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9
An International
Betting Technology Business
Annual Report and Accounts 2019
Delivering a
Winning Experience
to our Clients
Sportech is an international betting technology
business delivering technology and service solutions
to gaming companies, sports teams, racetracks,
casinos and lottery clients across 38 countries.
In addition, the Group owns and operates sports
gaming venues in Connecticut, United States.
CONTENTS
Highlights
1
Corporate Governance
Financial Statements
Strategic Report
Overview
Business Model and Strategy
Chairman’s Statement
Operating Review
Financial Review
Section 172 Statement
2
4
6
8
14
19
Directors and Officers
Risk Management
Viability Statement
Corporate Social
Responsibility Report
22
23
26
27
Consolidated Financial
Statements
Company Financial
Statements
Advisors and Corporate
Information
74
129
137
Corporate Governance Report 29
Report of the
Remuneration Committee
Directors’ Report
Report of the Auditors
38
61
65
STRATEGIC REPORT
HIGHLIGHTS
REVENUE
GROSS PROFIT
ANNUAL REPORT & ACCOUNTS 2019
£64.8m
2019
2018
£64.8m
£63.5m
£46.9m
2019
2018
£ 46.9m
£45.8m
ADJUSTED EBITDA
LOSS BEFORE TAX
£7.5m
2019
2018
£7.5m
£6.5m
£(8.4)m
2019
2018
£(2.7)m
£(8.4)m
FINANCIAL HIGHLIGHTS
Revenues increased by 2% to £64.8 million (2018: £63.5 million).
Adjusted EBITDA1 (prior to Sports Betting investment) reduced by 5% to £9.3 million (2018: £9.8 million – adjusted for
IFRS 162).
Adjusted profit before tax1 from continuing operations (prior to Sports Betting investment) of £1.0 million (2018: £2.0 million).
Statutory loss before tax from continuing operations of £8.4 million (2018: £2.7 million - restated). £5.0 million impairment to
Stamford sports bar asset.
Cash, net of customer balances, at 31 December 2019 of £13.0 million (2018: £14.7 million).
Increased management focus on delivering key performance results beyond simple EBITDA.
Capex reduced by -24%; Corporate costs reduced by -28%; cash generated from operational activities increased by +27%.
1.
2.
Adjusted profit measures exclude the effects of expenditure Management believe should be added back (exceptional items) and
share option charges.
2018 Adjusted EBITDA pre Sports Betting investment is shown at constant currency and restated for the impact of IFRS 16, estimated to be
£1,831k increase from 2018 reported at constant currency.
GROUP DEVELOPMENTS
Accountability: bolstered senior management team with emphasis on accountability and delivery.
Tote: enhanced international Tote technology position resulted in service revenue growth.
Digital: strengthened digital capability across all businesses post Lot.to acquisition and integration.
Venues: Challenging operational leverage being tackled via cost management, asset review and strategic initiatives.
Critical focus in Connecticut; seeking to extend current licensing to include Sports Betting.
Bump 50:50: Record revenue growth, however investment for future growth impacted unit EBITDA contribution.
1
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Overview
Sportech at a glance
We continue to progress our strategic agenda focused on
driving further development of our Group platforms following
2019 growth opportunity investments, whilst managing the
inherent cost base. Despite the challenging retail environment
and excluding some cost measures taken to reposition
the Group, our performance in 2019 was as expected. In
particular, we have recorded positive progress with key
performance metrics beyond, the typically focused, EBITDA
measure; namely cash generation from operational activities,
capex reductions and delivery of a lower operational cost base
going forward.
Trading in the early months of 2020 started satisfactorily,
however given the uncertainty as to how the current
COVID-19 situation will develop it is difficult to provide
accurate guidance with any certainty for the full-year. The
situation remains highly uncertain, but clearly COVID-19 will
have a significant impact on our business given certain of our
businesses are dependent on sporting events continuing,
even if behind closed doors. On Sunday 15 March 2020, we
took the precautionary action to close our Connecticut retail
venues for an initial period through to the end of April 2020.
Understandably, the period of disruption is uncertain, but
having strengthened our online capabilities during 2019 we
are better positioned to deliver a broader service wherever
possible.
In this period of concern and uncertainty, we initiated a
Sportech COVID-19 response task force and continue to
work closely with our clients and our staff to ensure, as best
we can, a combination of continuity where permissible and
precautionary safety measures.
Richard McGuire
Chief Executive Officer
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 enhance
its strong global position in
Tote betting by leveraging
its heritage, gaming
licences, technology,
client relationships, and
investment. It further seeks
to promote its enhanced
Lottery and additional
gaming solutions in newly-
liberalising markets. It
also seeks to continue
expanding its Bump 50:50
client base of non-sport,
as well as sport-related,
charitable foundations
seeking innovative digital
fundraising platforms.
Division Information
Sportech’s proprietary betting solutions process US$12.3 billion in handle annually
for licensed Tote and Lottery clients in 38 countries. Bump 50:50 systems
generated charitable proceeds of US$21.0 million for its charity partners in 2019
and by year’s end had a total of 100 clients.
Locations
Atlanta, Athlone, Bristol UK, Chester UK, Connecticut, New Jersey,
Singapore and Toronto.
Revenue (£m)
Adjusted EBITDA (£m)
Racing And Digital Clients
Bump 50:50 Clients
Capital Expenditure (£m)
2019
2018*
36.5
35.0
8.6
9.0
434
440
100
75
3.6
4.6
2
* 2018 restated for IFRS 16 (EBITDA increased by £431k) and at constant currency for comparative purposes. IFRS 16
transition requires that prior year numbers are not restated. The above figures for IFRS adjustments are for comparability
purposes only. They represent the 2019 lease rentals which would have been operating costs in 2019 if IFRS 16 had
not been adopted, translated at 2019 exchange rates. Adjusted EBITDA is earnings before interest, tax, depreciation,
amortisation and share option charges.
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Sportech Venues
Operator of legal pari-
mutuel betting in the State
of Connecticut under an
exclusive and in perpetuity
licence.
Division Information
The Division offers online, mobile, call centre and in-venue retail betting in
15 venues located across major population centres in Connecticut and is well
positioned to offer legal online and in-venue Sports Betting in Connecticut should
the State progress appropriate licensing. In addition to 15 retail venues, web,
mobile and phone betting in Connecticut, Sportech has the licensing to expand
to 24 venues in the State.
Revenue (£m)
Adjusted EBITDA (£m)
Venues Connecticut
Capital Expenditure (£m)
2019
2018*
28.8
31.7
2.2
15
0.2
2.9
16
0.4
*
2018 restated for IFRS 16 (EBITDA increased by £1,400k) and constant currency for comparative purposes.
IFRS 16 transition requires that prior year numbers are not restated. The above figures for IFRS adjustments
are for comparability purposes only. They represent the 2019 lease rentals which would have been operating
costs in 2019 if IFRS 16 had not been adopted, translated at 2019 exchange rates. Adjusted EBITDA is earnings
before interest, tax, depreciation, amortisation and share option charges.
3
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Business Model and
Strategy
THE GROUP’S STRATEGIC AIMS FOR 2020 INCLUDE:
1. Maintain and develop Sportech’s core Tote business, providing leading technologies
and services to our global client base via an enhanced operational platform.
2. Develop key growth business units including:
• Sportech Solutions
• Bump 50:50
• Lottery
3. Drive digital development initiatives with associated cost efficiencies across
all divisions.
4. Continued professional pursuit of Sports Betting licensing of Connecticut
Venues business.
5. Evaluate and execute material corporate opportunities delivering tangible
investor returns.
Sportech remains committed to aggressively pursuing
improved diversification opportunities through expansion
of its gaming licences in the State of Connecticut, growth
in non-sports charities with its Bump 50:50 raffle business
and the development of Sportech Solutions, the Group’s
innovative new bespoke business solutions unit. Sportech
is equally committed to engaging its digital, user experience
and software development expertise to elevate the user
experience, driving variable revenue growth.
The Group maintains its international focus with clients
in 38 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 reports exchange differences.
Sportech is an international betting technology
business, which provides and operates betting
technology solutions for some of the world’s
best-known gaming companies, sports teams,
racetracks, casinos and lottery clients, as well as
owning and operating its own gaming venues in
Connecticut.
The Group focuses on regulated markets worldwide and
seeks to achieve long-term shareholder returns by further
enhancing its global position in Tote betting and by promoting
its enhanced Lottery and additional gaming solutions to take
advantage of liberalising markets. The Group achieves this by
leveraging Sportech’s heritage, gaming licences, technologies,
client relationships, and prior investment. Sportech also seeks
to further expand its client base of non-sport, as well as
sport-related, charitable foundations seeking innovative digital
fundraising platforms.
Sportech has leveraged IP and talent secured from the
acquisition of Lot.to Systems to enhance its digital pari mutuel
betting platforms, user experience design, enhanced terminal
software and integrated CRM tools – and to strengthen its
management leadership.
The Group strengthened its position as the independent
global leader in the delivery of complex international pari
mutuel pool commingling solutions. Sportech continues to
pursue new opportunities to expand upon the strength of its
global commingling solution to facilitate new events such as
the inaugural 2019 Ascot World Pool and anticipate delivering
further 2020 World Pools with our UK Tote Group and Hong
Kong Jockey Club partners.
4
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RACING AND DIGITAL
Sportech Racing and Digital is a leading supplier of
technology and services to the global horseracing
betting industry, with systems that process
US$12.3 billion in betting handle annually for clients
across 38 countries.
The Division’s proprietary Quantum™ System software,
used by many of the world’s Tote operators, and its
Global Quantum™ Data and Operations Centre together
form the foundation from which Sportech pursues
growth initiatives including international expansion and
growth in global commingling.
The Division is also the largest independent provider of
‘white label’ web and mobile betting platforms in North
America, with 30 clients in the USA, Latin America,
Europe and Asia. The Division’s digital technology
capabilities, 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 digital development assets.
BUMP 50:50
Included within Racing and Digital reporting, Bump
50:50 is the rapidly-growing sports raffle business.
Bump 50:50 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. In 2019
Bump 50:50 began to acquire clients from the non-
sport philanthropy segment with deployments of its
online raffles. As of 31 December 2019, Bump 50:50
has 100 clients in the US and Canada, across 17 US
states and Canadian provinces.
Bump 50:50’s strategy includes continued client
acquisition activities in the sports charity segment,
further expansion into the philanthropic charity
segment, the leveraging of web and mobile platforms
to drive organic growth, and product diversification to
reach new markets.
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 15 existing locations, web,
mobile and phone, and holds the right to expand to up
to 24 locations.
In late 2019, the Group secured legislative support
to enforce its pari-mutuel betting licence prohibition
against out-of-state betting operators accepting online
bets on horseracing from Connecticut residents.
The Group and senior management are engaged
in actively pursuing a Sports Betting licence to
complement its existing Tote wagering platform across
the State. Sportech’s Venues business is regulated
and ready to deliver Sports Betting to its Connecticut
consumers as this Division seeks a resolution to the
challenges facing all Connecticut gaming operators in
promoting equal licensing to each State partner.
The Venues Division continues to pursue strategies to
deliver a return on the significant capital invested in
developing venues that appeal to a wider clientele and
on upgrades to our digital platforms.
LOTTERY
Sportech has been providing draw-based lottery
platforms and services for over 23 years. In 2019, the
Group acquired Lot.to systems – an iLottery, CRM,
and games management platform – to complement
our successful draw based games. The Group are
pursuing opportunities with private and national
lotteries, drawing on the Sportech brand and legacy
along with our new range of products and digital
expertise to offer enhanced Lottery capabilities.
5
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Chairman’s Statement
I am pleased to address you as Sportech PLC’s Chairman of the Board. It has
been both challenging and invigorating to be at the helm of the Board at this
transformational time for the Company and for the industries and markets we serve.
2019 saw changes at the Executive and Board level with
Richard McGuire’s appointment as Chief Executive Officer
and my appointment as Chairman of the Board. The Group
also initiated changes at the senior management level with the
appointment of a new Chief Technology Officer and with the
addition of a Chief Operations Officer and Chief Commercial
Officer to drive focus and accountability. We have been
conducting a search for an additional Independent Non-
Executive Director following my appointment to Chairman,
who will also replace me as Remuneration and Nomination
Committee Chair. We intend to make an announcement to the
market in the near future on an appointment.
The Group began 2019 with a clear agenda to assess
business performance, challenge sales margins and
processes, pursue new opportunities in our core Racing
and Digital, Sportech Venues, and Bump 50:50 businesses,
expand our Lottery business, and seek to secure licensed US
opportunities in Sports Betting. There are many encouraging
signs across all divisions that we are collectively challenging
the status quo and making the right moves to propel the
business forward.
In the first half of 2019 Sportech concentrated on costs
and processes; identifying strategies for doing things more
efficiently and effectively and eliminating certain legacy issues.
On a constant currency basis, full year Group revenue
declined 1.8% to £64.8 million; a 4.3% increase in revenue
in Racing and Digital was offset by an 8.9% decline in
our Venues business. Adjusted1 EBITDA declined in both
divisions; Racing and Digital by 4.7% to £8.6 million and
Venues by 22.1% to £2.2 million. Central costs were reduced
by 26.6% to £1.5 million meaning Adjusted EBITDA pre
Sports Betting investment fell by 5.2% to £9.3 million (prior
year bases have been adjusted for lease accounting changes
in the year to ensure comparability). The Venues performance
was consistent with the interims release and illustrates the
operational leverage risk and challenges faced from local
states enabling Sports Betting operations, whilst Connecticut
decides.
1.
Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation
and share option charges.
6
We are determined that our collective efforts are concentrated
on those business areas where we can make significant
progress and deliver long term returns. In 2019, we therefore
focused our efforts to channel resources to areas where the
prospects were the most promising.
We completed the transaction to acquire Lot.to Systems
Limited (“Lot.to”), a UK-regulated iGaming platform, and its
team. Integration of this business was completed in 2019
and the newly-combined technology teams took steps to
immediately support the transformation of the Group’s user
experience software platforms.
Our core Racing and Digital team are focused on identifying
new opportunities as we continue to improve and develop
our Quantum™ System, including expanding our global
commingling services and delivery of ground breaking
initiatives like the Ascot World Pool. The team are also
executing updates to product ‘look and feel’ to deliver on our
promise of an elevated user experience.
Our Bump 50:50 team continued to score impressive year-
over-year growth, adding 27 new clients from the world of
sport and philanthropy and reaching the milestone of 100
clients by the end of 2019. The Bump strategy to enter the
non-sports related charity market with leading digital platforms
gained traction in 2019 and this has continued into 2020.
The Bump team are identifying and pursuing opportunities
for diversification with new raffle products that are being
introduced beginning in 2020.
Our Connecticut Venues continue to confront a complicated
and challenging marketplace. Many surrounding and nearby
states now have legal online and retail Sports Betting and
as local players travel the relatively short distances from
Connecticut to legal Sports Betting states, they take their
horse race betting dollars with them. There is also continued
competition from illegal out-of-state online pari-mutuel
betting operators that have continued operating unchecked
throughout much of 2019.
We did deliver a victory against those illegal out-of-state
online operators with the passage of legislation that closed a
loophole they had been exploiting to deliver unregulated and
untaxed betting in Connecticut. We are now taking steps to
recapture market share lost to these illegal operators, working
with the State to ensure that bad actors are brought into
compliance.
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On behalf of all the shareholders, I extend thanks to our clients
and customers worldwide who place their trust in Sportech
and to our employees who work diligently to deliver on
Management’s promise of transformation, innovation and an
unparalleled user experience.
The Group enters 2020 with continued determination to
challenge every assumption across all divisions and business
functions to ensure that we are operating at our best; with an
entrepreneurial spirit, a drive for efficiency, and an ambition for
excellence in technology and service.
Giles Vardey
Chairman of the Board
18 March 2020
The 2019 Connecticut legislative session did not deliver legal
Sports Betting for the State, despite the diligent efforts of our
team in Connecticut and targeted lobbying, public relations
and marketing activities; however we did not lose the battle
in 2019. We continue into 2020 to fight for common sense
Sports Betting legislation that grants online and retail Sports
Betting licences to existing gaming operators in the State,
including Sportech. We will keep shareholders apprised of
developments in this legislative session, which ends in
May 2020.
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. As in 2019, the Group views
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. We
are monitoring and evaluating the global COVID-19 outbreak
(as announced to the market by RNS on 18 March 2020)
and its potential impact on our businesses, particularly in
the US where we have consumer venues and the majority of
our employees. We shall keep the market and shareholders
appraised of any developments.
Looking to 2020, we are intent across the Group on building
our technology resources to affirm our status amongst the
best in our industry. We continue to examine our technical
infrastructure in the light of a fast-changing marketplace and
our progress on launching more leveraged digital capabilities
across our businesses is a vital part of our response to those
changes.
After a period of cost constraint and control, we are looking
for revenue growth in core businesses and to potential
growth in areas such as Sports Betting, international Tote
and Bump 50:50 where we seek licences, new clients and
mutually beneficial partnerships. We continue to challenge
our strategy to ensure we are not missing any opportunities
in our fast moving global B2B market. While determined to
be flexible and open to new ways of doing things in such
an environment, we see our place as a specialist provider of
leading-edge services across the globe, working with high
quality partners where appropriate. This is the best route for
us to add value to our clients and to increase the value of our
business.
7
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Operating Review
Sportech began 2019 with a renewed focus on accountability and sought to restructure the
business and processes to deliver tangible long-term growth through a relentless drive for
efficiency and innovation and through delivery of an enhanced customer experience. During
the year, Sportech set a course to deliver on these goals with a revamped management team,
a strategy to further solidify our position as the international leader in Tote solutions, a plan to
shift from an ‘industrial’ to a ‘digital’ focus in our solutions across the Group, and a ‘challenge
everything’ attitude to deliver operational efficiency.
Our exceptional cost items declined in 2019, however we
remain dedicated to removing these significantly in 2020
and future years. Major items included the transfer of the UK
Defined Benefit pension scheme liabilities, closure of certain
long-standing litigation issues, tax interest and certain staff
restructuring redundancy costs. The net result being our
cash position at year end, whilst reducing £2.3 million, was
approximately £1.0 million ahead of market expectations.
