributable to the owners of
the Company
Weighted average number of ordinary
shares in issue (’000)
Dilutive potential ordinary shares
Total potential ordinary shares
(4,458)
1,822
(2,636)
(22,778)
(1,522)
(24,300)
186,393
N/A
186,393
186,393
—
186,393
186,393
N/A
186,393
190,135
N/A
190,078
190,135
N/A
190,078
190,135
N/A
190,078
Diluted (loss)/earnings per share
(2.4)p
1.0p
(1.4)p
(12.0)p
(0.8)p
(12.8)p
(c) Adjusted
Adjusted EPS is calculated by dividing the adjusted profit after tax (as defined in note 1) attributable to owners
of the Company by the weighted average number of ordinary shares in issue during the year.
Basic adjusted EPS
Diluted adjusted EPS
Adjusted
Profit after
tax
£000
484
484
2018
Weighted
average
number of
shares
£000
186,393
186,393
Per share
amount
Pence
0.3p
0.3p
Adjusted
Profit after
tax
£000
5,473
5,473
2017
Weighted
average
number of
shares
£000
190,135
190,988
Per share
amount
Pence
2.9p
2.9p
105
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
12. Goodwill
Goodwill arose on three historic acquisitions made by the Group: the acquisition of Littlewoods Leisure,
(including the Littlewoods Football Pools business), in September 2000 amounting to £145.2m; the acquisition of
Vernons Football Pools in December 2007 amounting to £20.3m; and the acquisition of eBet Online, Inc. in
December 2012 of £5.5m. The goodwill which arose on the acquisition of Littlewoods Leisure and Vernons
Football Pools are together considered as the goodwill relating to Sportech’s Football Pools division.
Movements in the Group’s goodwill are shown below:
Cost
At 1 January
Disposal
At 31 December
Accumulated impairment charges
At 1 January
Disposal
At 31 December
Closing net book value
eBet
Online
£’000
5,548
—
5,548
(5,548)
—
(5,548)
—
2018
Total
£’000
5,548
—
5,548
(5,548)
—
(5,548)
—
Football
Pools
£’000
165,499
(165,499)
—
(83,650)
83,650
—
—
2017
eBet
Online
£’000
5,548
—
5,548
(5,548)
—
(5,548)
—
Total
£’000
171,047
(165,499)
5,548
(89,198)
83,650
(5,548)
—
Goodwill disposed of during the prior year relates to the Football Pools division. A net loss on disposal was recognised in
respect of this (see note 10).
13. Intangible fixed assets
2018
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2018
Charge for year
At 31 December 2018
Exchange differences
Net book amount at 31 December 2018
Customer
contracts and
relationships
£000
Software
£000
Licences
£000
862
—
862
862
—
862
—
—
29,893
2,977
32,870
25,142
1,850
26,992
1,447
7,325
16,874
—
16,874
13,133
—
13,133
2,225
5,966
Other
£000
2,663
129
2,792
3,542
67
3,609
1,077
260
Total
£000
50,292
3,106
53,398
42,679
1,917
44,596
4,749
13,551
Of the amounts capitalised in the year in continuing operations, £2,923k arose from capitalising staff costs for
development expenditure (2017: £3,026k).
Amortisation has been included within operating costs.
Impairment – Licences
The Group holds a licence in perpetuity to offer pari-mutuel off-track betting in the State of Connecticut in the
US for its Venues division. This asset has a book value in USD at the reporting date, prior to any impairment that
may be considered necessary, of £5,966k ($7,569k, 2017: $7,596k). 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 2018. In testing for
impairment, other assets used solely to generate cash flows in the CGU are also included, totalling £15,180k,
$19,261k (2017: £14,921, $20,158k).
106
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Governance
Financial Statements
The recoverable amount of the asset has been determined based on a value-in-use calculation. The key base
case assumptions made in calculating the value-in-use were:
– EBITDA forecasts assume year-on-year handle decline in the core operating business of 4.4% in 2019 and
1% per annum thereafter and into perpetuity;
– 7.6% increase in online handle in 2019, 40% in 2020 (representing enforcement by the State of Sportech’s
exclusivity rights), a further 10% increase in 2021, 3% annually through to 2023 and 2% into perpetuity;
– Handle at our Stamford venue is assumed to increase by 8% in 2019, 10% per annum from 2020 to 2023
and by 2% into perpetuity;
– a 6.1% increase in core F&B revenues, which excludes the Stamford venue, in 2019 and then declines of
1.4%, 0.6%, 0.6% and 0.7% in 2020, 2021, 2022 and 2023 respectively and thereafter stable revenues into
perpetuity;
– F&B revenues at Bobby V’s in Stamford are forecasted to increase by 17%, 15% and 5% in 2019, 2020 and
2021 respectively, by 3% in 2020 and 2023 and by 2% into perpetuity;
– 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% (2017: 9.1%) was used representing a market-based weighted average cost
of capital appropriate for the Sportech Venues CGU. The pre-tax discount rate was 12.0%.
Following the impairment review, the recoverable amount of those assets was deemed to be £23,440k, $29,740k
and accordingly no impairment was identified (2017: impairment of £12,040k, $16,075k) was charged to the
income statement within operating costs).
The below assumptions represent a reasonable downside case and value the CGU at £13,514k, $17,146k, being an
impairment of £7,632k to the carrying value of the licence and other assets used solely to generate cash flows in
the CGU. This would reduce the carrying value of the intangible to £nil and result in an impairment to the
carrying value of the property, plant and equipment used in the CGU of £1,667k.
– all assumptions for 2019 remain the same;
– core handle declines by a further 1% each year but remains at 1% decline into perpetuity;
– the State of Connecticut does not enforce Sportech’s exclusive rights meaning growth in online is reduced
to 3% in 2020, and 2% per annum thereafter and into perpetuity;
– handle at the Stamford venue grows at 5% per annum rather than 10% and increases into perpetuity at 2%;
– core food and beverage revenue decline is marginally worse; and
– Stamford food and beverage revenue growth is reduced to 5% in 2020, 3% in 2021, 1% in 2022 and 2023
and 2% into perpetuity.
107
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Note that in the Downside Case, mitigating actions have been including representing cost saving measures
attributing $410k of EBITDA annually and into perpetuity. Additionally, for information, if a post-tax discount rate
of 9.9% was used in the Base Case model this would lead to an impairment of £38k, a post-tax discount rate of
10.5% would lead to an impairment of £1,506k.