We set out the Group’s strategic aims for 2020 on page 4
and Management are dedicated and motivated to deliver
tangible investor returns during the year ahead, whilst
ensuring our capital is directed toward serious growth
opportunities.
In 2019, the Group had two operating divisions: Sportech
Racing and Digital (including Bump 50:50 and the Group’s
Lottery line) and Sportech Venues.
We set out to establish broader key performance indicators
beyond the simple EBITDA metric which appeared
somewhat overused in previous periods. The sale of the
UK Football Pools business in 2017, with the resulting
loss of positive operational cash flow and subsequent
redistribution of cash to shareholders, has focused the
Board’s and Management’s attention on not only the popular
EBITDA metric but also on operational cash flow and related
investment of capital across the Group.
2019 was a challenging period, resulting in a modest
1.8% decline in revenue performance and a 5.2% decline
in Adjusted EBITDA on a constant currency basis before
Sports Betting costs. This predominantly related to our
investments to reposition the Bump 50:50 business for
digital and subscription growth potential; the expansion
investment of our digital and iLottery capabilities; the
competitive challenges – highlighted within our interim results
– to our Connecticut Venues business as neighbouring
states advance their own Sports Betting initiatives; and
the losses from our subsequently closed California venues
interests. The operational and product investments that
impacted the headline EBITDA should generate performance
returns in coming years and we have taken steps to address
some of Venues’ structural challenges, including exiting the
single California operation situated almost 3,000 miles from
our other operations.
However, the Group managed broader business
performance metrics effectively during the year including:
a 24% capex cost reduction, a further reduction of 28% in
corporate costs and an increase in cash generation from
operational activities of 27%.
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SPORTECH RACING AND DIGITAL
Sportech Racing and Digital provides pari-mutuel betting technology and service solutions to 287 racetrack, off-track betting
network, casino, lottery, and online operator clients, plus an additional 147 commingling clients, in 38 countries and 36 US
states. The Division has over 29,000 betting terminals, 30 white-label betting websites, and 19 white-label mobile apps
deployed worldwide, and our pari-mutuel systems annually process US$12.3 billion in betting handle, including handle
processed for its Lottery clients.
£’000
Service revenue
Sales revenue
Total revenues
Contribution
Contribution margin
Adjusted operating expenses, net
Adjusted EBITDA
Intangible assets capitalised
Purchase of PPE
Total capex in year
2019
35,105
1,420
36,525
31,431
86.1%
(22,845)
8,586
2,602
971
3,573
Constant currency
2018
33,278
1,731
35,009
30,088
85.9%
(21,081)
9,007
3,250
1,603
4,853
Table above includes results of Bump 50:50, prior year figures are at constant currency and Adjusted operating expenses in 2018 are restated for IFRS 16
impact for comparison purposes (reduction of £431k from 2018 constant currency under IAS 17).
DEVELOPMENTS DURING THE YEAR
Sportech Racing and Digital strengthened its dominant position in the global pari-mutuel betting market in 2019. The Division
delivered the first-ever ’World Pool’, leveraging its Quantum™ System to combine betting pools on races held at Royal Ascot
with those from Betfred Totepool and Hong Kong Jockey Club, maximising liquidity for participants. The Division also entered
into an arrangement with Sports Information Services (’SIS’) to provide global pools for greyhound racing and delivered an order
of 300 new BetJet® Aero terminals to the Jockey Club of Turkey.
Extending the powerful Quantum™ System to the point of sale is where Sportech finds an opportunity to greatly enhance
the user experience and reset the operational cost base for future growth. A digital development team with industry-leading
expertise in iGaming user experience design contributed to the completion of a new point-of-sale betting solution that extends
the power of Quantum™ System to a range of proprietary and off-the-shelf hardware options. Introduced to the industry at
the Asian Racing Conference in February 2020, the new solution will allow Sportech to deliver a rich and entertaining betting
experience with flexible hardware options while facilitating an efficient reduction in capital costs, most importantly in North
America where Sportech owns and maintains over 12,500 betting terminals.
The Division continued its rollout of enhanced digital products including the latest versions of Sportech’s responsive G4 white-
label platform for web and mobile betting and the Digital Link® mobile app. 2019 deployments of G4 and Digital Link® included a
dual language Spanish/English version deployed for Camarero Racetrack in Puerto Rico.
9
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Operating Review continued
In 2019, the Group continued development of a Sportech
Sports Betting platform suitable for deployment to B2B
clients.
Sportech Racing and Digital’s global footprint remained
stable in 2019. The Division signed a new contract with
Boyd Gaming for Belterra Park (a new Sportech client) and
Evangeline Downs and Delta Downs (both existing clients).
It also welcomed new client Royal Saint Lucia Turf Club in
the Caribbean under an agreement with UK Tote Group and
assisted the same with their digital platform provision and
launch. Contract extensions and renewals were signed with
a number of other clients, including casinos, racetracks, and
leading US online operator TVG, part of Flutter Entertainment
PLC.
Looking forward
We are committed to the development and expansion of
Quantum™ System functionality to ensure that it remains an
industry leader in global pari-mutuel betting systems and we
will continue to leverage Quantum™ System’s dominance
to further expand global pool commingling. We are also
capitalising on reporting and analytics IP acquired earlier
in 2019 to develop new enhanced versions of our Tote
reporting packages, to deliver expanded client functionality.
The Division continues to invest in new infrastructure to
support our global Quantum™ Data and Operations Centre
(’QDC’) in the US, separating hosting from Tote Operations.
We have progressed plans to enhance our hosting location
under the core auspices of improved security, stability and
speed, while retaining our QDC facility to deliver our leading
24/7 Central System Operations team.
The introduction of our new terminal software platform at the
Asian Racing Conference in February 2020 was successful
and we have commenced detailed discussions with certain
interested parties in the US and Europe. Initial deployments
include the mobile self-service and roaming teller POS
versions of the platform. We anticipate rollout of the self-
service and teller POS versions to clients later in 2020.
In early 2020, the Division entered into agreements to extend
contracts with several major North American clients and
also extended our contract with the Irish Greyhound Board
under an agreement that calls for an upgrade to Sportech’s
Quantum™ System.
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BUMP 50:50
Bump 50:50’s electronic raffle technology and service
solution helps foundations maximise their charitable
fundraising efforts with 50/50 raffles offered in-stadia and
online that result in jackpots that are divided equally between
the foundation and the drawing winner. Bump 50:50 clients
include foundations associated with some of the biggest
brands in professional and collegiate sports, entertainment
special events, and philanthropic organisations.
2019 was a year of investment at Bump 50:50, enhancing
the technology to deliver a robust omni-channel platform to
drive the product capabilities more effectively in 2020 and
beyond. Bump 50:50’s 2019 revenues, currently included
within the Racing and Digital division, increased 31% to £2.0
million (2018: £1.5 million). Adjusted EBITDA declined to
£0.3 million (2018: £0.50 million) due to increased licensing
costs, a compensation hurdle and critical investments in
the technology platform. The 2019 technology platform
investment improves Bump 50:50’s capability for broader
online and subscription services and should enhance future
performance.
Developments during the year
In 2019, Bump 50:50 reached the 100-client milestone with
new contracts from not only professional and collegiate
sports, but also from prominent philanthropic organisations
unaffiliated with sports. Bump 50:50 signed agreements
with 27 new clients during the year and its raffle platforms
generated almost US$21.0 million in funds for its charity
partners in 2019.
Bump 50:50 also increased its list of sports-related
partner charities, signing new accounts with a number of
Californian teams including the LA Dodgers, LA Chargers,
San Francisco Giants, San Francisco 49ers, and San Diego
Padres, as well as with other leading sports organisations
including the Cincinnati Reds, Houston Texans, Penn State
University, and the New York Giants.
Guided by a strategic initiative to expand the market to
include non-sport affiliated philanthropic organisations,
Bump 50:50 signed new philanthropy clients including
Special Olympics of Ontario, Sinai Health System
Foundation, Multiple Sclerosis Society of Canada, Rotary
Club, and the Hospital for Sick Children Foundation, all of
which implemented Bump 50:50’s online raffle platforms.
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Across its client base, Bump 50:50 continued in 2019 to
deploy web and mobile platforms to complement in-stadia
raffles, where permitted. In total, 25% of Bump 50:50’s
partners either choose a digital platform or choose to
supplement their in-stadia sales with digital options.
Looking forward
During the first two months of 2020, Bump 50:50 has added
new clients, including the University of Pittsburgh, further
developing non-professional sports charity opportunities.
Bump 50:50 is the first company approved to run electronic
“Catch the Ace” progressive raffles; an alternative to
traditional 50/50 raffles that is perfect for foundations that
offer online fundraising raffles.
Bump 50:50 delivered yet another record-setting jackpot in
2020, at the Daytona 500 in February, breaking the record
for the US 50/50 raffle jackpots.
The non-sports related charitable opportunity exceeds
the market for sports raffles, with charitable organisations
operating year-round fundraising programmes for large
audiences. The Bump 50:50 online raffle platforms are
well-suited for this type of client and the Group will continue
in 2020 to pursue non-sport, as well as sport-affiliated,
foundation clients.
In addition to continuing its pursuit of growth through client
acquisition, the Group will continue to invest in technology,
end user experience, innovations in marketing and client
support, and new concepts that complement the core
traditional 50/50 raffles.
SPORTECH VENUES
Sportech Venues offers legal betting on horseracing,
greyhound racing and Jai alai through both online and
venue-based operations across the State of Connecticut
under an exclusive and perpetual licence.
£’000
F&B - Stamford
F&B - Other
F&B - Total
Wagering revenue
Total revenues
Contribution
Contribution margin
Adjusted operating
expenses
Adjusted EBITDA
Capex
2019
1,975
2,420
4,395
24,431
28,826
13,984
48.5%
Constant currency
2018
2,379
2,577
4,956
26,702
31,658
15,635
49.4%
(11,756)
(12,775)
2,228
198
2,860
421
In the table above, prior year figures are at constant currency and Adjusted
operating expenses in 2018 are restated for IFRS 16 impact for comparison
purposes (reduction of £1,400k from 2018 constant currency under IAS 17)
and revenue has been restated to net customer bonuses against revenue
rather than being charged to marketing costs.
Developments during the year
Venues betting handle declined 7.6% in 2019, whilst
same store handle declined 6.5%. The overall decline
was influenced by a variety of factors, including continued
online competition from unlicensed out-of-state operators,
and consumer discretionary wallet competition from the
introduction of Sports Betting in neighbouring states. The
closure of one small venue in 2019 resulted in the variance to
same store handle.
11
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Operating Review continued
In 2019, Sportech closed one small underperforming venue
with little impact on the overall business, as consumers
moved to other locations or online. Management continues
to identify other cost saving measures across the Division,
including leasehold renegotiations and exploring options
around our freehold estates in New Haven and
Windsor Locks.
Looking forward
Our position regarding Sports Betting, and our presence
in the State as a viable partner to deliver legal Sports
Betting, were well established through our lobbying and
communication efforts in 2019. The Group intensified these
efforts during the Connecticut General Assembly’s 2020
legislative session, which commenced in February, as new
Sports Betting bills are considered. The Group continues
to work with State legislators and established State
licensed gaming operators to seek a solution and deliver a
comprehensive legal and regulatory framework for Sports
Betting, either in 2020 or beyond.
Early in 2020, the Division closed a second small
underperforming venue located within three miles of
Sportech’s large Sports Haven. We retain the option to open
up to 24 venues and are evaluating new sites based on
demand conditions and the status of Sports Betting.
Venues management remain focused on managing the fixed
cost base and are assessing options to enhance profitability
via a combination of lower product costs and improved
licence revenues in 2020. Sports Betting remains a key
priority for all parties in the current months; it remains a
complex situation, however we are fully engaged in working
with all parties to seek an appropriate solution.
Prior to 2019, illegal out-of-state online betting operators
were doing business in Connecticut in direct defiance of
actions by the State’s Attorney General. In 2019 Sportech
secured protections of its pari-mutuel betting licence
against this illegal competition with passage of legislation
to clarify and support Sportech’s exclusive licence to
conduct off-track betting through web and mobile channels
in Connecticut. As the legislation did not take effect until
October 2019, competition from these unlicensed operators
continued to take a toll into 2019. In order to efficiently begin
recapturing both revenues and tax proceeds, the Division
agreed terms in early 2020 with the Connecticut regulator,
the Department of Consumer Protection, to provide a
platform for additional operators to operate legally in-state
for a source market fee to be paid to Sportech, including
required direct State taxes.
The Division launched a redesigned MyWinners.com
website, reinvigorating its consumer brand position in
anticipation of the introduction of Sports Betting. The
MyWinners.com betting platform and MyWinners mobile
app, both supplied by Sportech Racing and Digital, were
updated to provide a more responsive, feature rich betting
experience across all devices. Despite the competition from
out-of-state operators, 2019 online handle grew 9% over
prior year.
During the 2019 legislative session in Connecticut,
Management campaigned vigorously in support of Sports
Betting legalisation and for Sportech to be part of the
solution to offer online and retail Sports Betting in the
State. The Division undertook a multi-level campaign
of lobbying, advertising, targeted public relations, and
consumer outreach. Our team also attended numerous
public hearings and delivered testimony to relevant General
Assembly committees. Despite our efforts and those of
other licensed Connecticut gaming operators, the State did
not enact Sports Betting legislation in 2019, due primarily
to claims of exclusivity under prior agreements by the two
recognised Tribal entities. Given the importance of Sports
Betting licensing to our Venues business and the Group,
we continue to be proactively engaged in seeking a solution
to break the impasse before the 2020 legislative session
adjourns on 6 May 2020.
Our online campaign can be found at
www.sportsbettingforct.com.
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OUTLOOK
Providing a long-term projection with any degree of certainty
in this environment is challenging and unrealistic. There is
little doubt that the pandemic crisis will test our organisation
in serious ways in the coming months, however Sportech’s
employees are professionals who work with incredible
passion and purpose and I continue to be inspired by their
dedication to improve in every area.
During 2019 Sportech enhanced its global credentials via
approved membership of the prestigious European Pari
Mutuel Association and the World Lottery Association.
The expanded reach of our Quantum™ System provides
seamless connectivity between our diverse clients and
partner racecourses around the world as never before.
We invested time during the year assessing our entire
product range and user experience and commenced
development of a digital software platform that will change
the way we approach terminal hardware and capital
investment going forward. We made significant strides in
challenging cultural behaviours and business practices that
perhaps focused on previous financial metrics rather than
promoting an entrepreneurial ownership ethos; this shift
ultimately resulted in some of the benefits noted at the start
of this section. Still, 2019 was not without its challenges.
However, with a reinvigorated senior management team, an
emphasis on accountability and improved ownership focus,
and intelligent progressive investments in digital solutions
across every division, Sportech is meeting these challenges
head-on.
A summary of our strategic objectives for 2020 include:
1. Maintain and develop our core Tote business, driving
leading technological advances to our global client base
via an enhanced operational platform.
2. Develop key growth business units such as Bump
50:50, Lottery and Sportech Solutions.
3. Drive digital development initiatives with associated cost
efficiencies across all divisions.
4. Continued professional pursuit of a Sports Betting
licence in Connecticut.
5. Evaluate and execute material corporate opportunities,
delivering tangible investor returns.
I am encouraged by our business progress in 2019 and while
our 2020 performance will be impacted by the precautionary
measures taken globally against the pandemic, we remain
focused on protecting shareholder value and managing the
business effectively and responsibly through these turbulent
times.
Richard McGuire
Chief Executive Officer
18 March 2020
13
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Financial Review
INCOME STATEMENT – DETAILED VIEW
£’000
Service revenue
F&B 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
Exceptional items (net)
Non-cash items:
Share option charges – normal
Share option charges – accelerated
Depreciation net of profit on sale
Impairment of property, plant and equipment
Amortisation
Amortisation of acquired intangibles
Total – non-cash items
EBIT
Share of losses from JVs and impairment
Net finance charges
EBT
Taxation
Result after taxation – continuing ops
Discontinued operations
Loss for the year
Adjusted (loss)/profit before tax for the year from continuing operations3
2019
58,968
4,395
1,420
64,783
(17,896)
46,887
(1,472)
45,415
70.1%
Restated
Reported1
2018
57,012
Constant
Currency2
2018
59,284
4,724
1,726
63,462
(17,619)
45,843
(1,732)
44,111
69.5%
4,956
1,732
65,972
(18,489)
47,483
(1,810)
45,673
69.2%
(37,875)
(37,571)
(39,158)
25
6,540
—
7,540
(1,140)
(676)
(746)
(4,596)
(5,020)
(2,630)
(467)
(14,135)
(7,735)
—
(695)
(8,430)
(6,034)
(14,464)
—
(14,464)
(805)
—
6,540
(3,453)
(1,222)
—
(2,860)
—
(1,917)
—
(5,999)
(2,912)
—
250
(2,662)
(2,019)
(4,681)
1,822
(2,859)
559
The prior year comparatives have been adjusted for an under accrual of interest payable on the uncertain tax positions, with a corresponding increase in
finance costs and accruals of £223k. In addition, as reported in the interim results, management have corrected the accounting for award points granted
to players in the Sportech Venues segment, which were previously charged to the income statement within marketing and distribution costs and are now
debited to revenue. The effect on prior year revenue is a reduction of £256k (£270k constant currency) with a corresponding reduction in marketing and
distribution costs.
Prior year comparatives at constant currency have been adjusted for IFRS 16 (estimated impact is an increase in 2018 EBITDA of £1.8m). IFRS 16 requires
reported comparatives not to be restated for the change in accounting policy for leases.
Adjusted (loss)/profit before tax for the year from continuing operations is the aggregate of adjusted EBITDA, normal share option charges, depreciation,
amortisation (excluding amortisation of acquired intangibles), and normal finance charges (see note 1 for reconciliation).
1.
2.
3.
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REVENUES
£’000
Racing and Digital service revenue
Racing and Digital sales revenue
Bump 50:50 revenue
Total Racing and Digital
Venues wagering revenue
Venues F&B revenue
Total Venues
Inter-group elimination
Total revenues
2019
33,103
1,420
2,002
36,525
24,431
4,395
28,826
Restated
Reported
2018
30,732
1,770
1,502
34,004
25,399
4,724
30,123
Constant
Currency
2018
31,748
1,731
1,530
35,009
26,702
4,956
31,658
(568)
(665)
(695)
64,783
63,462
65,972
Group revenues were up 2% on reported revenues and down 2% in constant currency. The following comparisons have been
done at a constant currency level:
•
•
•
•
Racing and Digital service revenues (excluding Bump 50:50) were up 4% to £33,103k, while sales revenues were down
18% to £1,420k.
Revenues from Bump 50:50 were up 31% to £2,002 with the addition of more teams, especially in California.
Venues wagering revenues were down 9% to £24,431k reflecting an overall decline in pari-mutuel wagering in Connecticut.
Venues F&B revenues were down 11% to £4,395k. The reduction was mainly at the Stamford, Connecticut location.
ADJUSTED EBITDA
£’000
Racing and Digital
Venues
Central costs
Adjusted EBITDA before sports betting investment
Sports betting investment
Adjusted EBITDA
Reported
2018
Constant
currency1
2018
8,643
1,413
(2,088)
7,968
(1,428)
6,540
9,007
2,860
(2,046)
9,821
(1,475)
8,346
2019
8,586
2,228
(1,501)
9,313
(1,773)
7,540
1.
2018 numbers are shown at constant currency and restated for the impact of IFRS 16; Racing and Digital increase in EBITDA £431k and Venues increase in
EBITDA £1,400k.
• Racing and Digital EBITDA reduced by 5% to £8,586k from prior year on a like for like basis taking currency and IFRS 16
into account. While revenues increased, the costs of Bump 50:50 licensing and new product development suppressed
profit.
• Venues EBITDA was down 22% (again on a like for like basis) to £2,228k. This reflects the fall in revenue in the year and high
operational gearing.
• Central costs were lower by 27% at £1,501k, reflecting tight cost control.
Sports betting investment represents the time and cost the Group has incurred on seeking to secure a sports betting licence in
the State of Connecticut and also in seeking partnerships across the rest of the US in sports betting. It includes lobbying costs,
additional staff costs, travel and consultants, and also includes an allocation of senior management time. Of these costs, £699k
(2018: £508k) were external costs and £1,074k (2018: £920k) were internal (payroll and travel, of which £482k was in respect of
Executive Directors (2018: £350k)).
15
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Financial Review continued
ADOPTION AND IMPACT OF IFRS 16 LEASES
The Group has initially adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on-balance sheet
accounting model for leases. As a result, the Group, as a lessee, has recognised right-of-use assets recognising its rights to use
the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting is not applicable
to the Group but would have remained the same under IFRS 16 if it were.
The Group has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial
application is recognised in retained earnings on 1 January 2019. Accordingly, the comparative information presented for 2018
has not been restated – i.e. it is presented as previously reported, under IAS 17 and related interpretations.
This right-of-use asset recognised on transition was £7,935k and the lease liability was £9,445k (having derecognised an
onerous lease provision of £214k), with a charge to reserves of £1,442k (net of a deferred tax charge of £146k).
The Group estimates that the impact of IFRS 16 on the 2018 results would have been as follows:
£’000
EBITDA
Depreciation
Interest
Loss before tax
EXCEPTIONAL ITEMS
£’000
Restructuring and redundancy costs (note a)
2018 Reported
Estimated impact
of IFRS 16
2018 restated
(Estimated)
6,540
(2,860)
473
(2,439)
1,748
(1,401)
(433)
(86)
8,288
(4,261)
40
(2,525)
Restated
Reported
2018
1,178
(291)
291
—
—
205
111
—
1,729
150
—
80
2019
314
(184)
249
570
51
15
(152)
266
—
—
81
20
1,230
3,453
Onerous contract provisions and other losses resulting from exit from Californian operations (note b)
Losses from Striders Sports Bar (S&S JV) (note b)
UK defined pension scheme buy-out (note c)
Acquisition costs – Lot.to Systems Limited
Costs in relation to STB VAT refund (note d)
Costs in relation to legacy tax disputes (note d)
One off start-up costs of new ventures, including new venue builds and joint ventures (note e)
Impairment of contingent consideration re NYX Gaming
Legal costs re IP infringement
Corporate activity costs
Other exceptional items (net)
Total exceptional costs
Included in other income
Settlement received in relation to IP infringement, net of costs (note f)
(90)
—
Included in finance costs
Interest accrued on corporate tax potentially due and unpaid at the balance sheet date on STB refund
received in 2016
Net exceptional costs
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151
1,291
223
3,676
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Redundancy and restructuring (note a)
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.
Onerous contract provisions and other losses resulting from exit from Californian operations (note b)
The Group recorded a provision in 2017 against its contractual arrangements in the State of California, including a loss making
joint venture. The provision has been released in the year to the value of the liabilities provided for 2019 (see note 17 and note
23). The expenses in excess of the provision have 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.
UK defined pension scheme buy-out (note c)
The Trustees of the Sportech Pension Scheme entered into a contract with Just Retirement Limited (“Just”) on 28 March
2019 to insure the liabilities of the scheme. The Trustees and Just completed a full buy-out and winding up of the scheme in
December 2019. The policy cost was £2,450k which was paid utilising the assets in the scheme, which were valued at £2,216k
and an additional cash payment from the Company of £234k. The Company also paid all administrative, actuarial and legal
costs the scheme incurred in the process. The Group now has no further future obligations in relation to the scheme.
Costs in relation to STB refund and legacy tax disputes (note d)
Costs were incurred for tax advice in relation to treatment of the 2016 VAT refund for corporation tax purposes. The Group had
received assessments for underpaid VAT in the holding Company, Sportech PLC. The Group settled the disputed amounts in
2019 and a release from the provision was credited to the income statement of £250k, less fees incurred with advisors to reach
the settlement of £98k. This matter is now closed.
One off start-up costs of new ventures, including new venue builds and joint ventures (note e)
The Group agreed a settlement in the year with the Landlord of a property in Connecticut whereby the Group was required to
fulfil a potential lease obligation where the Group decided against opening a venue in the location.
Settlement received in relation to IP infringement, net of costs (note f)
The Group believed its intellectual property in Datatote (England) Limited had been infringed and sought to prevent further
infringement and damages for lost revenues and costs incurred. The costs of defending this position were expensed as incurred
and a settlement of £250k was received in October 2019 and credited to operating income net of the costs incurred during
the year.
TAXATION
The current tax charge for the year was £1,251k being mainly withholding taxes paid in the US from overseas contracts. The
deferred tax charge for the year was £4,783k; reversal of timing differences being offset by a write down of the deferred tax
asset in the US following a review of prospects of recoverability. The Group has a recognised deferred tax asset of £990k and
unrecognised gross timing differences of £26,143k. The Board will keep the recoverability under review.
Tax paid in the year of £1,356k is mainly withholding taxes in the US.
The Group’s current tax liability includes a provision for uncertain tax liabilities of £5,033k in relation to corporation tax on the
2016 VAT refund and the 2017 disposal of the Football Pools division. The Group is working with HMRC to resolve each issue.
Other tax liabilities are small and are mainly offset by overpayments from prior years.
The Group’s deferred tax asset of £990k represents timing differences expected to reverse within five years. The Group has
a deferred tax liability of £182k at 31 December 2019 which is deferred tax recorded against intangibles recognised on the
acquisition of Lot.to Systems Limited.
17
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Financial Review continued
CASHFLOW
The Group’s cashflow for the year is as follows:
£’000
Adjusted EBITDA
Payment of lease liabilities (IFRS 16 lease rentals)
EBITDA after lease payments
Add:
Less:
Sportech Racing BV Sale
Other Acquisition, disposal, and JV items
Capitalised software
Property plant and equipment
Exceptional items (net)
Working capital and other
Tax paid and interest, net
FX impact
Net cashflows in year
Opening cash, excluding customer balances
Closing cash, excluding customer balances
2019
7,540
(1,879)
5,661
236
(913)
(2,648)
(1,169)
(1,731)
546
(1,318)
(407)
(1,743)
2018
6,540
—
6,540
2,411
(183)
(3,106)
(1,927)
(1,833)
(1,002)
(1,966)
(91)
(1,157)
14,728
12,985
15,885
14,728
Cash outflow, excluding movement in customer balances, in the year was £1,743k, an increase of 51% on prior year. The
largest increase in the year relates to the acquisition of the Lot.to Systems Limited. Lower EBITDA (after lease payments)
was offset with better working capital management, mainly improved collections on accounts receivables. Cash spent on
exceptionals was consistent with the prior, with lower restructuring costs offset by the cost of the pension scheme buy-out.
Thomas Hearne
Chief Financial Officer
18 March 2020
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SECTION 172 STATEMENT
Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders and other
matters in their decision making. The Directors continue to have regard to the interests of the Group’s employees, customers
and suppliers and other stakeholders, and the impact of its activities on the community, the environment and the Group’s
reputation for good business conduct, when making decisions. In this context, acting in good faith and fairly, the Directors
consider what is most likely to promote the success of the Group for its members in the long term. We explain in this annual
report, and below, how the Board engages with stakeholders.
•
•
•
•
Relations with key stakeholders such as employees, shareholders and suppliers are considered in more detail in the
Corporate Responsibility Report on page 27.
The Directors are fully aware of their responsibilities to promote the success of the Company in accordance with section
172 of the Companies Act 2006. To ensure the Group is operating in line with good corporate practice, all Directors review
all of the reports in the Annual Report as well as the scope and application of section 172. The Board is encouraged
to reflect on how the Group engages with its stakeholders and opportunities for enhancement in the future and was
considered at multiple Group board meetings during the year. As required, the Senior Legal Counsel and Company
Secretary will provide support to the Board to help ensure that sufficient consideration is given to issues relating to the
matters set out in s172(1)(a)-(f).
The Board regularly reviews the Group’s principal stakeholders and how it engages with them. This is achieved through
information provided by management and also by direct engagement by all of the Group’s Directors with stakeholders
themselves.
The Board has enhanced its methods of engagement with the workforce. In that regard, the Chairman of the Board
regularly reaches out to staff and management via a Board update and actively encourages dialogue and feedback.
The Chair and Independent NED both visited US operations in 2019, meeting customers as well as employees in field
operations, Venues and human resources. This helps the Board hear directly from staff on their approach to the “Challenge
Everything” philosophy and open direct lines of communication.
• We aim to work responsibly with our stakeholders, including suppliers. The Board has recently reviewed its anti-corruption
and anti-bribery, equal opportunities and whistleblowing policies.
The key Board decisions made in the year are set out below:
Significant events/
decisions
Key s172 matter(s)
affected
Actions and impact
Acquisition of
Lot.to Systems
Shareholders,
employees
• Shareholder consultation took place in accordance with regulatory
requirements.
• Employee talent management and retention programme was created and
implemented.
Restructuring
Employees
• Decisions were made by the executive team in consultation with the Board after
carefully considering employee impact.
•
Impacted departments were consulted in respect of changes to personnel and
job descriptions.
Downturn in the
Pari-mutuel sector
Expansion of
the product
management
department
Share option
participation
Customers
• Customers have been consulted in relation to how the Company’s technology
could be used to reduce overhead costs.
• The Company’s product offering is being updated and diversified to assist
customers to generate more revenue from eCommerce.
Customers, employees
• Customer consultation in relation to the Company’s roadmap has increased to
Employees,
shareholders
ensure that products developed match customer needs.
• The development teams have been consulted and trained to work with an
expanded product management department.
• VCP participation was widened to a broader base of managers.
• A cap on the number of shares to be issued to satisfy any vesting of the VCP
was implemented to protect shareholder dilution.
• A new LTIP is being proposed with a view to enhancing employee participation.
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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
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Directors and Officers
RICHARD MCGUIRE
Chief Executive Officer
Nationality and residence:
Date appointed to the board:
Date appointed Chief Executive:
UK
August 2016
July 2019
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.
TOM HEARNE
Chief Financial Officer
Nationality and residence:
Date appointed to the board:
Canada
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
Chairman of the Board, Chairman of the Remuneration
Committee and the Nomination Committee
Nationality and residence:
UK
Date appointed to the board:
Date appointed Chairman:
December 2017
July 2019
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
CHRIS RIGG
Independent Non-Executive Director,
Senior Independent Director and Chairman of the
Audit Committee
Nationality and residence:
Date appointed to the board:
UK
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. Chris has now been appointed as Chief
Executive Officer for Mandata.
Committees: Audit Committee, Remuneration Committee,
Nomination Committee
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Risk Management
IDENTIFYING 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 considered the most appropriate approach given the Board is closely involved with the day-to-day activities of the trading
entities and given the relatively small size and geographical spread of the Group.
MEASURING RISK
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.
EMERGING RISK
The Board considers emerging risks at each Board meeting through open discussion. The Board seeks to proactively deal with
emerging risks by anticipating emerging risks and opportunities and responding by assessing threats that may develop into risks
to the Group. The Board considers emerging risks at each Board meeting through open discussion and annually focuses on
strategy including emerging risks and opportunities. The Board also formally assesses emerging risks annually in the dedicated
Risk Management Board meeting. In addition, local senior management regular team meetings are encouraged to openly
discuss emerging risks to their operating divisions and feedback to the Board. No new principal risks were identified during
the year.
23
Risk Management continued
The table below 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.
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.
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.
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’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 continuously reviews its data
protection policies and trains staff on data
protection procedures, providing updated
training where appropriate. There are robust
firewalls, anti-spyware and virus-detection
programs, strong encryption, authentication
and password controls in place to reduce
risk.
New products are being innovated and
refreshed. The Group continues to invest
in international simulcasting technology
and is pursuing new client opportunities
and markets to further diversify revenue
opportunities.
The Group is developing new Sports Betting
products to compete where appropriate.
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 continuously
reviewing and updating its disaster recovery
plan to mitigate any potential downtime.
4
9
6
Regulatory
Product
Technology
24
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019 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 Connecticut passed a law to
protect the Group’s exclusive pari-mutuel
licence from external parties. The Group is
in negotiations with the external parties to
enforce its licence rights.
The Group seeks to create natural
hedges wherever possible, and considers
hedging instruments to mitigate significant
fluctuations. In the longer term the Group will
regularly keep under review whether it should
change its reporting currency to USD.
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 2019, twelve states have legalised
Sports Betting and it is anticipated that more
states will follow in 2020.
The Group is investing heavily to convert
opportunities 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
25
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT 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 63. The Board conducted this review for a
period up to December 2022, 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 17 March 2020) 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
(including customer attrition, handle decline and variable revenue reduction as well as cashflow impacts of higher capex, tax
and exceptional costs), both individually and in unison. The assumptions included the impact of the potential occurrence of the
Group’s principal risks (set out on pages 24 to 25) and the effectiveness of available mitigating actions.
On 18 March 2020 the Group announced that trading in the early months of 2020 started satisfactorily, however in recent days,
given the Group’s reliance on sporting events to generate revenue, trading had been impacted by global sporting authorities
and governments postponing or cancelling sporting events owing to the COVID-19 pandemic. The Group expects trading
to continue to be materially impacted, however given the continued uncertainty, the Board does not believe it appropriate to
provide financial guidance for FY20 at this stage. Sportech has a stable balance sheet holding £11.0 million cash at the end
of February 2020 and no debt. Based on a scenario of the severe curtailing of sporting events through to the end of June
2020 and then resumption of normal service thereafter, the Board would expect, in the region of, a £3.5 million reduction in the
Group’s cash position.
Based on the results of the 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 and will continue to assess the impact of
COVID-19 on the business and its cash flows.
On behalf of the Board
Thomas Hearne
Director
18 March 2020
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Corporate Social
Responsibility Report
The Group endeavours to act responsibly for all its
stakeholders, including not only its shareholders, employees,
and its customers but also 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,
Oregon and North Dakota.
The Group Chief Legal Officer 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.
Beginning in 2018 and continuing to date, 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 were in compliance
with new data privacy rules, including but not limited to
GDPR in the EU and CCPA in California, and are further
extending the best policies and practices to all divisions of
the Group, 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,
including the Bump 50:50 business, works to deploy
technologies for account wagering, mobile, and tablet-based
betting at racetracks, off-track betting locations, and sports
stadiums that eliminate or minimise the use of paper betting
slips and tickets for betting and raffles. In 2019 the Group
made online voting at Company meetings its default method;
shareholders may still vote by paper proxy if they desire,
although this move towards online voting has saved printing
and posting large number of proxy forms which are never
used. For the 2019 AGM, no paper form proxies were
requested and all voting was recorded electronically. The
Group also continues to advocate to its shareholders the use
of electronic communications via its website.
The Company has a large number of team members who
telecommute. Where practicable team members are
encouraged to reduce their carbon footprint by
telecommuting. The Company provides resources to enable
this to happen and to achieve efficiency, accuracy and clarity
in communication internally and externally.
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 2019 of 72.6 which is
4,700 tonnes of CO2 divided by the Group’s total revenue of
£64.8m, compared to a prior year ratio of 102.6 (restated for
revenue restatement), which is calculated as 6,510 CO2
tonnes divided by revenue of £63.5m (restated). On a
constant currency basis, the prior year intensity ratio would
have been 98.7. Therefore, on a constant currency basis the
Group’s intensity ratio has decreased by 36.0% due to
closure of venues, a milder winter in Connecticut and a drive
to decrease energy usage.
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
US$21m for sports and other philanthropic organization
foundations in the US and Canada in 2019 (2018: US$17m),
including those associated with the Dallas Cowboys,
Cleveland Cavaliers, Vegas Golden Knights and Special
Olympics of Ontario.
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
27
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Corporate Social
Responsibility Report continued
consulted regularly on a wide range of matters affecting their
interests. The Group has an employee newsletter “Sportech
in Focus” and awards programme “Sportech Champions”, to
reflect the progressive transparency, training, and
development programmes that are in place within the
business. In 2019 the Group introduced an information-
sharing series to deliver occasional virtual presentations to
Sportech team members on topics of interest to the entire
company.