Customer
contracts and
relationships
£000
Software
£000
Licences
£000
Other
£000
Total
£000
2017
Cost
At 1 January 2017
Additions – continuing operations
Additions – discontinued operations
Disposals – continuing operations
Disposals – discontinued operations
Transfer from property, plant and equipment
At 31 December 2017
Accumulated amortisation
At 1 January 2017
Charge for year – continuing operations
Charge for year – discontinued operations
Impairment
Disposals – discontinued operations
At 31 December 2017
Exchange differences
Net book amount at 31 December 2017
14. Property, plant and equipment
Short
36,500
—
—
—
(35,638)
—
862
36,500
—
—
—
(35,638)
862
—
—
51,980
3,906
1,032
(11)
(27,235)
221
29,893
45,819
1,818
561
—
(23,056)
25,142
1,075
5,826
16,874
—
—
—
—
—
16,874
1,093
—
—
12,040
—
13,133
1,862
5,603
4,651
42
—
—
(2,030)
—
2,663
4,650
72
—
—
(1,180)
3,542
1,079
200
Long
leasehold leasehold and
owned land
land and
buildings
buildings
£000
£000
Plant and
machinery
£000
Fixtures
and
fittings
£000
Assets in the
course of
construction
£000
246
—
—
—
246
119
20
—
139
36
143
16,018
—
—
231
16,249
5,005
512
—
5,517
2,326
13,058
9,867
1,058
(10)
37
10,952
472
1,769
(10)
2,231
1,470
10,191
5,095
2
—
226
5,323
3,229
559
—
3,788
494
2,029
643
867
—
(494)
1,016
709
—
—
709
609
916
2018
Cost
At 1 January 2018
Additions
Disposal
Transfer
At 31 December 2018
Accumulated depreciation
At 1 January 2018
Charge for year
Disposal
At 31 December 2018
Exchange differences
Net book amount at 31 December 2018
108
110,005
3,948
1,032
(11)
(64,903)
221
50,292
88,062
1,890
561
12,040
(59,874)
42,679
4,016
11,629
Total
£000
31,869
1,927
(10)
—
33,786
9,534
2,860
(10)
12,384
4,935
26,337
171843 3 Sportech Annual Report 2018 Financial Statements_171843 3 Sportech Annual Report 2018 Financial Statements 05/04/2019 19:54 Page 109
Strategic Report
Governance
Financial Statements
Depreciation charges have been included in operating costs.
2017
Cost
At 1 January 2017
Additions – continuing operations
Additions – discontinued operations
Disposals – discontinued operations
Transfer
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Charge for year – continuing operations
Charge for year – discontinued operations
Impairment
Disposals – discontinued operations
Transfer
At 31 December 2017
Exchange differences
Net book amount at 31 December 2017
Impairment charges
Short
Long
leasehold leasehold and
owned land
land and
buildings
buildings
£000
£000
Plant and
machinery
£000
Fixtures
and
fittings
£000
Assets in the
course of
construction
£000
200
46
—
—
—
246
119
—
—
—
—
—
119
27
154
11,586
82
15
(3,079)
7,414
16,018
7,501
305
61
—
(2,862)
—
5,005
1,538
12,551
18,074
589
45
(5,899)
(2,942)
9,867
6,601
2,076
86
165
(5,087)
(3,369)
472
992
10,387
745
—
12
(1,008)
5,346
5,095
444
359
31
—
(974)
3,369
3,229
377
2,243
4,494
6,188
—
—
(10,039)
643
—
—
—
709
—
—
709
436
370
Total
£000
35,099
6,905
72
(9,986)
(221)
31,869
14,665
2,740
178
874
(8,923)
—
9,534
3,370
25,705
The Group decided that it would not continue with its ventures in California and would exit this territory.
The Group owned certain items used to fit out its venue in San Diego, and also incurred demolition and initial
construction costs for a prospective new site at Norco in California. Those items have been impaired in full to
reflect that future profits will not be generated from their use.
The Group retained 80% control of the Norco site included within assets in the course of construction which
have been impaired, and so 20% of this write off (£142k) is therefore attributable to non-controlling interests. The
items used in fitting out the sports bar in San Diego were 100% owned by the Group.
15. Net investment in joint ventures/associates
During the year, the Group held a 50% investment in Striders sports bar in San Diego, as part of the joint venture
company S&S Venues California, LLC. Striders is a food and beverage venue with on-site wagering facilities in
California. It commenced trading in February 2016. Note that the Group maintained shareholdings in Sportshub
Private Limited (India) and DraftDay Gaming Group, Inc (Draftday). Those investments are no longer actively
managed by the Group and were impaired in full in 2017. The Group invested no cash in those businesses during
the year and has no obligations to meet any losses as they fall due. No disclosure is therefore made of those
joint ventures/associates below.
109
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
a) Movements in the Group’s net investment in joint ventures and associates
At 1 January
Additions
Income statement items:
Impairment
Share of loss after tax
Net income statement charge (see below)
Exchange differences
At 31 December
S&S
Venues
£000
—
291
(44)
(247)
(291)
—
—
2018
2017
Total
£000
—
291
(44)
(247)
(291)
—
——
S&S
Venues
£000
1,416
173
(1,184)
(300)
(1,484)
(105)
—
Total
£000
1,416
173
(1,184)
(300)
(1,484)
(105)
The share of loss after tax of the S&S Venues joint venture has been charged to exceptional costs (see note 4),
given the provision for onerous contracts in relation to this joint venture, equivalent to the losses incurred, has
been released to exceptional costs, having been recorded through exceptional costs in 2017.
b) Capital commitments and future obligations
Sportech Venues Inc. is a guarantor for certain future obligations at Striders. As the Group had decided to exit
California those commitments have been provided for in full. See note 22 for further details.
c) Summarised financial information of joint venture investments held at the reporting date
Note that although the Group continues to hold a share in its Indian joint venture and Draftday at the reporting
date, these businesses are no longer actively managed by the Group. The net investment in these joint ventures
is £nil at both 31 December 2018 and 31 December 2017.
Summarised financial information of the Striders bar in San Diego is presented as below:
2018
£000
1,901
133
2,034
(72)
1,962
607
(1,102)
(495)
2017
£000
2,125
147
2,272
(75)
2,197
678
(1,278)
(600)
Non-current assets
Current assets
Total assets
Current liabilities
Net assets
Revenue
Expenses
Loss for the year
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Governance
Financial Statements
16. Trade and other receivables
Non-current
Trade receivables
Less provision for impairment of receivables
Trade receivables – net
Accrued income
Other receivables
Contingent consideration due on the disposal of Sportech-NYX Gaming, LLC
Non-current trade and other receivables
Current
Trade receivables
Less provision for impairment of receivables
Trade receivables – net
Other receivables
Accrued income
Prepayments
Current trade and other receivables
Total trade and other receivables
2018
£000
1,041
(589)
452
—
215
—
667
6,292
(980)
5,312
1,644
177
1,036
8,169
8,836
2017
£000
450
—
450
250
197
1,546
2,443
8,945
(1,606)
7,339
1,498
575
930
10,342
12,785
The fair value of trade and other receivables is not considered to be different from the carrying value recorded
above.
In 2015 the Group disposed of its joint venture with NYX Gaming Group, Sportech-NYX Gaming, LLC, for
consideration which is partly contingent on future events. The contingent consideration is C$1.0m for each
customer that NYX successfully sign up to its Real Money Live wagering platform before May 2020, up to a
maximum of C$3.0m. It is now management’s belief that NYX will sign up no new customers to the relevant
platform and therefore the contingent consideration receivable has been impaired in full in the year, expensed to
operating costs and disclosed as an exceptional item (see note 4d).
Movements in the provision for impairment of receivables in the year is shown below:
At 1 January
Released to the income statement
Utilisation of provision
Reclassification from provisions
Reclassification to asset held for sale
Foreign exchange movements
At 31 December
2018
£000
1,606
(76)
(34)
—
—
73
1,569
The carrying amounts of trade and other receivables are denominated in the following currencies:
Sterling
US Dollar
Euro
Other
Total
2018
£000
1,092
5,689
1,582
473
8,836
2017
£000
1,537
762
(403)
125
(325)
(90)
1,606
2017
£000
1,860
8,265
2,125
535
12,785
Trade receivables that are not less than three months past due are not considered impaired. As at 31 December
2018, £1,041k (2017: £376k) of trade receivables were past due and not impaired. Management also considers that
these receivables are recoverable in full.