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 33.
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.
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Corporate Governance Report
Sportech is committed to a high standard of corporate
governance and, throughout the financial year ended
31 December 2019, has complied with the provisions of the
2018 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 further changes in the period
under review. The Board has completed its restructuring
following the disposal of the Football Pools and the
subsequent decision to undertake a strategic review and,
since then, it has been devising and implementing a new
strategy involving further restructuring.
Director Status
Giles Vardey Non-executive Chairman from 2 July
2019 (NED from 17 November 2017
to 2 July 2019). Not independent.
Chris Rigg NED. Independent.
Richard McGuire Chief Executive Officer from 2 July
2019 (Executive Chairman from
13 November 2018 to 2 July 2019).
Not independent.
Thomas Hearne Chief Financial Officer. Not
independent.
Andrew Gaughan Chief Executive Officer, stepped
down from the Board 28 February
2019. Not independent.
Giles Vardey was the Senior Independent Director until the
date he was appointed Chairman. Chris Rigg assumed the
role from 2 July 2019.
The Company had two Independent Directors until Giles
Vardey was appointed Non-executive Chairman on 2 July
2019 (with Giles Vardey being considered independent on
his appointment as Non-executive Chairman). Following the
appointment of Giles Vardey as Non-executive Chairman,
the Company has been actively seeking to appoint an
additional Independent Non-executive Director. From 2 July
2019, the Company only had one Independent Director and
for this period, the Company was not in compliance with the
Code in its requirements to have at least half the Board
(excluding the Chairman) being Independent Non-executive
Directors and to have two independent Directors as
members of the Remuneration, Audit and Nomination
Committees. Further, the Chairman continued to be a
member of the Audit Committee and chaired the
Remuneration Committee following his change in role from
Independent Non-executive Director. As a result, the
Company is not in compliance with the Code requirements
regarding the Chairman's membership of these committees.
However, the Board considers this to be a necessary
arrangement in order to ensure the continuity of business,
given the Chairman's previous experience with these
committees, while the Group is undertaking a search for an
additional Independent Non-executive Director. The
Chairman also chairs the Nomination Committee.
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 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. Richard McGuire was
appointment Chief Executive Officer on 2 July 2019 and
Giles Vardey was appointed Non-executive Chairman,
thereby reinstating the Company’s compliance with the code
in relation to this principle.
The search for a further new Independent Non-executive
Director, is being undertaken using the search consultancy
Wheale Thomas Hodgins (“WHT”). WHT has no connection
to the Company or the Directors. 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. The Board anticipates announcing the
appointment of a further Independent Non-executive
Director to the Board in the near future.
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Corporate Governance Report continued
BOARD LEADERSHIP AND COMPANY
PURPOSE
The Board believes it is effective and entrepreneurial and
believes its main role is to promote the long-term sustainable
success of the Company, generating value for shareholders
and contributing to wider society. The Board has established
the following:
Company’s purpose Generate sustainable value for
shareholders whilst contributing to
the wider community.
Company values • Leadership: The courage to
Strategy
Culture
shape the future
• Accountability: Responsibility for
actions
• Passion: Committed to
excellence
• Diversity: All are included and
valued
• Quality: What we do, we do well
Focus on regulated betting markets
worldwide to achieve long-term
tangible shareholder returns by
reinforcing and maintaining our
global position in pari-mutuel
betting. The Company seeks to
leverage its history, gaming
licences, technologies, and
customer relationships to deliver
competitive solutions to a fast-
changing global betting market as
well as promoting our Lottery and
iLottery solutions.
The Board sets the culture within
the Group from the top down,
acting with integrity, leading by
example and promoting our culture
which is open, inclusive and
encouraging and demands
excellence in execution in all areas
of our operation. The Board and
senior management ensure the
culture within the Group is aligned
with the Company’s strategy and
values by incorporation in strategy
discussions.
The Board aims to provide the necessary resources for the
Company to meet its objectives and measures performance
against them. The Board has also established a framework
of prudent and effective controls, which enable risk to be
30
assessed and managed. See Risk Management section of
this annual report on pages 23 to 25.
Shareholders and other stakeholders
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 as required and there is regular
communication 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. The Non-executive Directors have taken steps
to develop an understanding of major shareholders’ views of
the Company (in particular, in relation to any areas where the
Non-executive Director has responsibility through their role
as Chair or a member of a committee) through face-to-face
contact, analyst and broker briefings.
All stakeholders can and are welcome to question the Board
at the AGM both formally and informally. Management meet
with and have regular dialogue with stakeholders including
gaming regulators, Pension Trustees and Unions.
Management have an “open door” policy to any other
stakeholders wishing to communicate with the Group.
The Board ensures that workplace policies and practices are
consistent with the Company’s values and support its long
term sustainable success. Group HR undertake regular
reviews of policies and report to the Board accordingly. The
Company has a confidential whistleblowing process which all
employees have access to. In addition, Board members and
senior management encourage open conversations on all
matters of concern.
Significant votes against 2019 AGM resolutions
All resolutions at the 2019 AGM held on 22 May 2019 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 online voting
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.
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The Board recognised the high level of votes against in
relation to the Directors’ Remuneration Report (resolution 2 –
33.33% against) and the reappointment of Giles Vardey
(resolution 4 – 31.39% against) at the 2019 AGM. We
understood that concerns were raised about the termination
payments relating to the length of notice to former directors.
The Board acknowledges this and has subsequently agreed
a shorter notice period (six months) for the current CEO.
Engagement with the workforce
The Executive Directors work closely with the whole
workforce, regularly visiting operating sites and attending
local management meetings. Non-executive Directors also
visit operating sites once or twice a year and engage with
the workforce directly.
The Chairman sends out update briefings to the management
team at least quarterly, referencing the activities of the Board
and any changes in strategy or focus. He is available to
contact at any point via email, telephone or in person to
discuss any matters of concern employees may have.
The Group has a quarterly newsletter (“Sportech in Focus”)
which informs the workforce of key events that have
happened, achievements made, and changes in key staff and
has a section each quarter focusing on a particular staff
member, the work in the Group, their working history and also
their interests. Given the size of the Group and the close
working relationships between Board members and the
workforce, the Board considers that the activities in place to
address workforce engagement are sufficient. The Group also
has a “Sportech Champion” award scheme where
managers/supervisors nominate employees for high level of
delivery and achievement. Cash awards are granted quarterly
and then an overall annual winner is announced. The
newsletter and the Champion award seek to inform the
workforce, create a culture of inclusion and drive for
excellence.
In addition, during 2019 the Group started a series of web
meetings for employees called the “5Ws”, being Who, What,
Where, When and Why. A business/topic is selected and a
presenter/presenters talk attendees through the intricacies of
the area in focus, which may be a completely different
business to that which the attendee works in or has contact
with, but the aim is to spread knowledge and inform the
workforce about the Group in order to create cohesive
working and deliver excellence.
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 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.
Director concerns
Where Directors have concerns about the operation of the
Board or the management of the Company that cannot be
resolved, their concerns are recorded in the Board minutes.
On resignation, a Non-executive Director provides a written
statement to the Chairman, for circulation to the Board, if
they have any such concerns.
DIVISION OF RESPONSIBILITIES
The Chairman leads the Board and is responsible for its
overall effectiveness in directing the Company. Where
possible he has not previously been CEO of the Company
and is independent on appointment. He is required to
demonstrate objective judgement and promote a culture of
openness and debate. The Chairman also facilitates effective
contribution of all Non-executive Directors, and ensures that
Directors receive accurate, timely and clear information.
The Company aims to have at least two Independent Non-
executive Directors on the Board to ensure no one individual
or small group of individuals dominates the Board’s decision-
making.
There is clear division of responsibility between leadership of
the Board (which is the Chairman’s role) and the executive
leadership of the Company’s business, which is the
responsibility of the Chief Executive Officer. For the period to
2 July 2019, these roles were undertaken by Richard
McGuire as Executive Chairman, however, this was a
temporary situation given the Chief Executive’s resignation in
February 2019. The Board resolved this non-compliance
with the appointment of Giles Vardey as Chairman and
Richard McGuire as Chief Executive Officer on 2 July 2019.
During this time the Non-executives played a more involved
part in the decision making at Board level to ensure the
continuance of good governance.
When considering the appointment of Non-executive
Directors, the Nomination Committee considers whether the
prospective Non-executive Director has sufficient time to
meet their board responsibilities and provide constructive
challenge, strategic guidance, offer specialist advice and
hold management to account. The Chairman reviews the
time availability of Non-executives on an on-going basis. The
31
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate Governance Report continued
Board endeavours to be composed of half independent and
half non-independent directors excluding the Chairman. One
Independent Director is appointed Senior Independent
Director and acts as a sounding board to the Chairman and
serves as an intermediary for the other directors and the
shareholders.
The Independent Directors meet at least annually, led by the
Senior Independent Director without the Chairman present
to appraise the Chairman’s performance and on other
occasions as necessary. Non-executives have a prime role in
appointing and removing Executive Directors and scrutinise
and hold to account the performance of management and
individual Executive Directors against agreed performance
objectives.
The Chairman holds meetings with the Non-executive
Directors without the Executive Directors present.
The Board, supported by the Company Secretary, ensures it
has the policies, processes, information, time and resources
it needs in order to function effectively and efficiently. All
Directors have access to the advice of the Company
Secretary, who is responsible for advising the Board on all
governance matters. The appointment and removal of the
Company Secretary is a matter for the whole Board.
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)
ii)
iii)
iv)
v)
vi)
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;
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;
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;
Approval to enter into significant contracts;
All communications with shareholders; and
Board memberships, appointments and the
remuneration of Directors and senior management.
The responsibilities outlined above are agreed by the Board.
The Company maintains Directors and Officers insurance
cover.
BOARD MEETINGS
The Board meets regularly. Certain matters are considered at all Board meetings, including a business update, a financial
update, a legal update, a technology 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:
Remuneration Audit Nomination
Main Board Committee Committee Committee
Number of meetings during 2019: 9 4 4 1
Executive Directors
Richard McGuire 9 – – 1 (for part)
Thomas Hearne 9 – – –
Andrew Gaughan Resigned 28 February 2019 1 (1) – – –
Non-executive Directors
Giles Vardey 9 4 4 1 (for part)
Chris Rigg 9 4 4 1
Note: number in brackets represents maximum number of meetings that could have been attended due to appointment or resignation dates.
32
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BOARD COMMITTEES
The Committees of the Board are:
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Nomination Committee
Audit Committee
Remuneration Committee
Nominations Committee
The Nomination Committee currently comprises the Non-
executive Chairman and the Non-executive Director and is
chaired by Giles Vardey. Richard McGuire stepped down
from the Committee on his appointment to Chief Executive
Officer on 2 July 2019.
The Chairman of the Board does not Chair the Committee
when it is dealing with the appointment of their successor.
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.
When making recommendations for new appointments, the
Committee considers other demands on prospective
Directors’ time and prior to appointment significant
commitments are disclosed with an indication of the time
involved. Full-time Executive Directors are not permitted to
hold more than one non-executive directorship in a FTSE
100 company or other significant appointments.
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 665 employees, 38% are female and out of
16 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.
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. The Board believes that a diverse
workforce in essential for the Group to achieve its strategic
objectives and without the ideas, outlook and skills from
varying backgrounds and experiences, the Group will fail to
deliver the requirements of its customers.
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 Richard McGuire as CEO with
effect from 2 July 2019; and
the appointment of Giles Vardey as Non-executive
Chairman with effect from 2 July 2019.
Audit Committee
The Audit Committee currently comprises one independent
Non-executive (Chris Rigg – Chair of the Committee) and the
Non-executive Chairman, Giles Vardey. Giles Vardey
continues to be a member of the Committee despite his
change in role to Chairman, once an additional Non-
executive Director is appointed, Giles will step down from the
Committee.
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.
33
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate Governance Report continued
The Group acknowledges that the Corporate Governance
Code was breached from 2 July 2019, in relation to the
requirement for the Chairman not to be a member of the
Audit Committee. Following the appointment of an additional
NED in 2020, Giles Vardey will stand down from the
Committee and rectify the breach. Members of the senior
finance team are regularly invited to attend Committee
meetings.
Financial reporting
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.
The primary areas of judgement considered by the
Committee in relation to the 2019 financial statements were:
risk of misstatement on revenue recognition;
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.
•
•
•
•
34
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 of customer contracts and
re-performance of revenue calculations;
detailed review and discussion of models and forecasts
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 rationale for
recognising impairments 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 changes arising from 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 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 the external Auditor 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,
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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 Committee also notes the new ethical
guidelines due to be issued which “whitelist” services
auditors can provide and will have regard to these in the
future.
The external Auditor is 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 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.
The Company paid non-audit fees of £11k to the auditors in
2019 for an interim review (2018: £nil). Fees in relation to
corporate activity of £50k were accrued but unpaid as at
31 December 2019.
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 the external Auditor a
detailed audit plan (‘Audit Strategy Memorandum’),
identifying their assessment of these key risks. For 2019 the
significant and elevated risks identified were in relation to:
•
•
•
•
revenue recognition;
intangible asset impairment;
uncertain tax positions; and
Investment impairment (Company only).
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
lead PwC audit partner, Nigel Reynolds, had performed the
role since 2014 and therefore was required to rotate off the
Sportech audit in 2019. PricewaterhouseCoopers LLP had
been the Company’s external Auditors for more than 20
years, although a competitive tender process was
conducted in 2006 and therefore were only permitted to
perform the audit for one further year. As such the
Committee decided to perform a competitive tender in which
PwC would not take part.
The Committee selected firms to be invited to tender based
on:
•
•
•
Experience of providing comprehensive audit services
to global listed Groups;
Quality of the firm based on results of inspection
reports by the FRC; and
Ability to provide the full range of audit services to a
listed entity potentially required.
The Committee ensured that:
i)
ii)
iii)
iv)
v)
vi)
the tender process did not preclude the participation in
the selection procedure of firms which received less
than 15% of the total audit fees of public-interest
entities in the previous calendar year;
tender documents were prepared that allowed the
invited auditors to understand the business and the
type of audit that is to be carried out;
the tender documents contained transparent and non-
discriminatory selection criteria that would be used to
evaluate the proposals made;
the audit proposals were evaluated in accordance with
the predefined selection criteria and that a report on
the conclusions of the selection procedure was
prepared and validated by the Audit Committee.
Consideration was given to any findings or conclusions
of any inspection report on the potential auditors;
it identified in its recommendation its first and second
choice candidates for appointment and gave reasons
for its choices; and
the Company would be able to demonstrate to the
competent authorities, upon request, that the selection
procedure was conducted in a fair manner.
35
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate Governance Report continued
Following the tender process, the Committee recommended
to the Board that BDO LLP be appointed as external Auditor
and the Board accepted this recommendation. As such
BDO were appointed Auditors of Sportech PLC in August
2019 with Kieran Storan performing the role of lead audit
partner since then. In accordance with Section 489 of the
Companies Act 2006, a resolution proposing the
reappointment of BDO LLP as the external Auditor will be
put to shareholders at the upcoming AGM in May 2020.
There are no contractual obligations restricting the
Committee’s choice of external Auditors and the Company
does not indemnify its external Auditors. The Committee will
keep the appointment of the external Auditor 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 24 to 25 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
36
managers to identify risks facing each business unit and for
implementing procedures to mitigate these risks. The risk
appraisal process is regularly reviewed by the Board and
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 2019 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. Given the absence of an internal audit
function, the Group’s external auditors considers and
assesses the suitability of the overall control environment of
the Group, including documenting and commenting to the
Board on the general IT controls and other controls in place
as well as reviewing and commenting to the Board on the
other controls being implemented by the Group.
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 comprised the
Non-executive Directors during the year until 2 July 2019
when Giles Vardey was appointed Chairman of the Board.
The Committee was 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 38 to 60.
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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 annual Board Evaluation process was supported by the
Company Secretary and concluded in February 2019. The
performance of Non-executive Directors and the functioning
of the Committees was also appraised as part of this
evaluation process. The process involves all Directors
completing an anonymous questionnaire which is returned to
the Company Secretary, who summarises the results and
feeds back to the Board. The results were analysed and
following the discussions, a number of proposed
recommendations were made, including; a clear succession
plan is to be developed; an additional NED appointment to
be made as soon as possible; and a plan for stakeholder
engagement is to be developed. The Board agreed to take
the recommendations forward for implementation.
INVESTORS
The Board endeavours to ensure the Annual Report and
accounts, taken as a whole, is fair, balanced and
understandable, and provides the information necessary for
shareholders to assess the Company’s position,
performance, business model and strategy and welcomes
feedback from shareholders on its content.
On behalf of the Board
Ben Harber
Company Secretary
SGH Company Secretaries Limited
18 March 2020
37
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
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 2019, and sets out the proposed policy for the
next three years commencing with the year ending
31 December 2020, subject to shareholder approval at the
2020 AGM. The report will be put to an advisory shareholder
vote at the 2020 AGM.
Our current 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. In line with regulatory requirements it is
subject to a binding vote at the 2020 AGM. Ahead of the
policy renewal, the Committee has reviewed current
arrangements in light of the strategy for the business over
the lifetime of the new policy and developments in
remuneration governance and best practice. The policy has
been updated and revised this year and the intention is for
the new policy to operate over the three-year period to
2023. The principal change will be the introduction of a new
Performance Share Plan (the “2020 PSP”) as the main form
of long-term incentive going forward. An overview of the
proposed 2020 PSP and other policy changes is set out
below, with full details on pages 40 to 51:
Annual awards based on a multiple of base salary in
line with best practice and market expectations;
Normal annual awards of 100% of salary for the CEO
and 75% of salary for the other Executive Directors;
Up to 200% of salary may be awarded in exceptional
circumstances;
Awards subject to three-year absolute TSR targets with
a threshold target of at least 10% compound annual
TSR over the vesting period and a maximum target of
20% compound annual TSR over the vesting period
resulting in vesting from 25% to 100% of the award;
Awards will vest after three years, i.e. with the first
award vesting in 2023 one year after the VCP ends,
followed by a two-year post-vesting holding period (net
of any sales to settle applicable tax requirements),
making a total period of five years between grant and
realisation of shares; and
Additionally, to reflect developments in market practice
over the past three years we will introduce a post
cessation shareholding requirement.
•
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38
The Board and the Remuneration Committee value
shareholder interaction and met with many of our key
shareholders during 2019. The Board noted the votes
withheld and recorded against the Remuneration Report 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 was agreed to be 31 December 2019
and accordingly will reduce pro-rata to maturity.
Christian Rigg was appointed to the Board as an
Independent Non-executive Director on 1 January 2019.
Richard McGuire was appointed Chief Executive Officer on
2 July 2019, having been Executive Chairman since
13 November 2018, following the announcement that
Andrew Gaughan would be leaving the Group in February
2019.
Performance and remuneration for 2019
Annual bonus
Our FY2019 performance-related bonus was subject to
Adjusted Group EBITDA, operational cashflow and capex
reduction targets alongside several strategic objectives
aligned with the KPIs of the business. The threshold level of
EBITDA and operational cashflow was not met, and no
bonus was therefore payable for these elements. The target
for capex reduction was reached and bonus is payable on
this element (13% of entitlement for both the CEO and CFO).
Of the Strategic measures set by the Remuneration
Committee, some were achieved resulting in a further 7% of
entitlement being payable to the CEO and 14% being
payable to the CFO.
Following his appointment as Chief Executive Officer,
Richard McGuire received a one-off award in September
2019 of 900 shares under the VCP. This represents 4.5% of
the pool and, subject to meeting the stretching performance
targets, will vest on 31 December 2021.
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The FY2016 Performance Share Plan (“PSP”) awards were
granted on 3 November 2016, subject to a relative total
shareholder return 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 FTSE Small Cap
Index (excluding investment trusts) over the performance
period and therefore the awards lapsed in March 2019.
•
Implementation of remuneration policy for 2020
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 the approval of the proposed 2020 Remuneration
policy by the shareholders at the AGM it is the intention to
issue Performance Shares to Richard McGuire to the value
of 100% of salary and to Tom Hearne at 75% of salary.
We will be taking the following approach to the
implementation of the remuneration policy for the year
ending 31 December 2020:
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Salary – Richard McGuire was paid £400,000 from
1 January 2019 reflecting the executive role he was
performing, his basic annual salary will remain at the
same level from 1 January 2020. Tom Hearne was paid
CAD$357,000 (approximately £210,000) in 2019, his
basic annual salary will also be unchanged from
1 January 2020.
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 – Following its review of the
remuneration policy for Executive Directors, the
Remuneration Committee intends to reintroduce annual
grants of performance shares to replace the VCP going
forwards. The Board intends to grant performance
shares to Richard McGuire and Tom Hearne at 100%
of salary and 75% of salary respectively following the
approval of the revised remuneration policy and 2020
PSP rules at the AGM in May 2020. The measurement
period for the awards will be 19 March 2020 to
18 March 2023 with a target vesting level of at least
10% compound annual TSR over the vesting period
(25% vests) and a maximum vesting level of 20% or
more compound annual TSR over the vesting period
(100% vests). Awards will vest after three years
followed by a two-year post-vesting holding period (net
of any sales to settle applicable tax requirements), for
Executive Directors.
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 clawback and
malus provisions. The new PSP is measured over a
three-year period with a two-year post vesting holding
period and significant share ownership guidelines apply
both whilst in employment and for a period after it has
ended – 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 provides 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. We consider we are
compliant with the new Code following the Remuneration
Policy being updated, which will be 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 and
policy at the 2020 AGM.
Giles Vardey
Non-executive Chairman and Chair of the Remuneration
Committee
18 March 2020
39
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration report
FOR THE YEAR ENDED 31 DECEMBER 2019
DIRECTORS’ REMUNERATION POLICY
In accordance with the requirements of the Large and
Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2013 (as amended) (the “Regulations”),
the policy contained in this part will be subject to a binding
vote at the AGM to be held on 20 May 2020 and will take
effect immediately upon receipt of such approval from
shareholders.
This Directors’ Remuneration Policy provides an overview of
the Company’s policy on directors’ pay that it is anticipated
will be applied in 2020 and will continue to apply until the
2023 AGM. It sets out the various pay structures that the
Company will operate and summarises the approach that
the committee will adopt in certain circumstances such as
the recruitment of new directors and/or the making of any
payments for loss of office.
The Remuneration Committee strives to ensure executives’
remuneration is aligned with the strategic direction the Board
has agreed and serves to drive that strategy forward, whilst
in turn ensuring the Group’s compliance with laws and
regulations at all times and giving consideration to impacts
on other stakeholders, including employees and the
environment. It is considered that structuring the policy with
base salaries and benefits enhanced by short-term and long-
term incentives will bring the largest benefits to the Group
and its stakeholders.
The primary objective of the remuneration policy is to
promote the long-term success of the Company. In working
towards the fulfilment of this objective the Committee aims
to: (i) establish a competitive remuneration policy for the
Executive Directors; and (ii) align Senior Executives’
remuneration with the interests of shareholders and other
stakeholders, including customers and employees. In
connection with this, the Committee aims to ensure that the
remuneration packages offered to Executive Directors and
Senior Executives:
are competitive and attract, retain and motivate
Executives of the right calibre;
reflect their responsibility and experience within the
business;
incorporate a significant element of performance-
related pay linked to the achievement of challenging
performance criteria that are aligned with the Group’s
strategy and with increasing shareholder value, but
remain appropriate given the Group’s risk profile;
provide a total remuneration offering at “target” levels of
performance that is competitive in the relevant market;
incentivise performance beyond “target” levels, to be
achieved by offering a significant proportion of
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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;
in this respect:
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Clarity: The Committee fully discloses all
remuneration arrangements for Executives
annually in the Remuneration Report in the Annual
Report and Accounts and sets clearly defined
targets which are aligned to our strategy;
Simplicity: The Committee strives to keep
structures as simple as possible to enable
operation and understandability for shareholders;
Risk: 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.
ESG: 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.
Predictability: The Committee fully discloses all
remuneration structures and potential reward
outcomes and discretions in the policy. It
endeavours to ensure no excessive awards result
from the policy and that behaviours are incentives
correctly and in line with Group strategy and
external considerations (see below);
Proportionality: The Committee strives to link
individual rewards to the delivery of strategy, long-
term performance of the Company and to ensure
poor performance is not rewarded. Claw back
provisions are included in the policy; and
Alignment to culture: The Company is currently
advocating “challenge everything”, driving a
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culture to never be satisfied and also challenge
what is done, why and how. This is in place to
drive efficiency, excellence and innovation. The
remuneration structures across the Group aim to
support this ethos and drive the purpose, values
and strategy through the Group from top to
bottom.
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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.
Changes to the remuneration policy approved by
shareholders at the 2017 AGM
The Committee has undertaken a review of the existing
remuneration policy taking account the Group's strategic
objectives and developments in the executive pay
environment and the requirements of the 2018 UK Corporate
Governance Code. The Committee has sought to simplify
the Company's long-term incentive arrangements with a
view to adopting an arrangement that reflects current market
and best practice. A key aim of the review was to ensure
that Senior Management are appropriately rewarded and
incentivised going forward to drive the business forward over
the forthcoming Policy period and beyond.
The primary proposed change to the current policy is the
replacement of the VCP, which was a one-off incentive plan
operating over the performance period 1 January 2017 to
31 December 2021, with an annual award under a new
Performance Share Plan (“2020 PSP”). The main terms of
the proposed 2020 PSP are summarised below:
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Annual awards based on a multiple of base salary in
line with best practice and market expectations;
Normal annual awards of 100% of salary for the CEO
and 75% of salary for the other Executive Directors;
Up to 200% of salary may be awarded in exceptional
circumstances;
Awards subject to three-year absolute TSR targets with
a target of at least 10% compound annual TSR over
the vesting period and a maximum target of 20%
compound annual TSR over the vesting period; and
Awards will vest after three years, i.e. with the first
award vesting in 2023 one year after the VCP ends,
followed by a two-year post-vesting holding period (net
of any sales to settle applicable UK tax requirements),
making a total period of five years between grant and
realisation of shares.
Additionally, to reflect developments in market practice over
the past three years we will introduce a post-cessation
shareholding requirement. From 2020 Executive Directors
will have a requirement to hold shares to the value of the
shareholding guideline that applied at the cessation of their
employment for two years post-cessation; or, in cases where
the individual has not had sufficient time to build up shares
to meet their guideline, the actual level of shareholding at
cessation. This requirement will apply to shares vesting
under the new 2020 PSP programme granted from 2020
onwards. Any shares purchased by an Executive will not
count towards the requirement.
Remuneration for Executive Directors
The main component parts of the remuneration packages for
Executive Directors are detailed in the table on pages 42 to
47, which should be read in conjunction with the
recruitment/promotion policy on pages 50 and 51, and the
“Detailed remuneration policy for 2020” section of the Annual
report on remuneration, which starts on page 51.
41
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration report continued
Amendments to
previous policy
– No changes proposed.
Proposed Executive Directors’ remuneration policy
Remuneration element
and purpose
Operation
Opportunity
Performance metrics
Base salary
– Salary increases are
To attract and retain key
individuals.
Reflects the relevant skills
and experience in role.
normally effective from
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.
A broad-based
assessment of individual
and Company
performance is
considered as part of any
salary review.
– The current salaries
are set out in the
Annual report on
remuneration on
page 51.
– Annual increases will
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.
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Remuneration element
and purpose
Pension
To provide cost-effective,
yet market competitive,
retirement benefits.
Benefits
To provide cost-effective,
yet market competitive,
benefits.
Operation
Opportunity
Performance metrics
Amendments to
previous policy
– In line with general
Not applicable.
– No changes proposed,
workforce, up to 8% of
salary for UK Executive
Directors. Only basic
annual salary is
pensionable.
Executive Director
provision already in line
with general
workforce.
– There is no maximum
Not applicable.
– No changes proposed.
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.
– Contribution to a
personal pension
arrangement or cash
in lieu of pension by
way of a salary
supplement.
Benefits typically 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 (including tax
thereon) can be
reimbursed.
43
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration report continued
Amendments to
previous policy
– No changes proposed.
Remuneration element
and purpose
Annual bonus plan
To motivate Executive
Directors and incentivise
the achievement of key
financial and strategic
goals and targets over the
financial year.
Operation
Opportunity
Performance metrics
– Bonus is typically paid
in cash, but may be
paid in shares at the
discretion of the
Remuneration
Committee.
– 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.
– Malus and clawback
provisions may be
applied in the event of
material misconduct
and/or an error in the
calculation of the
bonus payable.
– Maximum bonus
potential is up to
100% of salary for the
Chief Executive and up
to 75% of salary for
other Directors. The
Committee, in its
discretion, acting fairly
and reasonably, may
alter the bonus
outcome (upwards or
downwards) if it feels
that the payout is
inconsistent with the
Company’s overall
performance and
events taking place
during the year along
with any other factors
it considers relevant.
The Committee will
consult with the
Company’s major
shareholders before
any exercise of its
discretion to increase
the bonus outcome
and will explain the
use of any such
discretion in the
relevant Annual report
on remuneration.
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.
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Remuneration element
and purpose
Performance Share
Plan (“2020 PSP”)
To motivate Executive
Directors and incentivise
delivery of performance
over the long term.
To encourage greater
shareholder alignment
and to facilitate share
ownership.
Operation
Opportunity
Performance metrics
– Normal annual awards
of up 100% of base
salary of the Chief
Executive and 75% of
base salary of other
Executive Directors.
– In exceptional
circumstances, up to
200% of base salary.
– Annual awards of
conditional shares
vesting after three
years, subject to
performance
conditions. Executive
Directors may sell
sufficient of the vested
shares to settle tax on
vesting but must retain
the balance for a
further two-year sale
restriction period.
Dividend equivalents
may be paid on vested
shares.
– Clawback and malus
provisions apply.
– The number of shares
that will vest will be
determined with
reference to metrics
determined by the
Committee for each
grant.
– For awards in 2020,
the metric is based on
absolute TSR.
– Measures will be
subject to stretching
targets set on a sliding
scale, specifically with
a minimum threshold
at which a 25%
pay-out is triggered
and stretching
maximum targets at
which 100% is paid
out.
– See page 52 for
specific financial
targets for the 2020
PSP.
– The Committee will
review the
appropriateness of the
metrics on an annual
basis and consult with
shareholders if any
material changes are
envisaged.
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Amendments to
previous policy
– Replacement of
one-off VCP with
annual awards under
PSP.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration report continued
Operation
Opportunity
Performance metrics
Amendments to
previous policy
In-post requirement
In-post requirement
Not applicable.
– Introduction of a
– 200% of salary for the
Chief Executive and
150% of salary for
other Executive
Directors.
timeframe under which
executives are to build
the in-post
shareholding
requirements
– Introduction of
post-cessation
shareholding
requirement.
Post-cessation
requirement
– 200% of salary for the
Chief Executive and
150% of salary for
other Executive
Directors (or the actual
shareholding on
departure).
– 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, built up
over a 5-year period.
– Executive Directors are
expected to retain at
least 50% of net
awards under the
Company’s long-term
incentive plans to
achieve the
shareholding, until the
target shareholding is
attained.
– In the event where an
Executive Director has
not met the
shareholding
requirement within an
appropriate time
period, the Committee
will consider requiring
part of the bonus
award to be taken in
shares.
Post-cessation
requirement
– For shares vesting
under the new PSP
granted from 2020
onwards, leavers will
be expected to retain
shares at a level equal
to the lesser of their in-
post requirement or
the actual
shareholding on
departure for two
years post-cessation
of employment. Any
shares purchased by
an Executive will not
count towards the
requirement.
Remuneration element
and purpose
Executive share
ownership
To align Executive
Directors’ and
shareholders’ interests.
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Remuneration element
and purpose
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.
Operation
Opportunity
Performance metrics
Amendments to
previous policy
Not applicable.
– No changes proposed.
– The Non-executive
Chairman’s fee and
Non-executive
Directors' fees are set
out in the Annual
report on remuneration
on page 52.
– 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.
– 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 and
hospitality/travel or
other benefits linked to
performance of the
role may also be met
by the Company
including any tax
thereon.
47
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration report 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 PSP award in
2020 has been selected by the Committee on the basis that
absolute TSR rewards value creation and creates a strong
alignment of interest between executives and shareholders.
The Committee would consult with shareholders in advance
of a significant change in the choice or weighting of the
performance measures to be applied to future award cycles.
Under the rules of the plan, the Committee has the
discretion to amend or substitute the performance
conditions for inflight awards in exceptional circumstances,
providing the new targets are no less challenging than
originally envisaged.
Discretions retained by the Committee in
operating the 2020 PSP and other variable pay
schemes
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:
who may participate in the plans;
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;
determining whether to pay a bonus in cash or shares;
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determining whether a participant is a good/bad leaver
for incentive plan purposes and whether and what
proportion of awards vest;
determining the outcome of any performance
conditions including overriding formulaic outcomes
where these are inappropriate;
any adjustments required to awards in certain
circumstances (for example rights issues, corporate
restructuring, events and special dividends);
whether, and to what extent, pro rating shall apply in
the event of cessation of employment as a ‘good
leaver’ or on the occurrence of corporate events;
whether malus and/or clawback shall be applied to any
award and, if so, the extent to which they shall apply;
making appropriate adjustments to awards on account
of certain events, such as major changes in the
Company's capital structure; and
the weightings, measures and targets for the annual
bonus plan and PSP from year to year (in accordance
with the statements made in the policy table above).
Clawback and malus
The rules of the 2020 PSP include provisions for malus and
clawback to apply if the Committee concludes that:
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the relevant individual has committed misconduct;
there has been a restatement of the financial results of
any member of the Group, due to inaccurate or
misleading data;
the extent to which an award was granted or has
vested was based on inaccuracy or error;
the Group (or a business unit within the Group) suffered
a material financial loss as a result of circumstances
that could reasonably have been risk managed;
where the company has suffered an instance of
corporate failure resulting in the appointment of a
liquidator or administrator; or
any other circumstances that the Committee considers
to have a similar nature or effect.
in exceptional circumstances, determining that a share-
based award (or any dividend equivalent) shall be
settled (in full or in part) in cash;
Clawback may be applied for up to three years following
vesting in respect of awards granted under the Company's
PSP.
dealing with a change of control or restructuring of the
Group;
Existing awards
The Committee may honour any commitments, including
outstanding LTIP and VCP awards, on the terms applicable
at the time each such commitment was made.
•
•
•
•
•
•
•
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Executive Director reward scenarios
Total remuneration for each Executive Director for a minimum, target and maximum performance is presented in the chart
below.
)
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0
0
£
(
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£1,600
£1,400
£1,200
£1,000
£800
£600
£400
£200
£0
£1,442
42%
£1,242
32%
32%
28%
£842
24%
24%
£442
100%
52%
36%
30%
£629
39%
£548
30%
30%
26%
£386
21%
21%
£224
100%
58%
40%
35%
Minimum
Target
Maximum
Max +50% growth
Minimum
Target
Maximum
Max +50% growth
Chief Executive Officer
Chief Financial Officer
Fixed pay
Annual bonus
Long-term incentives
The following assumptions have been made:
•
•
•
•
Minimum – salary (as at 1 January 2020), benefits (as
paid in 2019) and pension.
Target – based on annual bonus paying out at 50% of
the maximum and vesting of 50% of the face value of
the award at grant under the 2020 PSP.
Maximum – based on annual bonus paying out in full
and full vesting under the 2020 PSP.
Maximum + 50% share price growth – based on
annual bonus paying out in full and full vesting under
the 2020 PSP with a 50% increase in share price.
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 cessation 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.