111
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
17. Deferred tax
The movement on the net deferred tax balance is as follows:
Net deferred tax asset at 1 January
Income statement credit – continuing operations
Income statement credit – discontinued operations
Tax credited directly to other comprehensive income
Disposal of Football Pools
Reclassification of available for sale asset
Exchange differences
Net deferred tax asset at 31 December
Deferred tax assets
At 1 January 2017
Income statement (charge)/credit
Tax credited directly to other comprehensive income
Disposal of Football Pools
Reclassification of available for sale asset
Currency translation differences
At 31 December 2017
Income statement (charge)/credit
Tax debited directly to other comprehensive income
Currency translation differences
At 31 December 2018
Note
9
10
2018
£000
6,406
(612)
(175)
(83)
—
—
443
5,979
Pension
£000
Capital
allowances
£000
Losses and
foreign tax
credits
£000
Other
temporary
differences
£000
598
(256)
55
—
—
—
397
(112)
(83)
24
226
(1,830)
2,905
—
(140)
4
—
939
(161)
—
51
829
4,433
(235)
—
—
(216)
(172)
3,810
(712)
—
213
3,311
(165)
1,515
—
—
—
(90)
1,260
198
—
155
1,613
2017
£000
3,036
3,856
73
55
(140)
(212)
(262)
6,406
Total
£000
3,036
3,929
55
(140)
(212)
(262)
6,406
(787)
(83)
443
5,979
In addition to the deferred tax asset which has been recognised, the Group has not recognised further deferred
tax assets on £12,924k (2017: £4,005k) arising from unutilised trading losses and carried forward foreign tax
credits. The Directors do not consider there will be sufficient future profits against which these losses/credits can
be offset due to the low profit generation in these particular business units. The increase in the deferred tax
assets not recognised is due the derecognition in the year of deferred tax on foreign tax credits in the US.
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.
All deferred tax is expected to unwind in more than one year’s time.
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Financial Statements
18. Inventories
Work in progress
Spare parts
Finished goods
2018
£000
103
2,217
256
2,576
2017
£000
99
2,313
240
2,652
The cost of inventories recognised as an expense and included in cost of sales amounted to £810k (2017:
£1,260k). Provisions for obsolescence held against inventories at 31 December 2018 amounted to £286k (2017:
£310k). The provision for obsolete inventories has increased in the year as a result of spare parts which have not
been utilised for a period of time. Those spare parts must be held by the Group for terminals that are in use at
customer sites.
19. Asset held for sale
At 31 December 2017, the Board were of the view that the most probable route of realising future economic
benefit through its Venues business in The Netherlands, Sportech Racing BV and its subsidiaries, was through a
sale rather than continuing to operate it as part of the Sportech Group.
On 31 March 2018, the Group agreed to dispose of this business to RBP Luxembourg SA (“Ze Turf”) on a cash-
free-debt-free basis for initial consideration of €2.8m. The deal was structured as a locked box mechanism with
an effective date of 31 December 2017, and so the net cash/debt adjustments are known to the Group, being an
increase in the purchase price received of €233k.
Earn out consideration could also be earned by the Group of up to €450k, contingent upon certain activities of
this business being completed by 31 December 2018.
In accordance with IFRS 5, this business was treated as an asset held for sale as at the 31 December 2017 as the
sale was deemed to be probable, and the disposal of Sportech Racing BV will signal a departure from a major
geographic location in which the Group previously operated. Accordingly, it has also been treated as a
discontinued operation in these financial statements.
The net assets of this business as at 31 December 2017 (which have been presented net on the Group prior year
balance sheet), and on the date of disposal (28 July 2018), are shown below:
Non-current assets
Intangible fixed assets
Property, plant and equipment
Deferred tax assets
Current assets
Trade and other receivables
Inventories
Cash and cash equivalents
TOTAL ASSETS
Liabilities
Current liabilities
Trade and other payables
Provisions
Total Liabilities
Net Assets
28 July
2018
£000
31 December
2017
£000
288
351
212
851
231
47
284
562
1,413
(1,070)
(25)
(1,095)
318
212
394
212
818
284
28
413
725
1,543
(735)
(30)
(765)
778
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
The net cash and debt adjustment made to the purchase price are cash and cash equivalents (£413k, €466k),
provisions (£30k, €34k) and certain accrued costs within trade and other payables (£177k, €199k).
The above net assets exclude balances due to/from other Sportech businesses which are settled by way of the
completion mechanism in the SPA.
20. Cash and cash equivalents
Cash and short-term deposits
Customer funds
2018
£000
14,728
3,187
17,915
2017
£000
15,885
2,872
18,757
The fair value of cash and cash equivalents is not considered to be different from the carrying value recorded in
the financial statements.
Cash balances of £3,187k (2017: £2,872k) are held on behalf of customers in respect of certain online and
telephone betting activities. The corresponding liability is included within trade and other payables (see note 21).
At December 2017, the Group also held cash in its Venues business in The Netherlands of £413k. This has been
presented within the net asset held for sale value as disclosed in note 19.
21. Trade and other payables
Trade payables
Other taxes and social security costs
Accruals
Deferred income
Player liability
2018
£000
4,018
113
5,382
246
3,187
2017
£000
5,356
435
7,107
288
2,872
12,946
16,058
There is no difference between book values and fair values of trade and other payables. All amounts are due
within one year.
22. Provisions
At 1 January 2017
Net charge to income statement, excluding release of provisions which did not arise
during period of Sportech ownership
Reclassification of provisions for bad debts
Release of provisions which did not arise during period of Sportech ownership
Reclassification as held for sale asset
Currency differences
At 31 December 2017
Utilised during the year
Credit to the income statement – share of loss of JV
Release of discount interest to the income statement
Currency differences
At 31 December 2018
Of which:
Current provisions
Non-current provisions
114
Onerous
contracts
£000
127
2,553
—
(120)
—
(46)
2,514
(96)
(291)
22
143
2,292
977
1,315
2,292
Other
Provisions
£000
431
—
(125)
(141)
(30)
(23)
112
—
—
—
7
119
—
119
119
Total
£000
558
2,553
(125)
(261)
(30)
(69)
2,626
(96)
(291)
22
150
2,411
977
1,434
2,411
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Governance
Financial Statements
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 leased property to its original condition
at the start of the lease term.
The Group has a number of committed financial obligations with its joint venture in California. The amounts
provided for include committed costs at the leased sites in Norco and San Diego, discounted at 2.5%, totalling
$1,930k (£1,521k, 2017: $2,265k (£1,676k)), plus other onerous contract costs of $nil (£nil, 2017: $132k (£98k)) and
further obligations estimated at $978k (£770k, 2017: $1,000k (£740k)). The Norco lease ends in October 2023,
and the San Diego lease ends in August 2024. The Group is a joint and severally liable guarantor for both leases
with its JV partner. In the absence of funding receipts from the Group’s JV partner, 100% of the future lease
liability has been provided for. The release of these provisions will be credited to the share of JV loss line in the
income statement as the commitments are paid via investment into the joint ventures.
23. Financial liabilities
Deferred and contingent consideration due within one year, recognised within:
Current liabilities
Non-current liabilities
2018
£000
—
—
—
2017
£000
175
—
175
Deferred and contingent consideration outstanding at the prior year balance sheet date represented amounts
due for the acquisition of Bump. The total amount payable is made up of two items as below:
– an amount equivalent to the 2017 EBITDA earned by Bump; and
– 25% of the 2018 EBITDA earned by Bump.
The cost of this was treated as employment costs under IFRS 3 ‘Business Combinations’ (revised) and was
therefore accrued on a time apportioned basis to 31 December 2017. The accrued amount was paid in full in 2018.
Movements on this financial liability in the year are as below:
At 1 January
Employment costs accrued under IFRS 3
Instalment payment made
Currency movements
At 31 December
2018
£000
175
—
(167)
(8)
—
2017
£000
278
74
(150)
(27)
175
115
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
24. Pension schemes
The Group operates defined contribution schemes, and a funded defined benefit scheme in the UK. Datatote
employees contribute to a separate defined contribution scheme to that of Sportech PLC. 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 (prior to its sale) and a defined contribution scheme in Ireland.
Summary of pension contributions paid
Defined contribution scheme contributions
Defined benefit scheme contributions
Total pension contributions
Defined contribution schemes
2018
£000
177
692
869
2017
£000
323
528
851
In the UK, employer contributions for Sportech are set at a maximum of 8% of pensionable salaries. A defined
contribution scheme for non-unionised employees, including eBet, is operated in the US, into which the Group
contributes 37.5% of the first 6% of participant contributions. A further defined contribution scheme is available
for unionised employees; the Group does not make contributions into this scheme.
A Registered Retirement Savings Plan (‘RRSP’) exists for employees in Canada. The Group matches to a limit of
50% of the first 6% of participant contributions. The Group also contributes 3% of gross salary into the RRSP for
full time Canadian Union employees.
The pension scheme in The Netherlands provided benefits to employees on a percentage of salary basis.
For employees in Ireland (of which there are 15), 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 (of which there are one and seven respectively), all pensions cover is
provided through employer and employee social security contributions.
Defined benefit schemes
In disposing of certain business assets with the Football Pools division in 2018, the defined benefit pension
scheme was retained by Sportech.
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 and is not open to new members. The assets of this scheme are held in an independent
Trustee administered fund.
The US defined benefit scheme is administered by an insurance company in the US and provides retirement
benefits to employees who are members of a collective bargaining unit represented by the International
Brotherhood of Electrical Workers. Benefits are based on value times credited service.
The amounts recognised in the balance sheet within non-current liabilities were as follows:
Fair value of plan assets
Present value of the schemes’ liabilities
Deficit in the schemes
US
£000
3,652
(4,583)
(931)
2018
UK
£000
2,168
(2,139)
29
Total
£000
5,820
(6,722)
(902)
US
£000
2,935
(4,481)
(1,546)
2017
UK
£000
2,306
(2,297)
9
Total
£000
5,241
(6,778)
(1,537)
There is a funding obligation in relation to the US defined benefit scheme whereby not less than 80% of the
liability must be represented by its assets. At the balance sheet date, that shortfall was £15k, and will be settled
by the Group in 2019.
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Financial Statements
The figures below have been determined by qualified actuaries at the balance sheet date using the following
assumptions:
US
2018
UK
2018
US
2017
UK
2017
Discount rate
Rate of increase in salaries
Rate of inflation
Mortality table
4.25%
N/A
N/A
RP-2014
Total Dataset
Adjusted to 2006
with Scale MP–
2018
2.7%
3.5%
3.5%
S2NxA
CMI 2017
3.5%
N/A
N/A
RP-2014
Total Dataset
projections Adjusted to 2006
with Scale MP–
2017
1.5% per
annum long-
term rate of
improvement
2.4%
3.4%
3.4%
S2NxA
CMI 2015
projections
1.5% per
annum long-
term rate of
improvement
The qualified actuaries who valued the scheme are Barnett Waddingham LLP for the UK and The Prudential
Insurance Company for the US scheme.
The movement in the net defined benefit obligation over the year is as follows:
At 1 January 2018
Income statement expense/(income):
– Current service cost
– Interest expense/(income)
– Administrative expenses
Remeasurements:
– Currency exchange movements
– (Gain)/loss from change in actuarial assumptions
Contributions:
– Employer’s
Payments from plans:
– Benefit payments
At 31 December 2018
Present
value of
obligation
£000
Fair value
of plan
asset
£000
6,778
(5,241)
97
217
—
314
289
(433)
(144)
—
(172)
136
(36)
(195)
118
(77)
Total
£000
1,537
97
45
136
278
94
(315)
(221)
—
(692)
(692)
(226)
6,722
226
(5,820)
—
902
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
At 1 January 2017
Income statement expense/(income):
– Current service cost
– Interest expense/(income)
– Administrative expenses
Remeasurements:
– Currency exchange movements
– (Gain)/loss from change in actuarial assumptions
Contributions:
– Employer’s
Payments from plans:
– Benefit payments
At 31 December 2017
Present
value of
obligation
£000
Fair value
of plan
asset
£000
7,135
(5,427)
89
229
—
318
(429)
187
(242)
—
(176)
178
2
295
(16)
279
Total
£000
1,708
89
53
178
320
(134)
171
37
—
(528)
(528)
(433)
6,778
433
(5,241)
—
1,537
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 decreased by
one year the liabilities would 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 £17,000.
For the UK, if the rate of inflation were to be reduced by 0.25% the liabilities would decrease by £64,000.
For the UK, if the discount rate were to be increased to 2.95% the liabilities would decrease by £63,000.
For the US, if the discount rate were to be increased to 4.75% the liabilities would decrease by £201,000.
Future commitments – employer contributions
The expected employer annual contributions to the schemes for the financial year ending 31 December 2019
amount to £528k (year ended 31 December 2018: £638k).
Future commitments – benefit payments
Estimated future benefit payments for the next ten fiscal years for the schemes are:
UK pension scheme
US pension scheme
Less than
a year
£000
98
734
1 and 2
years
£000
102
225
2 and 5
years
£000
327
1,124
Over 5
years
£000
626
7,435
Total
£000
1,153
9,518
The weighted average duration of the US scheme is approximately 8.4 years, and the UK scheme is
approximately 13 years.
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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
Most 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.
25. Financial instruments
Financial risk management policies and objectives
The key financial risks borne by the Group, and the policy of managing those risks, are outlined below:
Liquidity risk
The Group is exposed to liquidity risk and has to manage its cash requirements. In managing short term
divisional liquidity risks, cash flow forecasting is performed on a weekly basis in the operating entities 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. Cash surpluses are managed centrally by Group finance and cash swept up/pushed down as
cash surpluses/requirements arise.
Credit risk
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 and the cash which is deposited is spread over a few of financial institutions with Moody’s
ratings of A or above (defined as upper-medium grade and subject to low credit risk). Amounts held in cash for
the Sportech Venues division are held in highly secure environments.
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the Euro and US Dollar. Foreign exchange risk arises from transactions
undertaken in foreign currencies, the translation of foreign currency monetary assets and liabilities and from the
translation into Sterling of the results and net assets of overseas operations.
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
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 2018, there were no outstanding commitments on foreign exchange forward contracts (2017: none).
The Group did not enter into any forward contracts during the year (2017: the Group entered into a number of
forward contracts for the settlement of US Dollars at contracted rates. A net gain of £nil was recognised in
respect of forward contracts in 2018 (2017: £42,000).
A long term strategy of managing foreign exchange risk may involve a transition in its reporting currency from
GBP to US Dollars. This is under consideration by management and may result in a change in financial statement
currency presentation in future periods.
The average rate for the US Dollar and Euro in both the current and previous reporting period are as outlined
below.
US Dollars
Euro
2018
2017
Average
Closing
Average
Closing
1.33
1.13
1.27
1.11
1.30
1.14
1.35
1.13
If the exchange rates in 2018 were comparable to those in 2017, loss after tax would have been £2,486k and the
net assets would have been £44,921k at 31 December 2018.
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.