The Committee may also provide assistance toward
reasonable legal fees and outplacement services connected
with the termination. 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
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration report continued
resignation that the individual remained in employment,
subject to the appropriate performance measures being
achieved. The determination of any share incentive vesting
would be subject to the rules of the relevant plan, but in
general where an individual is a good leaver (e.g. death,
injury or disability, retirement, redundancy, transfer of
business outside of the Group and any other reason the
Committee decides) their awards would vest on the original
vesting date, unless the Committee decides the award
should end on the cessation 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
requires six 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 PSP, the VCP and
participation levels in the all-employee plans.
For information on “employee voice”, see page 31 of the
Corporate Governance Report.
Policy on Executive Director recruitments/promotions
In relation to an external executive recruitment or an internal promotion the Committee will follow the principles outlined in the
table below:
Element of remuneration
Policy
Base salary
Salary levels will be set based on:
• the particular experience, knowledge and skill of the individual;
• market rates for comparable positions in companies of a similar size and complexity; and
• internal Company relativities.
Where considered appropriate the Committee may wish to set the initial salary below the market rate
but with the view to make a series of planned phased increases, potentially above those of the wider
workforce as a percentage of salary, to achieve the desired market positioning over time. Any increases
would be subject to the individual’s continued development and performance in the role.
Benefits
A new appointment would be offered the same benefits package (or equivalent in line with local market
practice) as that provided to current Executive Directors.
Where considered necessary, the Committee may be required to pay certain relocation expenses, legal
fees and other costs incurred by the individual in relation to their appointment.
A defined contribution or cash supplement (or equivalent in line with local market practice) at up to the
level provided to the general workforce.
The Committee would envisage the annual bonus for any new appointment operating as set out in the
Policy Table for current Executive Directors.
Pension
Annual bonus
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However, the Committee may consider it necessary (depending on timing and the nature of the
appointment) to set different tailored performance measures for the initial bonus year.
Long term incentives A new Executive Director may be entitled to participate in the 2020 PSP as set out in the Policy Table
for current Executive Directors. An award may be made shortly after an appointment.
Buy-out awards
For internal promotions, existing awards will continue over the original fixed 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.
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. In proposing the new
policy and PSP the Committee has consulted with its major shareholders and representative bodies the majority of whom were
supportive of the proposed changes. 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 2020
Basic annual salary
The Committee has reviewed base salaries for 2020 taking into account the overall employee salary budget and determined that
no increase be awarded. For reference, full-time salaries across the Group were increased by an average of 2.0%.
The base salaries for 2020 are as follows:
Director 2020 2019 % change
Chief Executive Officer1 £400,000 £400,000 –
Chief Financial Officer CAD $357,000 CAD$357,000 –
1Richard McGuire is paid in USD through the North American payroll using an expected exchange rate during the year. A true up amount is paid or
deducted in December each year to agree to the Group exchange rates used to translate earnings.
51
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Remuneration report continued
Performance related bonus
The maximum bonus potential for Richard McGuire for 2020
is 100% of basic salary and for Tom Hearne for 2020 is 75%
of basic salary.
Richard McGuire’s and Tom Hearne’s performance related
bonuses 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 their
bonus entitlements, 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 normally wholly payable in cash.
Pension arrangements
For Richard McGuire the Company pays 8% of base salary
into a defined contribution pension scheme or as cash in lieu
(in 2019 Richard waived the right to this benefit). For Tom
Hearne the Company matches to a limit of 50% of the first
6% of Canadian Directors’ contributions up to a maximum of
CAD$8,000, (in 2019 Tom Hearne did not make
contributions and therefore the Company made no
contributions).
Other benefits
Richard McGuire and Tom Hearne are entitled to the
following other main benefits; private health and disability
insurance for themselves, their spouse and children and life
insurance for themselves. Richard McGuire is also entitled to
a car allowance (he waived this benefit in 2019).
Long Term Incentive (“2020 PSP”)
It is intended that awards under the new 2020 PSP will be
made to Richard McGuire at 100% of salary and to Tom
Hearne at 75% of salary. Awards will be subject to three-year
absolute TSR targets, with a target vesting level of at least
10% compound annual TSR over the vesting period (at
which point 25% vests) and a maximum vesting level of 20%
compound annual TSR or more over the vesting period (at
which point 100% vests). Awards will vest after three years,
i.e. with the first award vesting in 2023 one year after the
VCP ends, followed by a two-year post-vesting holding
period (net of any sales to settle applicable tax
requirements).
Non-executive Directors’ fees
The Non-executive Director fee for 2020 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 Executive Chairman on
13 November 2018 and his fee was £120,000 until
31 December 2018 after which his salary was set at
£400,000 per annum representing the executive role he was
carrying out. Giles Vardey was paid an annual fee of £60,000
until his appointment as Non-executive Chairman on
2 July 2019, when his fee was increased to £120,000 per
annum.
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 2019 are given in the table below.
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Directors’ remuneration for 2019
Long- Other (pay
Fees/ Taxable term in lieu of 2019
Year of salary benefits Pension Bonuses incentive notice) Total
appointment £000 £000 £000 £000 £000 £000 £000
Executive Directors
Richard McGuire 2017 400 42 – 80 – – 522
Andrew Gaughan (stepped
down from the Board on
28 February 2019) 2017 55 – 2 – – 296 353
Tom Hearne 2018 216 3 – 42 – – 261
Non-executive Directors
Giles Vardey (appointed
Non-executive Chairman
on 1 July 2019) 2017 90 – – – – – 90
Chris Rigg (appointed to
the Board 1 January 2019) 2019 60 – – – – – 60
Aggregate emoluments 821 45 2 122 – 296 1,286
– Richard McGuire was paid a basic annual salary of £400,000 per annum with effect from 1 January 2019, he is paid in US dollars translated at an
average rate for the year of 1.2669. The Company pays 8% of base salary into a defined contribution pension scheme, however in 2019 Richard waived the
right to this benefit. He also waived his entitlement to a car allowance.
– Tom Hearne was paid a basic salary of CAD$357,000 during the year, an average exchange rate of 1.694 has been used to translate to Sterling.
– Giles Vardy was an Independent Non-executive Director with fees of £60,000 per annum until his appointment to Non-executive Chairman on 2 July 2019
when his fee was increased to £120,000 per annum.
Directors’ remuneration for 2018
Long- Other (pay
Fees/ Taxable term in lieu of 2018
Year of salary benefits Pension Bonuses incentive notice) Total
appointment £000 £000 £000 £000 £000 £000 £000
Executive Directors
Richard McGuire
(Non-executive Chairman till
14 March 2018, appointed to
Executive Chairman on 2017 &
13 November 2018) 2018 140 – – – – – 140
Andrew Gaughan 2017 266 2 5 – – – 273
Tom Hearne (appointed
14 May 2018) 2018 115 1 – – – – 116
Non-executive Directors
Richard McGuire (14 March 2018
to 13 November 2018) 2016 80 – – – – – 80
Richard Cooper (Stepped down
from the Board 30 October 2018) 2017 50 – – – – – 50
Giles Vardey 2017 60 – – – – – 60
Aggregate emoluments 711 3 5 – – – 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
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Remuneration report continued
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.
Financial performance
The Committee considered the Group’s financial
performance for these purposes and in this respect,
achievement was determined to be
i)
ii)
iii)
nil out of a maximum of 25% of overall potential bonus
as the threshold was not met for Adjusted EBITDA;
nil out of a maximum of 13% of overall potential bonus
as the threshold was not met for operational cashflow;
and
13% out of a maximum of 13% of overall potential
bonus as the threshold was met for capex reduction.
Performance related bonus
The maximum bonus potential for the Chief Executive Officer
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)
Financial measures:
a. Adjusted EBITDA pre sports betting costs
(capped at £1.7m) of at least £9m*;
b. Operating cashflows of at least 7.69m (EBITDA
less or add movement in working capital); and
c. Operation capex reduction to £3.93m or less.
(ii) Strategic objectives aligned with Group strategic goals.
For Richard McGuire including, delivering a Sports
Betting licence in Connecticut, the extension of key
contracts and concluding legacy issues. For Tom
Hearne including, improving the Group’s control
environment, systems and processes, implementing
tax planning and securing financing opportunities.
* Target was set based on earnings prior to IFRS 16 transition and
therefore the measure was not achieved on an adjusted basis.
Strategic objectives
With regards to Richard McGuire, achievement against each of these targets was assessed by the Committee, resulting in an
award of 7% out of a maximum target of 49% of potential bonus. With regards to Tom Hearne, achievement against each of
these targets was assessed by the Committee, resulting in an award of 14% out of a maximum target of 49% of potential
bonus.
The table below summarises the overall bonus result.
Individual Total bonus: % Maximum (% salary payable)
Chief Executive Officer (Richard McGuire) 20% out of the maximum entitlement (20% of salary payable) – no
pro-rated salary given executive duties were performed for the full
year
Chief Financial Officer (Tom Hearne) 27% out of the maximum entitlement (20.25% of salary payable)
The Committee is comfortable that the level of bonuses paid to Executive Directors reflects both the Company and individual
performance during the year.
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Pension arrangements
The Company paid CAD$8,000 into a defined contribution
scheme for Tom Hearne. Richard McGuire waived his right
for company pension contributions in 2019.
Long Term Incentive Plans (“LTIPs”)
Awards vested in relation to performance ending 2018
As was disclosed in the prior year remuneration report, the
performance period of awards granted in November 2016
were substantially complete in 2018, with 100% of awards
subject to relative TSR (performance period measured to
3 March 2019).
The assessment of the TSR measure was made
independently by Aon PLC 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 were eligible to vest.
There are no further PSP awards outstanding.
LTIP awards granted during 2019
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.
Number of % of overall
Executive Type of award units awarded VCP pool
Richard McGuire Restricted share award 900 4.5%
The performance period for the 2019 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. This will be
measured from a base ordinary share price of 95 pence,
being the base level of the 2017 LTIP award (subsequently
exchanged for entry to the VCP), as at the start of the
Performance Period.
The Committee will have the discretion to settle, up to 50%
of Awards in cash.
As part of its review of long-term incentives during 2019, the
Committee has decided to impose an additional cap of 5
million new issue ordinary shares in the Company which
could be used to satisfy awards under the VCP, to the extent
they vest. This is a maximum number of shares and could
only be reached for performance that represents a significant
stretch in terms of performance for the level of vesting of
VCP awards to reach this limit. The imposition of this cap
provides greater clarity in relation to the potential dilution
from the VCP and ensures that the Company is able to
operate within an overall dilution limit of 10% in 10 years in
respect of future awards under the PSP.
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)
(b)
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
action or conduct of a Participant which, in the
reasonable opinion of the Committee, amounts to fraud
or gross misconduct.
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Remuneration report 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.
Market Share
As at Lapsed As at price Price at
1 January during 31 December on date Date from Award date of
Date of 2019 the year 2019 of grant which expiry exercise
grant Number Number Number Pence exercisable date (pence)
Andrew Gaughan 03.11.161 319,971 (319,971) – 64.625 03.11.19 03.11.20 n/a
1 2016 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.
The market price of the ordinary shares at 31 December 2019 was 32.75p and the range during the year was 26.40p to 41.00p.
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.
As at Awarded As at
1 January during 31 December
Date of 2019 the year 2019 % of
grant Units Units Units bonus pool
Ian Penrose 24.07.17 5,000 – 5,000 25%
Mickey Kalifa 24.07.17 2,500 – 2,500 12.5%
Andrew Gaughan 24.07.17 2,500 – 2,500 12.5%
Richard McGuire 11.09.19 – 900 900 4.5%
Tom Hearne 29.06.18 1,250 – 1,250 6.25%
Total 11,250 900 12,150 60.75%
Ian Penrose’s 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 notice (which equates to 12 months’ salary
and benefits under his contract of employment), and he remained eligible for a discretionary 2019 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, which
were due to vest prior to the end of his contractual notice period remained capable of vesting in full but have now lapsed as the
performance condition was not met. 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.
Payments to past directors
A company related to Mickey Kalifa, a past director, was paid £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.
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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 Total % of guideline
shareholding at shareholding at PSP award Share met by
31 December 31 December held ownership 31 December
Director 2018 2019 unvested guideline 2019
Richard McGuire 770,000 1,000,000 – 200% 63%
Tom Hearne 25,000 25,000 – 150% 5%
Giles Vardey – – – N/A N/A
Chris Rigg – – – N/A N/A
*Interests frozen at the Director’s leaving date.
The Chief Executive Officer 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).
Total shareholding which counts towards the measurement of the guideline is calculated on the basis of legally owned shares
plus vested LTIP awards. The percentage of guideline met is based on the annual base salary and the higher of the acquisition
cost of the total shareholding or the current market value of the total shareholding. Once an Executive Director meets the
required holding, the Executive Director is only required to purchase additional shares equivalent to the value of any increase in
base salary.
The disclosures on Directors’ remuneration set out on page 53 commencing with the table of Directors’ remuneration for 2019
to page 57 up to this statement have been audited as required by the Regulations.
External directorships
Richard McGuire and Tom Hearne do not hold any external directorships.
Performance graph and Chief Executive pay chart
Total shareholder return
Source: FactSet
Sportech PLC
FTSE SmallCap
350
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Dec-17
Dec-18
Dec-19
This graph shows the value, by 31 December 2019, of £100 invested in Sportech PLC on 31 December 2010, 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.
57
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Remuneration report continued
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 Officer’s total remuneration for the current financial year and the preceding nine
years:
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Remuneration before LTIPS (£000) 542 502 542 575 515 517 1,2331 6093 2684 5225
LTIPS (£000) – – 233 836 158 – – 223 – –
Total remunerations (£000) 542 502 775 1,411 673 517 1,233 832 268 522
Annual bonus 74% 50% 25% 40% 21.25% 20.5% 39.2%2 40.0% – 20%
LTIP vesting – – 62.0% 82.7% 29.7% – – 50.0% – –
1 Including exceptional bonus of £637,000.
2 Excluding exceptional bonus.
3 Excluding loss of office and pay in lieu of notice payments of £520,000.
4 Relates to Andrew Gaughan, all prior years related to Ian Penrose.
5 Relates to Richard McGuire.
Percentage increase in the remuneration of the Chief Executive
2019 2018 % change
Chief Executive Officer (£000)
– Salary 400 266 50.4%1
– Bonus (excluding exceptional bonus) 80 – 100%
– Benefits 42 2 2000%
Average of Group full-time employee (£000)
– Salary 62 62 –
– Bonus 1 2 (50)%
– Benefits 10 12 (17)%
1 2018 being salary of Andrew Gaughan, 2019 being salary of Richard McGuire.
The table above shows the percentage movement in the salary, benefits and annual bonus for the Chief Executive Officer
between the current and previous financial year compared to that for the average full-time salaried employee.
Relative importance of spend on pay
2019 2018
£000 £000 % change
Staff costs 27,018 25,576 5.6%
Distributions to shareholders – – N/A
The majority of our employees are based in North America, with only approximately 30 employees in the UK. As a result, our
average number of UK employees does not meet the threshold requirement for publication of CEO pay ratio information. Given
the numbers of employees in the UK versus those overseas and the fact that the roles located in the UK are principally involved
in the operation of our head office, European finance function and a small operation in relation to UK Greyhound Totes, the ratio
produced by comparing CEO remuneration with that of our UK workforce is likely to be misleading. As such, the committee has
decided not to publish this information this year.
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Dates of appointment of directors
Details of the service contracts and letters of appointment in place as at 31 December 2019 for Directors are as follows:
Date of
Appointment Notice period
Richard McGuire 24.08.16* 6 months
Tom Hearne 14.05.18 12 months
Giles Vardey 04.12.17 3 months
Christian Rigg 01.01.19 3 months
* Richard McGuire’s notice period during his term as a Non-executive Director to 2 July 2019 was three months.
Shareholders’ vote on remuneration
At the last Annual General Meeting on 22 May 2019, votes on the Directors’ remuneration report were cast as follows:
In favour Against Withheld
To approve the Directors’ Remuneration Report for the year ended 76,372,106 38,178,895 8,270,099
31 December 2018 (66.67%) (33.33%)
Votes on the Directors’ remuneration policy and VCP were cast at the General Meeting held on 24 May 2017 as follows:
In favour Against Withheld
To approve the Directors’ Remuneration Policy 113,839,245 21,634,427 nil
(84.03%) (15.97%)
To approve the rules of the Sportech PLC Value Creation Plan 113,839,245 21,634,427 nil
(84.03%) (15.97%)
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.
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 remuneration policy;
review of best practice;
approval and grant of awards under the VCP in the year under review;
approval of bonus awards for achievement of FY2019 targets, and approval of bonus measures and targets for 2020;
review of base salaries for the Executive team;
approval of vesting determination for the 2016 PSP awards; and
approval of remuneration terms for Richard McGuire and Giles Vardey.
The Committee’s recommendations in 2019 and early 2020 were all accepted and implemented by the Board.
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Remuneration report continued
The Committee also received advice from KPMG for the
2019 grant under the VCP. Fees paid for this independent
advice were £15,500.
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
Non-executive Chairman and Chairman of the Remuneration
Committee
18 March 2020
Composition of the Remuneration Committee
During the year, the Committee consisted of (i) Giles Vardey
(Chairman), (ii) Chris Rigg. Chris Rigg is an Independent
Non-executive Director. Giles Vardey was an Independent
Non-executive Director until his appointment to Non-
executive Chairman on 2 July 2019, following such
appointment the Group has been searching for an additional
Independent Non-executive Director who will chair the
Remuneration Committee. None of the Committee has any
personal financial interest (other than as a shareholder),
conflicts of interest from cross-directorships or day-to-day
involvement in the running of the business.
The Chief Executive Officer 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 the revised remuneration policy including the
structure of the LTIP to be issued going forward. They also
provided TSR performance 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
£20,204 (excluding VAT).
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Directors’ Report
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2019.
General information on the Company can be found in the notes to the financial statements on page 80.
The Strategic report and Corporate Governance report are set out on pages 2 to 60. 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 19 of the Strategic report.