An appropriate metric in considering capital risk management, and the ability of the Group to return cash to
shareholders whilst operating within its means, would be its implied liquidity per share, defined as below:
Implied liquidity per share
Current assets
Current liabilities
Net current assets
Non-current trade and other receivables
Non-current liabilities
Net position
less inventories held
Implied liquidity
Implied liquidity per share
2018
£000
28,660
(20,486)
8,174
667
(2,336)
(1,669)
6,505
(2,576)
3,929
2.1p
2017
£000
32,529
(24,442)
8,087
2,443
(3,060)
(617)
7,470
(2,652)
4,818
2.6p
Management continue to monitor its implied liquidity per share in considering its most appropriate long-term
strategy for either returns to shareholders or reinvestment in capital to drive further growth and potential
returns.
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Financial Statements
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 liabilities measured at amortised cost
Available for sale financial assets
2018
£000
7,800
—
(12,701)
2017
£000
10,309
1,546
(15,945)
2018
£000
2017
£000
Non-current assets – Available for sale financial assets
Contingent consideration receivable from disposal of Sportech-NYX Gaming, LLC
—
1,546
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).
Contingent consideration receivable from disposal of Sportech-NYX Gaming, LLC
In 2015 the Group disposed of its joint venture with NYX Gaming Group, Sportech-NYX Gaming, LLC, for
consideration which is partly contingent on future events. The contingent consideration is C$1.0m for each
customer that NYX successfully sign up to its Real Money Live wagering platform before May 2020, up to a
maximum of C$3.0m.
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.
Management now believe that NYX are unlikely to sign up any new customers to the relevant platform prior to
May 2020 and therefore the contingent consideration receivable previously recognized has been impaired in full
on 31 December 2018. The amount had previously been discounted at 9%, with interest unwinding on this
discount within other finance charges. The amount recognised as at 31 December 2018 is £nil within non-current
trade and other receivables (2017: CAD 2,618k; £1,546k).
Maturity of financial liabilities
Non-derivative financial liabilities are all payable within twelve months.
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
26. Contingencies and 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 £2,249k (2017: £4,333k).
The prior year included costs of providing for future operating lease payments in California as outlined in note 22
of £1,676k.
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
Other financial commitments
2018
£000
1,932
4,414
5,880
12,226
2017
£000
1,923
6,511
7,704
16,138
The Group continues to provide a performance guarantee bond in Turkey amounting to $200k at 31 December
2018. This is to facilitate provision of a customer service contract in the territory.
Contingent items
Tax
The Group’s activities in recent periods have resulted in material tax liabilities crystallising. The ultimate tax
liability due, in all instances, is subject to a degree of management judgment. The judgments which are made are
done so in good faith, with the aim of always paying the correct amount of tax at the appropriate time.
Management work diligently with the Group’s external financial advisors in quantifying the anticipated accurate
and fair tax liability which arises from material one-off events such as the Spot the Ball legal case and the
disposal of the Football Pools. Management have an open, transparent and constructive relationship with tax
regulators, and engage positively when discussing any difference in legal interpretation between that of the
Group and the regulators.
Certain contingent items exist at the reporting date with respect to tax liabilities as outlined below.
Corporation tax
Judgment has been applied by management as to the corporation tax which arises on the sale of the Football
Pools in June 2017. Exposure to further liabilities as a result of differences to management judgment exists, and a
possible further tax liability could arise.
VAT
As disclosed in the 2015 interim financial statements, HMRC have previously challenged the recovery of VAT by
Sportech PLC as an active holding company providing wholly economic activities. This challenge was aligned to
European Case Law which ultimately ruled in the taxpayer’s favour.
HMRC adjusted their challenge to Sportech in 2017 to instead focus on the value of the economic activities that
Sportech PLC provides to its trading subsidiaries, the majority of which are based overseas. Assessments have
been raised totalling £3.3m for the period to 30 June 2017, citing an under-valuation of the Group’s management
supplies which is made primarily to its exempt UK Football Pools business. The Group has continued to engage
its external advisors on this issue and has entered into a formal appeals process.
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Financial Statements
To continue with the appeal, and in accordance with due process, £1.3m was paid to HMRC in 2018 (HMRC
agreed to defer payment of the remaining amount). Management remain confident that this amount will be
recovered given advice from its external tax and legal advisors. A provision of £1.7m has been made in the Group
accounts and Management consider the likelihood of any further material outflow, over this amount, being made
to HMRC to settle this issue is remote.
Irish subsistence claims
The Irish revenue have assessed the Group for €106k for income tax allegedly underpaid in relation to
subsistence claims of Irish field crew. Management believe that this assessment is incorrect and that all
subsistence claims paid were made without tax deduction in accordance with relevant regulations. An appeal is
being pursued and no provision has been recorded in these financial statements.
Other contingent items
M&A activity
Both the 2017 sale of the Football Pools division and the 2018 sale of the Group’s Venues business in The
Netherlands have customary seller warranties under the terms of the Sale and Purchase Agreements. Those
warranties have been provided in good faith by management in light of the probability of certain events
occurring. The possibility of material claims being made under the seller warranties in either deal is considered
by management to be remote.
Legal
The Group is engaged in certain disputes in the ordinary course of business which could potentially lead to
outflows greater than those provided for on the balance sheet. The maximum possible exposure considered to
exist, in view of advice received from the Group’s professional advisors, is up to £0.5m. Management are of the
view that the risk of those outflows arising is not probable and accordingly they are considered contingent items.
27. Ordinary shares
Authorised, issued and fully paid ordinary shares
At 1 January
New shares issued to satisfy vesting of PSP
Cancellation of shares in issue
Capital reduction: nominal value reduced to 20p per share (2017: 20p)
At 31 December
2018
2017
’000
185,614
1,137
—
—
186,751
£000
37,123
227
—
——
’000
206,238
—
(20,624)
(55,684)
£000
103,119
—
(10,312)
37,350
185,614
37,123
On 21 March 2017, the Company purchased 10% of its issued share capital back from shareholders. The tender
offer price for the buyback was £1.015 and was fully subscribed, resulting in payments to shareholders of
£20,933k. Associated fees of this transaction were £259k. Those shares were purchased and cancelled, thus
reducing the number of shares in issue to 185,614,244. Further shares have been issued in the year to satisfy
employee share options (1,137,013), taking the total number of shares in issue to 186,751,257.
On 8 November 2017, the Company received Court approval for a 30p per share reduction in the nominal value
of its share capital from 50p to 20p as approved by shareholders in May 2018.
This created distributable reserves of £55,684k and assisted in the Group making a further distribution of surplus
cash in December 2017 by way of a special dividend of 29p per share.
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Potential issue of ordinary shares
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.
Movement in share awards in respect of the Performance Share Plan are shown below:
Outstanding awards at 1 January
Increase in awards for dividend in December 2017
Awarded
Exercised
Surrendered for participation in Value Creation Plan
Lapsed as a result of failure to meet performance conditions
Lapsed due to employees leaving the Group
Outstanding awards at 31 December
2018
’000
3,255
1,091
—
(1,137)
—
(1,139)
(33)
2,037
2017
’000
6,058
—
1,389
—
(1,389)
(1,873)
(930)
3,255
Dividend adjustment
As per the terms of the Sportech Share Performance Plan, a dividend adjustment was made to awards
outstanding at 31 December 2017 to compensate award holders for the dividend paid by the Company in
December 2017. The adjustment was agreed to be 0.335 as disclosed in the Remuneration Report on page 57.
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 was dependent on the Company’s TSR over a fixed three-year period
commencing 3 March 2017 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.
A vesting schedule no less demanding than the following applied:
The Company’s TSR performance over the performance period relative to comparator index
Extent of vesting
Equal to the index
Between equal to the index and upper quartile
Upper quartile or better
25%
Pro rata between 25% and 100%
100%
In addition to the primary performance condition, the award was also subject to a financial underpin condition. It
was determined in March 2019 that zero% of the award would vest, accordingly all awards will lapse in 2019.
2015 grant
The vesting of one-half of the award (‘Part A’) was 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
124
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Strategic Report
Governance
Financial Statements
performance period and the end figure is averaged over the last six weeks of the performance period. No
portion of Part A would vest unless the Company’s TSR performance at least matched that of the index.
Thereafter, a vesting schedule no less demanding than the TSR condition on the 2016 grant as outlined above.
The vesting of the second half of the award was 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 was determined by the following schedule:
The Company’s average annual growth in EPS in excess of RPI during the performance period
Extent of vesting of Part B
Less than 4% per annum
4% per annum
Between 4% and 10% per annum
10% or better
0%
25%
Pro rata between 25% and 100%
100%
It was determined that Part A vesting in full and Part B vested at 0%, therefore an overall vesting of the award of
50% occurred in April 2018. The vesting date was delayed to April due to the Group’s results announcement for
the year ended 31 December 2017 being delayed until this date.
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 valuation calculation are as below:
Grant date
Exercise price
Number of employees issued shares
Share price at date of valuation
Expected term (fixed)
Expected volatility
Dividend yield
Fair value of award
March
2017*
November
2016
£nil
14
£0.988
2.67 years
34.2%
0%
£0.585
£nil
19
£0.653
3 years
43.0%
0%
March
2015
£nil
25
£0.667
3 years
35.2%
0%
£0.433
£0.544
* The assumptions disclosed on the March 2017 award are those that were used when valuing the award at 21 July 2017 on creation of the VCP. It
is this valuation that triggers the financial statement impact of the awards in issue.
The weighted average remaining contractual life of outstanding awards under the PSP at 31 December 2018 was
ten months (2017: one year). The weighted average exercise price of awards granted during the period was £nil
(2017: £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 5 and 6 for the total expense recognised in the income statement for share
options granted and PSP awards made to Directors and employees respectively
Value Creation Plan
On 24 May 2017, shareholders approved the creation of a new executive management incentive plan known as
the Value Creation Plan (VCP). Participants in the VCP were granted an Award giving them a future right to earn
ordinary shares in the Company based on the cumulative total shareholder return generated over the VCP
performance period. The VCP provides participants with a pool of ordinary shares with a value equal to 20% of
any cumulative shareholder value created above a compound hurdle rate of 8% per annum. However, in the event
of a change of control that results in accelerated vesting in 2017 or 2018, or in the case of an Executive Director
being deemed a “Good Leaver” (as defined in the VCP rules) in 2017 or 2018, the compound hurdle rates for
vesting will be 12% and 10% respectively.
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Awards are expected to vest on the fifth anniversary of the deemed date of grant of the Award (for the existing
awards, 1 January 2017) to the extent that any applicable performance conditions have been satisfied.
Awards are valued using a Black-Scholes-Merton option pricing model. The fair value per award granted and the
assumptions used in the valuation calculation are as below:
Valuation date (date of award issues)
VCP performance period start date
End of vesting period
Share price at period start date
Expected term
Expected volatility
Dividend yield
Risk free rate
Fair value of each issued share in VCP
29 June 2018
21 July 2017
01 January 2017 01 January 2017
31 December 2021 31 December 2021
£0.978
3.5 years
40%
0%
0.80%
£279
£0.978
4.43 years
35%
0%
0.51%
£463
28. Cash generated from operations
Reconciliation of loss before taxation to cash generated from operations, before exceptional items:
Loss before tax – continuing operations
Adjustments for:
Net exceptional items
Realised losses on sale of shares in NYX Gaming Group
Share of loss after tax and impairment of joint ventures/associates
Depreciation and amortisation
Impairment of assets
Net finance (income)/costs
Acceleration of IFRS 2 charge for departing management
Share option expense
Employers’ taxes paid on options vested
Changes in working capital:
Decrease in trade and other receivables
Decrease/(increase) in inventories
Decrease in trade and other payables
Increase/(decrease) in customer funds
Cash generated from operating activities, before exceptional items
Note
4
15
13, 14
12, 13, 14
8
2018
£000
2017
£000
(2,439)
(23,150)
3,453
—
—
4,777
—
(473)
—
1,222
(67)
1,831
76
(2,805)
315
5,890
4,776
1,603
1,484
4,630
12,914
19
3,765
666
(21)
1,099
(177)
(939)
(251)
6,418
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 6.
b. 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, and no amounts outstanding at the
reporting date.
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Financial Statements
30. Post balance sheet events
Acquisition of Lot.to Systems Limited
On 1 February 2019, the Group acquired 100% of the issued share capital of Lot.to Systems Limited (“LOT.TO”), a
leading, UK-based digital gaming technology business.
The acquisition provides Sportech with a leading digital gaming platform, iLottery, and a specialist team focused
on innovative digital gaming technologies. It will also help solidify the Group’s global gaming capabilities and
services position. Importantly, the acquisition also provides Sportech with growth opportunities through
broadening the suite of gaming services offered by the Group.
UK-regulated LOT.TO is recognised as a digital specialist in the lottery sector providing turn-key solutions to its
B2B client base. Whilst its proprietary ‘Rapid Lotto’ and lotto betting verticals online have been its core
consumer products, LOT.TO’s iLottery platform has the capability to operate in any gambling vertical including
self-service POS terminals plus online and mobile interfaces.
The consideration will be satisfied by way of issuance of two million new Sportech ordinary shares of 20p each
to the vendors (the “Consideration Shares”). The vendors are subject to a three-year lock-up arrangement in
respect of their Consideration Shares (subject to certain customary exceptions), effective from the acquisition
date. Of the two million shares issued, 100,000 were issued to Richard McGuire (Interim Executive Chairman), in
consideration of his 5% holding in Lot.to Systems Limited prior to its sale to Sportech PLC.
Full disclosure of the impact on the Group’s financial statements will be included in the 2019 Interim Report. In
addition, the Group will repay £1.3m of former shareholders’ loans by the end of 2019.
31. Related undertakings
During the year, the Group held investments in related undertakings as follows:
Subsidiaries, excluding dormant companies
Country of
incorporation
Registered
address
Class of
shares held
Shareholding
Sportech Group Holdings Limited
Sportech Gaming Limited
Sportech Pools Limited
Sportech Pools Games Limited
Sportech Holdco 1 Limited
Sportech Holdco 2 Limited
Datatote (England) 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
Bump Worldwide, Inc.
Sportech Racing Canada, Inc.
1891323 Ontario, Inc.
Sportech Racing Panama, Inc.