DIRECTORS AND THEIR INTERESTS IN THE SHARES OF THE COMPANY
The Directors who held office at 31 December 2019 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 18 March At 31 December 31 December
2020 2019 2018
Number Number Number
Richard McGuire 1,000,000 1,000,000 770,000
Thomas Hearne 25,000 25,000 25,000
Giles Vardey – – –
Christian Rigg (appointed 1 January 2019) – – –
Details of Value Creation Plan awards granted during the year ended 31 December 2019 are set out in the Remuneration report
on pages 55 to 56.
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 pages 27 to 28.
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Directors’ report continued
SUBSTANTIAL SHAREHOLDINGS
10 March 2020 31 December 2019
Ordinary Ordinary
shares % of issued shares % of issued
of 20p share capital of 20p share capital
Lombard Odier Asset Mgt 46,473,863 24.63 45,781,450 24.25
Harwood Capital 30,500,000 16.16 30,500,000 16.16
Canaccord Genuity Wealth Mgt 11,835,000 6.27 11,835,000 6.27
Mr Richard I Griffiths 11,689,128 6.19 11,689,128 6.19
Schroder Investment Mgt 10,312,045 5.46 10,312,045 5.46
HSBC Securities 9,343,418 4.94 9,320,561 4.94
BofA Securities 8,322,448 4.41 8,322,448 4.41
Artemis Investment Mgt – Edinburgh 7,892,430 4.18 7,892,430 4.18
Artemis Investment Mgt – London 7,173,275 3.80 7,173,275 3.80
Goldman Sachs International 6,010,471 3.19 5,999,911 3.18
Total of substantial shareholdings 149,552,078 79.23 148,826.248 78.85
All other shareholdings 39,199,179 20.77 39,925,009 21.15
Total shares in issue 188,751,257 100.00 188,751,257 100.00
DIVIDEND
No dividend is proposed for 2019 (2018: £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 27. Greenhouse gas emissions are monitored closely by management, and disclosure of those emissions can
be found in the Corporate Social Responsibility on page 27.
CORPORATE GOVERNANCE
The Group’s statement on corporate governance is set out on pages 29 to 37 and forms part of this Directors’ report.
RESPECT FOR HUMAN RIGHTS
Sportech is 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.
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 World 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.
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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.
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 pages
61 and 62. There are no restrictions on the transfer of
shares.
As part of the resolutions approved at the 2019 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 £12,450,083. 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 £12,450,083 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 26 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 2021. Accordingly, it is deemed appropriate
to prepare the financial statements on a going concern basis
for the financial year ended 31 December 2019.
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks:
•
•
•
liquidity risk;
credit risk; and
foreign exchange risk.
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 27 of
the consolidated financial statements.
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, BDO LLP, who were appointed during the
year, have indicated their willingness to continue in office,
and a resolution for their reappointment will 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
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Directors’ Report continued
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
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
group and company will continue in business.
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.
•
•
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.
DIRECTORS’ STATEMENT PURSUANT TO
THE DISCLOSURE AND TRANSPARENCY
RULES
Each of the Directors whose names and functions are listed
in the Directors and Officers section on page 22 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 20 May
2020 will be sent to shareholders by 15 April 2020. In
accordance with good corporate governance practice, each
Director will voluntarily stand for re-election in line with the
provisions of the Corporate Governance Code. The profiles
of those Directors appear on page 22. Resolutions will also
be proposed at the AGM to receive the Accounts and the
Directors’ and Independent Auditors’ Reports, to approve
the Remuneration Policy set out on pages 40 to 51, to
approve the Remuneration Report set out on pages 51 to
60, to reappoint the Auditors and to authorise the Directors
to determine their remuneration
On behalf of the Board,
Each of the Directors, whose names and functions are listed
in the Board of Directors section on page 22 confirm that, to
the best of their knowledge:
Ben Harber
Company Secretary
SGH Company Secretaries Limited
•
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;
18 March 2020
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Independent auditor’s report to the
members of Sportech PLC
CONCLUSIONS RELATING TO PRINCIPAL
RISKS, GOING CONCERN AND VIABILITY
STATEMENT
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs
(UK) require us to report to you whether we have anything
material to add or draw attention to:
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the directors’ confirmation set out on page 26 in the
annual report that they have carried out a robust
assessment of the Group’s emerging and principal risks
and the disclosures in the annual report that describe
the principal risks and the procedures in place to
identify emerging risks and explain how they are being
managed or mitigated;
the directors’ statement set out on page 63 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 and the Parent
Company’s ability to continue to do so over a period of
at least twelve months from the date of approval of the
financial statements;
whether the directors’ statement relating to going
concern required under the Listing Rules in accordance
with Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit; or
the directors’ explanation set out on page 26 in 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.
OPINION
We have audited the financial statements of Sportech PLC
(the ‘Parent Company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2019 which comprise the
consolidated income statement, the consolidated statement
of comprehensive income, the consolidated and company
balance sheet, the consolidated and company statement of
changes in equity, the consolidated and company statement
of cash flows and notes to the financial statements, including
a summary of significant accounting policies. The financial
reporting framework that has been applied in their
preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of
the Companies Act 2006.
IN OUR OPINION:
•
the financial statements give a true and fair view of the
state of the Group’s and of the Parent Company’s
affairs as at 31 December 2019 and of the Group’s loss
for the year then ended;
•
•
•
the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the Parent Company financial statements have been
properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in
accordance with the provisions of the Companies Act
2006; and
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006; and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are
independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
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members of Sportech PLC continued
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our 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) that we identified, 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 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.
A summary of our key audit matters and the assessment against the prior year is as follows:
Key audit matter
Appropriateness of revenue recognition
Comment
New
Uncertain tax provisions
Impairment of intangible assets
Included in prior year – incorporates compliance with
IFRIC 23 in current year
Included in prior year – incorporates new balances arising on
acquisition of Lot.to in the year
Impairment of Investments: Company Only
Included in prior year
Key audit matter
How we addressed the key audit matter in the audit
Appropriateness of revenue recognition
The Group recognises revenue from a number of revenue
streams. The details of the accounting policies applied
during the year are set out on pages 82 to 93 of the financial
statements.
There is a risk that revenue is incorrectly calculated due to
the different underlying contracts with customers and the
variations in contract terms for each contract.
As the Group enters into new contracts there may be
separate elements in the contract that requires application of
different revenue recognition policies.
We note that the Group has reflected a change in the
treatment of certain customer bonuses in the US business
at the half year.
We completed the following audit procedures:
Reviewed the revenue recognition policies against the
requirements of applicable accounting standards,
challenging and where necessary corroborating to
supporting documentation the key judgements made by
management.
We obtained a sample of contracts to check that revenue
had been recognised in accordance with the contract and
the requirements of applicable accounting standards.
For specific operational revenue streams we tested the
operating effectiveness of key controls, including the testing
of IT controls over the key operating systems.
Using data analytic techniques we recalculated the expected
income earned under a sample of contracts from wagering
data captured in the groups IT systems and reconciled this
to the amounts recorded in the nominal ledger.
Key observations
Nothing has come to our attention as a result of performing
the above procedures that causes us to believe that a
material misstatement is present in respect of revenue
recognition and the related disclosures in the financial
statements are appropriate.
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Uncertain Tax treatments
The Group makes provisions and disclosures for uncertain
tax treatments. The details of the accounting policies applied
during the year are set out on pages 82 to 93 of the financial
statements.
Over recent years the Group has experienced a number of
one-off transactions that have significant material tax
implications. These include the disposal of the Football
Pools business and the gain arising from the successful spot
the ball claim.
In the current year, the Group has adopted IFRIC 23
Uncertainty over Income Tax Treatments in the year as set
out in the accounting policies on page 91.
This requires material tax judgements to be made by
management, and due to the inherent uncertainty in respect
of any potential challenge by HMRC there is a risk that any
related provisions may not be appropriately accounted for.
We completed the following audit procedures:
Involving our tax specialists we gained an understanding of
the relevant tax legislation and the potential tax risks in the
UK and USA in particular, areas of subjective judgement,
and the associated potential outcomes of all outstanding
material tax matters where the tax treatment has yet to be
agreed with tax authorities.
We reviewed the correspondence with HMRC to determine
the potential level of risk associated with the material
outstanding tax matters and to ascertain whether they were
being accounted for correctly.
We reviewed the advice on the appropriate tax treatment
provided by managements external tax and legal advisors
and discussed the advice given directly with them where
considered relevant using our internal tax specialists.
We performed sensitivity analysis over the potential
outcomes, where appropriate, to assess the potential risk.
We assessed the provisions made and considered their
appropriateness given the above procedures, and whether
the provisions raised and the related disclosures were in
accordance with the requirements of applicable accounting
standards.
Key observations
Nothing has come to our attention as a result of performing
the above procedures that causes us to believe that a
material misstatement is present in respect of uncertain tax
provisions and the related disclosures in the financial
statements are appropriate.
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Impairment of intangibles
The Group’s intangible assets are disclosed in note 14. The
details of the accounting policies applied during the year are
set out on pages 82 to 93 of the financial statements.
In accordance with relevant accounting standards, the
Group monitors the carrying value of intangibles for
indications of impairments and performs annual impairment
reviews for its cash generating units (CGU) as required.
Management exercises significant judgement in determining
the underlying assumptions used in the impairment review.
The assumptions include, but are not limited to, the discount
rate used, the allocation of assets to cash generating units
(“CGU’s”), growth rates and the future cash flows attributed
to each.
Impairment of Investments: - Company only
In accordance with the requirements of relevant accounting
standards, management have performed an impairment
review on investments in the current year resulting in an
impairment as disclosed in note c7. The details of the
accounting policies applied during the year are set out on
pages 82 to 93 of the financial statements.
The impairment review is based on the expected future
performance of the trading entities in the US and Europe
and requires management to exercise significant judgement
in determining the underlying assumptions used in the
impairment review which have material impact on the
resultant calculations. Therefore, we considered this to be
an area of focus for our audit.
68
We completed the following audit procedures:
Detailed testing of the Directors impairment testing model,
including the definitions of the CGU’s used, the agreement
of allocations of assets to appropriate CGU’s, the
appropriateness of the cash flow forecasts attributed to
each CGU, and the discount rates used which was verified
by internal valuation experts.
Assessed the historical accuracy of the directors forecasts
previously used in the impairment model against actual
outturn.
Performed sensitivity analysis over the assumptions used in
order to evaluate the levels of headroom available.
Considered publically available information and other
information obtained during our audit work in order to
determine whether there were any other potential indicators
of impairment that were not identified by the directors.
Assessed the appropriateness of the disclosures made in
the financial statements in note 14 in respect of the
impairment calculations.
Key observations
Nothing has come to our attention as a result of performing
the above procedures that causes us to believe that a
material misstatement is present in respect of the
impairment of intangibles and the related disclosures in the
financial statements are appropriate.
We completed the following audit procedures:
Checked that the cash flows used to assess the company
investments were consistent with those used in the
impairment of Intangibles model.
Testing was performed over the assumptions used in the
impairment model including the appropriateness of the cash
flow forecasts attributed to each CGU, and the discount
rates used which was verified by internal valuation experts.
Assessed the historical accuracy of the directors’ forecasts
previously used in the impairment model against actual
outturn.
Performed sensitivity analysis over the assumptions use in
order to evaluate the levels of headroom available.
Considered publically available information and other
information obtained during our audit work to determine
whether there were any other potential indicators of
impairment that were not identified by the directors.
Key observations
Nothing has come to our attention as a result of performing
the above procedures that causes us to believe that a
material misstatement is present in respect of the carrying
value of Company investments and the related disclosures in
the financial statements are appropriate.
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OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and
performing our audit and in evaluating the effect of
misstatements. We consider materiality to be the magnitude
by which misstatements, including omissions, could
influence the economic decisions of reasonable users that
are taken on the basis of the financial statements.
Based on our professional judgement we determined
materiality for the Group financial statements to be
£204,000, and for the Parent Company to be £75,000. The
materiality we applied in respect of the Group financial
statements equates to 2.7% of EBITDA before exceptional
income and expenses. The materiality for the Parent
Company equates to 4% of EBITDA before exceptional
items and expenses. Adjusted EBITDA is considered to be
the primary measure used by the shareholders in assessing
the performance of the Group.
We set component materiality between £35,000 and
£120,000 based on the overall size and respective risk of
each component.
Performance materiality was set at 65% of materiality for
both the group and Parent company audit based on our
assessment of past misstatements and management’s
attitude towards proposed adjustments.
We agreed with the Audit committee that we would report to
the Committee all individual audit differences in excess of
£6,000. We also agreed to report differences below these
thresholds that in our view warranted reporting on qualitative
grounds.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding
of the group and its environment, including the group’s
system of internal control, and assessing the risks of material
misstatement in the financial statements.
The group is managed and operated 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 main finance functions are in the
USA and in the UK. We identified 23 separate components
making up the Group, of which seven, including the
consolidation itself, required a full scope audit given their
contribution to Groups revenue and adjusted EBITDA, and
two required work on specific balances that we regarded as
significant to the consolidated financial statements. This
work, combined with the work performed over consolidation
journals and intergroup eliminations accounted for over 86%
of group revenue, 84% of Group Adjusted EBITDA and 93%
of Group net assets.
All audit work was performed by the Group audit team. Our
work on the remaining components comprised analytical
procedures and certain tests of detail. Together this provided
the evidence required for our opinion on the Group Financial
Statements.
Capability of the audit to detect irregularities, including
fraud
We also gained an understanding of the legal and regulatory
framework applicable to the Group and the industry in which
it operates, and considered the risk of acts by the Group
that were contrary to applicable laws and regulations,
including fraud. We designed audit procedures at Group and
significant component level to respond to the risk ,
recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not
detecting resulting from error, as fraud may involve deliberate
concealment, by for example forgery or intentional
misrepresentations, or through collusion. We focused on
laws and regulations that could give rise to a material
misstatement in the financial statements, including, but not
limited to, the Companies Act 2006, the UK listing rules, and
tax legislation. Our tests included agreeing the financial
statement disclosures to underlying supporting
documentation, inspection of minutes, enquiries with
management and enquiries of legal counsel.
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. We did not identify any key audit
matters relating to irregularities, including fraud. We also
addressed the risk of management override of internal
controls, including testing journals and evaluating whether
there was evidence of bias by the directors that represented
a risk of material misstatement due to fraud.
OTHER INFORMATION
The directors are responsible for the other information. The
other information comprises the information included in the
Annual report and accounts other than the financial
statements and our auditor’s report thereon. Our opinion on
the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion
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 such material inconsistencies or
69
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Independent auditor’s report to the
members of Sportech PLC continued
•
the strategic report and the directors’ report have been
prepared in accordance with applicable legal
requirements.
MATTERS ON WHICH WE ARE REQUIRED
TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the Group
and Parent Company and its environment obtained in the
course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters
in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
•
•
•
•
adequate accounting records have not been kept by
the Parent Company, or returns adequate for our audit
have not been received from branches not visited by
us; or
the Parent Company financial statements and the part
of the directors’ remuneration report to be audited are
not in agreement with the accounting records and
returns; or
certain disclosures of directors’ remuneration specified
by law are not made; or
we have not received all the information and
explanations we require for our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the statement of directors’
responsibilities set out on pages 63-64 the directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and
for such internal control as the directors 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 Parent
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 Parent
Company or to cease operations, or have no realistic
alternative but to do so.
apparent material misstatements, we are required to
determine whether there is a material misstatement in 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 the other
information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to
our responsibility to specifically address the following items
in the other information and to report as uncorrected material
misstatements of the other information where we conclude
that those items meet the following conditions:
•
•
•
Fair, balanced and understandable set out on
page 37 – the statement given by the directors that
they consider the annual report and financial
statements taken as a whole is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Group’s position,
performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit;
or
Audit committee reporting set out on pages 33-37 –
the section describing the work of the audit committee
does not appropriately address matters communicated
by us to the audit committee; or
Directors’ statement of compliance with the UK
Corporate Governance Code set out on page 29 –
the parts of the directors’ statement required under the
Listing Rules relating to the Company’s compliance
with the UK Corporate Governance Code containing
provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not
properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
OPINIONS ON OTHER MATTERS
PRESCRIBED BY THE COMPANIES ACT
2006
In our opinion, the part of the directors’ remuneration report
to be audited has been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work undertaken in the course
of the audit:
•
the information given in the strategic report and the
directors’ report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
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USE OF OUR REPORT
This report is made solely to the Parent Company’s
members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the Parent
Company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Parent
Company and the Parent Company’s members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Kieran Storan (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
18 March 2020
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
AUDITOR’S 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 auditor’s 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 Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
OTHER MATTERS WHICH WE ARE
REQUIRED TO ADDRESS
Following the recommendation of the audit committee, we
were appointed by the directors on 29 August 2019 to audit
the financial statements for the year ending 31 December
2019 and subsequent financial periods. The period of total
uninterrupted engagement is 1 year, covering the year
ending 31 December 2019.
The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the Parent
Company and we remain independent of the Group and the
Parent Company in conducting our audit.
Our audit opinion is consistent with the additional report to
the audit committee.
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Financial
Statements
7(cid:21)
129
137
Consolidated Financial Statements
Company Financial Statements
Advisors and Corporate Information
72
3
.
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73
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Consolidated Income Statement
FOR THE YEAR ENDED 31 DECEMBER 2019
Restated
2019 2018
Note £000 £000
Revenue 2 64,783 63,462
Cost of sales 3 (17,896) (17,619)
Gross profit 46,887 45,843
Marketing and distribution costs 3 (1,472) (1,732)
Contribution 45,415 44,111
Operating costs 3 (53,240) (47,196)
Other income 4 90 173
Operating loss (7,735) (2,912)
Finance costs 8 (758) (290)
Finance income 8 63 540
Loss before tax from continuing operations (8,430) (2,662)
Tax – continuing operations 9 (6,034) (2,019)
Loss for the year – continuing operations (14,464) (4,681)
Net profit from discontinued operations 11 – 1,822
Loss for the year (14,464) (2,859)
Attributable to:
Owners of the Company (14,464) (2,859)
Basic loss per share attributable to owners of the Company
From continuing operations 12 (7.7)p (2.5)p
From discontinued operations 12 – 1.0p
Total 12 (7.7)p (1.5)p
Diluted (loss)/earnings per share attributable to owners of the Company
From continuing operations 12 (7.7)p (2.5)p
From discontinued operations 12 – 1.0p
Total 12 (7.7)p (1.5)p
Adjusted (loss)/earnings per share attributable to owners of the Company
Basic 12 (0.3)p 0.3p
Diluted 12 (0.3)p 0.3p
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.