Sportech Racing Limited
Racing Technology Ireland Limited
Autotote Europe GmbH
Sportech Racing GmbH
Sportech Racing Turkey
Sportech Racing SAS
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
Canada
Canada
Canada
Panama
British Virgin Islands
Ireland
Germany
Germany
Turkey
France
1
1
1
1
1
1
1
2
3
3
3
3
3
3
4
5
5
5
6
7
8
9
10
11
12
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
85%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
127
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Sportech PLC Annual Report and Accounts 2018
Consolidated Financial Statements continued
Joint ventures and associates
Sportshub Private Limited
S&S Venues California, LLC
DraftDay Gaming Group, Inc
Companies considered held for sale during
the period and disposed of by the reporting date
Sportech Racing BV
Sportech Racing Banen BV
Sportech BV
Dormant companies
Sportech Trustees Limited
Thepools.com Limited
C&P Promotions Limited
Pools Promotions Limited
Sportech Pools Competitions Company Limited
Bet 247 Limited
Pools Company Limited
Sportech Management Limited
Sportech Pools Trustee Company Limited
Registered addresses
Number
Country
Address
Country of
incorporation
India
United States
United States
Country of
incorporation
Netherlands
Netherlands
Netherlands
Country of
incorporation
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Scotland
Scotland
Registered
address
13
3
14
Registered
address
15
15
15
Registered
address
1
1
1
1
1
1
1
16
16
Class of
shares held
Ordinary
Ordinary
Ordinary
Class of
shares held
Ordinary
Ordinary
Ordinary
Class of
shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Shareholding
50%
50%
30%
Shareholding
100%
100%
100%
Shareholding
100%
100%
100%
100%
100%
100%
100%
100%
100%
England & Wales
Mauritius
United States
United States
Canada
Panama
British Virgin Islands
Ireland
Germany
Germany
Turkey
France
India
United States
Netherlands
Scotland
Icarus House, Hawkfield Close, Hawkfield Business Park, Whitchurch, Bristol, BS14 0BN
Intercontinental Trust Limited, Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius
600 Long Wharf Drive, New Haven, CT 06511
1095 Windward Ridge Parkway, Suite 170, Alpharetta, GA 30005
CSC North America Inc., 45 O’Connor Street, Suite 1600, Otawa, Ontario K1P 1A4
Arias, Fabrega & Fabrega, Plaza 2000 Building, 50th Street, Panama
Trident Chambers, POB 146, Road Town, Tortola, British Virgin Islands
Unit 3, IDA Technology Park, Garrycastle, Athlone, Co. Westmeath, Ireland
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
Polakweg 23, 2288 GG Rijswijk (ZH), Netherlands
Collins House, Rutland Square, Edinburgh, Midlothian, EH1 2AA
1
2
3
4
5
7
7
8
9
10
11
12
13
14
15
16
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Strategic Report
Governance
Financial Statements
Company Financial Statements
Company Balance Sheet
at 31 December 2018
ASSETS
Non-current assets
Intangible fixed assets
Property, plant and equipment
Investment in subsidiaries
Trade and other receivables
Deferred tax assets
Current assets
Trade and other receivables
Income tax receivable
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Net current liabilities
NET ASSETS
EQUITY
Ordinary shares
Other reserves
Retained earnings carried forward
TOTAL EQUITY
Note
2018
£000
2017
£000
C5
C6
C7
C8
C8
998
—
92,673
3,844
73
97,588
1,505
421
8,303
10,229
107,817
1,243
10
231,989
—
156
233,398
3,249
—
11,126
14,375
247,773
C9
(19,754)
(162,251)
(9,525)
(147,876)
88,063
85,522
37,350
17,848
32,865
88,063
37,123
16,920
31,479
85,522
The Company financial statements on pages 129 to 136 were approved and authorised for issue by the Board of
Directors on 20 March 2019 and were signed on its behalf by:
Richard McGuire
Thomas Hearne
Company Registration Number: SC069140
129
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Sportech PLC Annual Report and Accounts 2018
Company Financial Statements continued
Company Statement of Changes in Equity
for the year ended 31 December 2018
Other reserves
At 1 January 2017
Comprehensive expense
Profit of the year
Transactions with owners
Share option charge, excluding acceleration of
IFRS 2 charge for departing management
Acceleration of IFRS 2 charge for departing management
Employer taxes paid on vesting of options
Share buyback
Cancellation of share capital
Capital reduction
Special dividend
At 31 December 2017
Comprehensive expense
Profit for the year
Transaction with owners
Share option charge
Taxes paid on vesting of share options
New shares issues in relation to the PSP
Shares gifted to the EBT
Ordinary
shares
£000
103,119
—
—
—
—
—
(10,312)
(55,684)
—
37,123
—
—
—
227
—
Capital
redemption
reserve
£000
—
—
—
—
—
—
10,312
—
—
10,312
—
—
—
—
—
At 31 December 2018
37,350
10,312
Share
option
reserve
£000
2,198
Retained
earnings
£000
(21,836)
Total
£000
83,481
—
72,651
72,651
666
3,765
(21)
—
—
—
—
6,608
—
1,222
(67)
(227)
—
7,536
—
—
—
(21,192)
—
55,684
(53,828)
31,479
1,159
—
—
—
227
666
3,765
(21)
(21,192)
—
—
(53,828)
85,522
1,159
1,222
(67)
—
227
32,865
88,063
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Strategic Report
Governance
Financial Statements
Company Statement of Cash Flows
for the year ended 31 December 2018
Cash flows from operating activities
Cash generated from operations, before exceptional items
Interest paid
Interest received
Tax paid
Net cash generated from operating activities before exceptional items
Exceptional cash inflows
Exceptional cash outflows
Net cash generated from operating activities
Cash flows from investing activities
Dividends received
Investment in subsidiaries
Investment in intangible fixed assets
Purchase of property, plant and equipment
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Shareholder distribution – March 2018
Shareholder distribution – December 2018
Net cash used in financing activities
Net decrease in 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
Note
C11
C7
C5
C6
2018
£000
2,522
(19)
125
(152)
2,476
—
(1,863)
613
—
(3,374)
(62)
—
(3,436)
—
—
—
(2,823)
11,126
8,303
2017
£000
89,280
(235)
—
(18,833)
70,212
494
(12,419)
58,286
8,105
—
(429)
(16)
7,660
(21,192)
(53,828)
(75,020)
(9,074)
20,200
11,126
131
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Sportech PLC Annual Report and Accounts 2018
Company Financial Statements continued
C1. Accounting policies
The accounting policies applied by the Company are consistent to those disclosed on pages 86 to 95 where
applicable.
C2. Result of Company
The result for the year is a profit after tax of £1,159k (2017: £72,651k).
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 20 March 2019.
C3. Auditor remuneration
Fees payable to the Company auditors for the audit of these financial statements are £60k (2017: £55k). Other
amounts payable to the Company auditors during the year are disclosed in note 7 of the Group Consolidated
Financial Statements.
C4. Directors and key management remuneration
Short-term employee benefits
Consultancy fees
Share-based payments
Accelerated IFRS 2 charge for departing management
Pay in lieu of notice
Post-employment benefits
Total remuneration
Directors
Key management
2018
£000
714
76
388
—
—
5
1,183
2017
£000
1,032
146
205
3,567
859
46
5,855
2018
£000
752
76
388
—
—
5
1,221
2017
£000
1,188
146
205
3,567
964
46
6,116
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration
report on pages 42 to 62. This information forms part of the financial statements. Retirement benefits are
accruing under defined benefit pension schemes for nil Directors (2017: nil). Nil Directors exercised share options
in the year (2017: nil).
Key management is considered to be the Directors of the Company. Consultancy fees are amounts payable to
Richard Cooper in providing additional services to Group companies in his capacity as Non-executive Director
following the resignation of Mickey Kalifa, as detailed in the Remuneration report on page 54 of the Group
Consolidated Financial Statements.
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Financial Statements
C5. Intangible fixed assets
2018
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2018
Charged during the year
At 31 December 2018
Net book amount at 31 December 2018
2017
Cost
At 1 January 2017
Additions
Disposal
At 31 December 2017
Accumulated amortization
At 1 January 2017
Charged during the year
Disposal
At 31 December 2017
Net book amount at 31 December 2017
Software
£000
18,078
62
18,140
16,835
307
17,142
998
Other
£000
1,082
—
(1,082)
—
1,082
—
(1,082)
—
—
Total
£000
18,078
62
18,140
16,835
307
17,142
998
Total
£000
18,731
429
(1,082)
18,078
17,709
208
(1,082)
16,835
1,243
Software
£000
17,649
429
—
18,078
16,627
208
—
16,835
1,243
Software owned by the Company relates primarily to in-house developed proprietary pari-mutuel software
serving racing customers worldwide but also costs in relation to the implementation and customisation of the
Group ERP system. Other intangible assets held were certain developments in modifying this core pari-mutuel
software to enable the provision of tote software to the Group’s Indian joint venture which was fully impaired in
2017.
C6. Property, plant and equipment
Cost
At 1 January and 31 December 2018
Accumulated depreciation
At 1 January 2018
Charged during the year
At 31 December 2018
Net book amount at 31 December 2018
Plant and
machinery
£000
224
214
10
224
—
Total
£000
224
214
10
224
—
133
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Sportech PLC Annual Report and Accounts 2018
Company Financial Statements continued
Cost
At 1 January 2017
Additions
Disposals
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Charged during the year
Disposals
At 31 December 2017
Net book amount at 31 December 2017
Short leasehold
land and
buildings
£000
Plant and
machinery
£000
141
—
(141)
—
141
—
(141)
—
—
208
16
—
224
152
62
—
214
10
Total
£000
349
16
(141)
224
293
62
(141)
214
10
C7. Investments in subsidiaries
A full list of the Company’s subsidiaries and other related undertakings is included in note 31 of the Group
Consolidated Financial Statements.
At 1 January 2018, the Company held direct investments in the following entities:
Company
Nature of business
Sportech Group Holdings Limited (“SGHL”)
Sportech Trustees Limited
Sportech Management Limited
Holds investments in Group companies
Dormant
Dormant
Capital contributions were made during the year to SGHL as follows;
22 August 2018
6 September 2018
20 September 2018
£1,143k
£1,077k
£1,154k
$1,500k
$1,400k
$1,500k
Each contribution was translated at the exchange prevailing at the time.
Movement in the book value of the Company’s investments is shown below:
At 1 January
Capital contributions
Impairment
At 31 December
2018
£000
231,989
3,374
(142,690)
92,673
2017
£000
194,620
37,369
—
231,989
In 2018, an impairment charge was recognised to the Company’s investment in SGHL following a dividend receipt
from SGHL of £150,000k and a review of the carrying value of the investment. The Directors consider the
investments, following the impairment, to be supported by the underlying net assets and cash flows of the
Group. Significant judgement is involved in forecasting the cashflows of the Group and if these forecasts are not
achieved further impairment to the investment in SGHL would result. Principal risks of the Group are identified in
the Risk Management section of the Consolidated Financial Statements.
134
171843 3 Sportech Annual Report 2018 Financial Statements_171843 3 Sportech Annual Report 2018 Financial Statements 05/04/2019 19:54 Page 135
Strategic Report
Governance
Financial Statements
C8. Trade and other receivables
Non-current
Amounts owed to Group companies
Current
Amounts owed to Group companies
Other receivables
Prepayments
Current trade and other receivables
Total
Amounts due in more than one year are from:
Datatote (England) Limited
Racing Technology (Ireland) Limited
Bump (Worldwide) Inc
Sportech Racing GmbH
2018
£000
3,844
622
842
41
1,505
5,349
2017
£000
—
2,354
828
67
3,249
3,249
2018
£000
247
2,075
176
1,346
3,844
Loans have no fixed repayment date and carry interest charges of Bank of England base rate plus 3%. Interest is
charged quarterly in arrears and added to the loans.
C9. Trade and other payables
Trade payables
Amounts owed to Group companies
Social security and other taxes
Accruals
Total
2018
£000
101
19,129
23
501
19,754
2017
£000
193
159,939
—
2,119
162,251
Amounts due to Group companies are repayable on demand and carry interest charges of Bank of England base
rate plus 3%, other than loans with the Football Pools companies. Interest is charged quarterly in arrears and
added to the loans. It is expected that the loans with the Football Pools companies which are all now dormant,
will be settled via dividend payments during 2019. Given the expected settlement no interest has been charged
on these payables during the year. The payables to the Football Pools companies amount to £15,047k.
C10. Contingencies and commitments
Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
No later than one year
Total
Contingent items
2018
£000
—
—
2017
£000
140
140
The Company is exposed to certain contingent items for corporation tax, VAT, M&A activity and legal claims.
Further details of those are disclosed in note 26 of the Group Consolidated Financial Statements.
135
171843 3 Sportech Annual Report 2018 Financial Statements_171843 3 Sportech Annual Report 2018 Financial Statements 05/04/2019 19:54 Page 136
Sportech PLC Annual Report and Accounts 2018
Company Financial Statements continued
C11. Cash generated from operations
Reconciliation of profit before taxation to cash generated from operations, before exceptional items:
Profit before taxation
Adjustments for:
Investment income
Net exceptional costs
Depreciation
Amortisation of other intangibles
Impairment of investments
Finance costs
Finance income
Other finance (income)/expense
Share option charge, excluding acceleration of IFRS 2 charge for departing management
Shares gifted to EBT
Acceleration of IFRS 2 charge for departing management
Changes in working capital:
Movement in trade and other receivables
Movement in trade and other payables*
Cash generated from operating activities, before exceptional items
Note
C6
C5
C7
2018
£000
6,422
(150,000)
1,058
10
307
142,690
19
(125)
(157)
1,222
227
—
(2,100)
2,949
2,522
2017
£000
73,141
(86,841)
3,801
62
208
—
4,438
—
1,413
657
—
3,765
(5,587)
94,223
89,280
*Movement in trade and other payables in 2017 includes the settlement of various intercompany loan balances by receipt of investment income
totaling £78,736k. The loan balances were settled on receipt of this income and no cash was physically transferred between the Company and its
subsidiaries in respect of this. £8,105k of investment income was received in cash and has been shown as cash from investing activities in the
cash flow statement.
C12. Related party transactions
The Company had the following transactions with subsidiaries during the year:
Management charges received
Royalty income received
Investment income
Interest paid on inter-company loan balances
Interest received on inter-company loan balances
2018
£000
833
1,866
150,000
(19)
46
2017
£000
1,238
1,934
86,841
(4,437)
158
The amount outstanding in relation to management charges at the balance sheet date was £77k (2017: £46k). All
inter-company transactions are on an arm’s-length basis.
136
Strategic Report
Governance
Financial Statements
Advisors and Corporate
Information
Company Secretary
SGH Company Secretaries Ltd
6th Floor
60 Gracechurch Street
London EC3V 0HR
Registered office
Sportech PLC
Collins House
Rutland Square
Edinburgh EH1 2AA
European head office
Sportech PLC
Icarus House
Hawkfield Business Park
Bristol BS14 0BN
North American head office
Sportech, Inc.
600 Long Wharf Drive
New Haven, Connecticut 06511
Company registration number
SC69140
Internet
The Group website can be found at
www.sportechplc.com. This site is regularly updated
to provide information about the Group. The Group’s
press releases and announcements can be found on
the site.
Stockbroker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Principal bankers
Bank of Scotland PLC
10 Gresham Street
London EC4M 9AF
Wells Fargo
420 Montgomery Street
San Francisco, California 94104
Solicitors as to UK law
Dickson Minto W.S.
Broadgate Tower
20 Primrose Street
London EC2A 2EW
Lawyers as to US law
Duane Morris LLP
1940 Route 70
East Suite 100
Cherry Hill, New Jersey 08003
Statutory auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
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:
E-mail:
0871 664 0300
enquiries@linkgroup.co.uk
Designed and printed by Sterling
www.sterlingfp.com
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