74
Consolidated Statement of
Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2019
Restated
2019 2018
Note £000 £000
Loss for the year (14,464) (2,859)
Other comprehensive (expense)/income:
Items that will not be reclassified to profit and loss
Actuarial (loss)/gain on retirement benefit liability 26 (399) 315
Deferred tax on movement on retirement benefit liability 19 117 (83)
(282) 232
Items that may be subsequently reclassified to profit and loss
Currency translation differences (1,682) 2,411
Total other comprehensive (expense)/income for the year, net of tax (1,964) 2,643
Total comprehensive expense for the year (16,428) (216)
Attributable to:
Owners of the Company (16,428) (216)
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75
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Consolidated Balance Sheet
AS AT 31 DECEMBER 2019
Restated
2019 2018
Note £000 £000
ASSETS
Non-current assets
Goodwill 13 604 –
Intangible fixed assets 14 14,935 13,551
Property, plant and equipment 15 17,676 26,337
Right-of-use assets 16 6,312 –
Trade and other receivables 18 499 667
Deferred tax assets 19 990 5,979
41,016 46,534
Current assets
Trade and other receivables 18 7,603 8,169
Inventories 20 2,616 2,576
Cash and cash equivalents 21 15,565 17,915
25,784 28,660
TOTAL ASSETS 66,800 75,194
LIABILITIES
Current liabilities
Trade and other payables 22 (12,853) (13,169)
Provisions 23 (579) (977)
Lease liabilities 24 (843) –
Financial liabilities 25 (500) –
Current tax liabilities 9 (4,880) (6,563)
Deferred tax liabilities 19 (89) –
(19,744) (20,709)
Net current assets 6,040 7,951
Non-current liabilities
Retirement benefit liability 26 (1,079) (902)
Lease liabilities 24 (6,881) –
Deferred tax liabilities 19 (93) –
Provisions 23 (1,026) (1,434)
(9,079) (2,336)
TOTAL LIABILITIES (28,823) (23,045)
NET ASSETS 37,977 52,149
EQUITY
Ordinary shares 29 37,750 37,350
Other reserves 16,872 18,435
Retained earnings (16,645) (3,636)
TOTAL EQUITY 37,977 52,149
The financial statements on pages 74 to 128 were approved and authorised for issue by the Board of Directors on 18 March
2020 and were signed on its behalf by:
Richard McGuire Thomas Hearne
Director Director
Company Registration Number: SC069140
76
Consolidated Statement of
Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2019
Other reserves
Capital Foreign
Ordinary redemption Other exchange Retained
shares reserve reserve reserve earnings Total
£000 £000 £000 £000 £000 £000
At 1 January 2019 37,350 10,312 (414) 8,537 (3,636) 52,149
Adjustment for adoption of IFRIC 23 (note 9) – – – – 1,562 1,562
Adjustment for adoption of IFRS 16 Leases net of tax
(page 93) – – – – (1,442) (1,442)
Restated at 1 January 2019 37,350 10,312 (414) 8,537 (3,516) 52,269
Comprehensive (expense)/income
Loss for the year – – — – (14,464) (14,464)
Other comprehensive items
Actuarial loss on defined benefit pension liability* – – (282) – – (282)
Reserve transfer – – – 87 (87) –
Currency translation differences – – – (1,682) – (1,682)
Total other comprehensive items – – (282) (1,595) (87) (1,964)
Total comprehensive items – – (282) (1,595) (14,551) (16,428)
Transactions with owners
Share option charge – – – – 1,422 1,422
Shares issued in relation to the acquisition of Lot.to
Systems Limited (note 29) 400 – 314 – – 714
Total transactions with owners 400 – 314 – 1,422 2,136
Total changes in equity 400 – 32 (1,595) (13,129) (14,292)
At 31 December 2019 37,750 10,312 (382) 6,942 (16,645) 37,977
*Net of deferred tax
In 2019, the share option reserve has been included within retained earnings.
The reserves as at 1 January 2019 have been restated due to an accounting error in respect of the under accrual of interest
payable on the uncertain tax positions. The impact on prior year retained earnings is a decrease of £223k.
The premium on the shares issued in Sportech PLC of £314k is recorded as a merger reserve in other reserves.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Consolidated Statement of
Changes in Equity continued
FOR THE YEAR ENDED 31 DECEMBER 2018 (restated)
Other reserves
Capital Foreign
Ordinary redemption Other exchange Retained
shares reserve reserve reserve earnings Total
£000 £000 £000 £000 £000 £000
At 1 January 2018 37,123 10,312 (646) 6,126 (1,705) 51,210
Comprehensive expense
Loss for the year – – – – (2,859) (2,859)
Other comprehensive items
Actuarial gain on defined benefit pension liability* – – 232 – – 232
Currency translation differences – – – 2,411 – 2,411
Total other comprehensive items – – 232 2,411 – 2,643
Total comprehensive items – – 232 2,411 (2,859) (216)
Transactions with owners
Share option charge – – – – 1,222 1,222
Employer taxes paid on vesting of options – – – – (67) (67)
Shares issued in relation to PSP (note 29) 227 – – – (227) –
Total transactions with owners 227 – – – 928 1,155
Total changes in equity 227 – 232 2,411 (1,931) 939
At 31 December 2018 37,350 10,312 (414) 8,537 (3,636) 52,149
*Net of deferred tax
In 2019, the share option reserve has been included within retained earnings.
The loss for the year ended 31 December 2018 has been restated due to an accounting error in respect of the under accrual of
interest payable on the uncertain tax positions. The impact was an increase in the loss for the year of £223k.
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Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
Note £000 £000
Cash flows from operating activities
Cash generated from operations, before exceptional items 30 7,478 5,890
Interest received 62 85
Interest paid (24) (22)
Tax paid 9 (1,356) (2,029)
Net cash generated from operating activities before exceptional items 6,160 3,924
Exceptional cash inflows 4 90 487
Exceptional cash outflows 4 (1,821) (2,320)
Cash generated from operations – continuing operations 4,429 2,091
Cash used in operations – discontinued operations – (37)
Net cash generated from operating activities 4,429 2,054
Cash flows from investing activities
Investment in joint ventures and associates 17 (184) (291)
Disposal of Football Pools division 11 – 275
Disposal of Sportech Racing BV (net of transaction costs) 11 236 2,411
Contingent consideration paid for Bump (Worldwide) Inc 25 – (167)
Consideration paid for Lot.to Systems Limited, net of cash acquired 10,25 (729) –
Proceeds from sale of property, plant and equipment 15 1 –
Investment in intangible fixed assets 14 (2,648) (3,106)
Purchase of property, plant and equipment 15 (1,169) (1,927)
Cash used in investing activities – continuing operations (4,493) (2,805)
Cash flows used in financing activities
Payment of lease liabilities 24 (1,879) –
Net cash used in financing activities (1,879) –
Net decrease in cash and cash equivalents (1,943) (751)
Effect of foreign exchange on cash and cash equivalents (407) (91)
Cash and cash equivalents at the beginning of the year 17,915 18,757
Cash and cash equivalents at the end of the year 21 15,565 17,915
Represented by:
Cash and cash equivalents 21 15,565 17,915
Less customer funds 21 (2,580) (3,187)
Adjusted net cash at the end of the year 21 12,985 14,728
79
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
FOR THE YEAR ENDED 31 DECEMBER 2019
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 2019 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 63, the Directors have a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
BASIS OF ACCOUNTING
These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) and
International Financial Reporting 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.
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 tangible and intangible assets
To determine whether an impairment of the tangible or intangible assets held by the Sportech Venues division has occurred, the
Group considered in isolation the assets and leasehold improvements at its sports bar venue in Stamford, Connecticut and then
the assets (tangible and intangible) of the cash generating unit (“CGU”) as a whole. The key assumptions used in estimating
future cash flows for value-in-use measures, for both the stand-alone venue and the CGU as a whole were:
Stamford alone:
–
handle and food and beverage (“F&B”) earnings achieved since the venue’s opening in June 2017 and the likely growth
achievable in the next four years;
–
costs of sale percentages and overhead cost levels achievable.
CGU as a whole:
–
–
–
rates of industry handle growth/decline impacting the retail and online product;
the enforcement by the State of Connecticut of the Company’s exclusive rights to operate online wagering and the CGU’s
ability to drive value from its exclusivity in the State; and
the impact of restructuring on costs the CGU incurs and retention of handle via transfer between venues or onto digital;
and
–
discount rate, which appropriately reflect the risks associated with the CGU.
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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 notes 14 and 15 of the Annual Report.
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 judgement. The judgements which are made are done so in good faith, with the aim of
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 28).
Critical judgements 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 judgement, and the uncertainty of this results in a
provision of £4.6m for corporation tax and £0.4m of interest thereon. There is a further £0.4m of provision for uncertain tax
positions in relation to the Football Pools disposal. Having assessed the level of provisions required in light of IFRIC 23, £1.5m of
provision as at 1 January 2019 has been credited to equity. Both provisions are included in the current tax liability, except that
the calculated interest on the unpaid tax provisions has been included in finance costs and accruals. The Group does not
believe any provision is required for associated penalties.
The Group has modelled its tax projections to assess the recoverability of its deferred tax assets in the US. 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.
Valuation and useful life of intangible assets acquired with Lot.to Systems Limited
The Group identified and valued the intangible assets acquired with Lot.to Systems Limited during the year. Judgement was
used to value the intangibles based on a mark-up of cost to develop being applied, and to define their useful life over which the
cost would be amortised to the income statement. The remaining difference between the net assets identified and the cost of
acquisition has been recorded as goodwill. The valuations and decisions taken by management on useful lives inherently contain
judgements.
Onerous contract provision and other losses arising from exit from California operations
The Group recorded a provision in 2017 against its contractual arrangements in the state of California via its Joint venture
arrangement following its decision to exit its operations. During 2019 the joint venture closed the venue in San Diego and
negotiations with the landlord have commenced to agree a settlement, together with negotiations with a second landlord on
another site.
Management has reassessed the provisions to exit its Joint venture arrangement in the year in the light of current information
and believes the level of provision is the Group’s most likely obligation. Given the nature of the disputes in the joint venture, there
is judgement which has been applied by management in agreeing the level of provision required and the ultimate settled amount
could be more or less than that provided.
PRIOR YEAR RESTATEMENTS
The prior year comparatives have been adjusted due to an accounting error in respect of the under accrual of interest payable
on the uncertain tax positions, with a corresponding increase in finance costs and accruals. The impact on the prior year is an
increase in finance costs within the profit and loss account of £223k and an increase within balance sheet accruals of the same
amount. There is no impact on the 2017 year end balance sheet. In addition, as reported in the interim results, management
have corrected the accounting for award points granted to players in the Sportech Venues segment, which were previously
charged to the income statement within marketing and distribution costs and are now debited to revenue. The effect on prior
year revenue is a reduction of £256k with a corresponding reduction in marketing and distribution costs. Ordinarily, a statement
of financial position as at the beginning of the preceding period would be presented when an entity makes a retrospective
restatement of items in its financial statements. However, in this case, the prior period adjustments had no effect on profit prior
to 1 January 2018 nor on the balance sheet as at that date. Accordingly, no third balance sheet has been presented.
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Notes to the financial statements continued
A summary of more important Group accounting policies follows. These policies have been applied consistently to all the years
presented, except for IFRS 16 Leases and IFRIC 23 Uncertain Tax Positions. These have a transition date of 1 January 2019,
and the Group has chosen not to restate comparatives on adoption of both standards and therefore the revised requirements
are not disclosed in the prior year financial statements. Instead these changes have been processed at the date of initial
application and recognised in the opening equity balances.
(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 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 generally recognises revenue at a point in time when it transfers control over a product or delivers a 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 return to bettors
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for wagering on horse and greyhound racing and jai alai and customer incentives, and is recognised on the day the event takes
place. Betting stakes for future events that have not taken place at the balance sheet date are deferred. 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 when the
performance obligation is met which is on the day the event
occurs. Customer bonuses are netted off revenue as earned.
Costs of obtaining a new contract are expensed to the income
statement. Income is invoiced monthly and due within a
month, therefore there is no significant financing element.
Contracts are generally three to five years in length and have
several month notice periods.
Revenue is recorded at the price charged for the goods on the
date the food/beverage is provided.
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
Fee are recognised on each 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:
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 obligations under the contract are met.
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 obligations under the contract are met.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
Under multiple performance condition arrangements, revenue is allocated to the various elements based on the standalone
selling prices 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 revenue recognition policy above 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.
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.
The Group adopted IFRIC 23 Uncertainty over Income tax treatments during the year. IFRIC 23 provides guidance on the
accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax
treatments. The interpretation requires: The group to determine whether uncertain tax treatments should be considered
separately, or together as a group, based on which approach provides better predictions of the resolution; The group to
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determine if it is probable that the tax authorities will accept the uncertain tax treatment; and if it is not probable that the
uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value,
depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on
the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all
related information when making those examinations.
The adoption of IFRIC 23 resulted in a £1.5m decrease in corporate tax liabilities, relating to uncertain tax positions on the
disposal of the Football Pools division in 2017. As the Group elected to apply IFRIC 23 retrospectively with the cumulative effect
recorded in retained earnings at the date of initial application, 1 January 2019, the impact was recorded in retained earnings.
(g) Foreign currencies
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are
presented in Sterling (£), which is the Company’s functional currency and the Group’s presentation currency.
Transactions and balances
Transactions in foreign currencies are translated into the functional currency at the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. Foreign exchange gains and losses, resulting from the settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income
statement, except where deferred in other comprehensive income as qualifying cash flow hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income
statement within finance income or costs. All other foreign exchange gains and losses are presented in the income statement
within operating profit.
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that
have a functional currency different from the presentation currency are translated into the presentation currency as follows:
–
–
–
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
income and expenses for each income statement are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the rate on the dates of the transactions); and
all resulting exchange differences are recognised in other comprehensive income.
(h) Property, plant and equipment
Property, plant and equipment are carried at historical cost less accumulated depreciation and any impairment. Cost includes
the original purchase price of the asset and the costs attributable in bringing the asset to its working condition for its intended
use and any associated borrowing costs. Assets in the course of construction are not depreciated until the asset is completed.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within
administrative expenses in the income statement.
Assets in the course of construction are capitalised when first brought into use and depreciated from this date.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
(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:
Owned land Not depreciated
Long leasehold and owned buildings Over 25 years
Short leasehold land and buildings Over the period of the lease
Plant, equipment and other fixtures and fittings 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) Right-of-use assets and lease liabilities
On transition to IFRS 16 the Group recognises a right-of-use asset and a lease liability at the lease commencement date. The
right-of-use asset is initially measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or
accrued lease liability (present value of minimum lease payments), and subsequently at that amount less accumulated
depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability.
Subsequent to initial recognition on implementation of IFRS 16, right of use assets are initially measured at the amount of the
lease liability, reduced for any lease incentives received, and increased for:
•
•
•
lease payments made at or before commencement of the lease;
initial direct costs incurred; and
the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the
leased asset (typically leasehold dilapidations).
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental
borrowing rate. Generally, the Group uses its incremental borrowing rate in the jurisdiction in which the asset resides as the
discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It
is remeasured when there is a change in the future lease payments arising from a change in an index or rate, a change in the
estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment
of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not
to be exercised.
The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include
renewal options and break clauses. The assessment of whether the Group is reasonably certain to exercise such options
impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.
(k) 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.
(l)
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.
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Software
Externally acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software. These costs are amortised over their estimated useful lives or contractual period if shorter (six to ten years).
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled
by the Group are recognised as intangible assets when the following criteria are met:
–
it is technically feasible to complete the software product so that it will be available for use;
– management intends to complete the software product;
–
–
it can be demonstrated how the software product will generate probable future economic benefits;
adequate technical, financial and other resources to complete the development and to use or sell the software product are
available; and
–
the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs
and an appropriate proportion of relevant overhead. Other development expenditure that does not meet these criteria are
recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset
in a subsequent period.
Software development costs are amortised over their estimated useful lives, which do not exceed 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.
(m) Investments in subsidiaries
Investments in subsidiaries are carried at historic cost less any impairment. Annual impairment reviews are performed.
(n)
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.
(o) 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
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
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. Scheme curtailments are recognised immediately in profit or loss. Settlements of defined benefit schemes
are recognised in the period in which the settlement occurs.
For defined contribution plans, the Group pays contributions to privately administered pension insurance plans on a mandatory,
contractual or voluntary basis.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an
employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund
or a reduction in future payments is available.
(p) Financial instruments
(i)
Recognition
Trade receivable and debt securities issued are initially recognised when they are originated. All other financial assets and
liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instruments.
Financial assets
(ii)
Classification
The Group classifies its financial assets in the following measurement categories:
•
•
those to be measured subsequently at fair value (either through OCI or through profit or loss), and
those to be measured at amortised cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the
cash flows.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for
managing financial assets, in which case all affected financial assets are classified on the first day of the first reporting period
following the change in business model.
(iii) Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value
through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at FVTPL are expensed in profit or loss. Changes in the fair value of financial assets at FVTPL
are recognised in the statement of comprehensive income.
Financial assets measured at amortised cost arise principally through the provision of services to customers (e.g. trade
receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus
transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using
the effective interest rate method, less provision for impairment.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business.
They are generally due for settlement within 365 days and are therefore all classified as current, those due after a longer period
are classified in non-current assets. Trade receivables are recognised initially at the amount of consideration that is
unconditional. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore
measures them subsequently at amortised cost using the effective interest method. Due to the short-term nature of the current
receivables, their carrying amount is considered to be the same as their fair value.
Other receivables consist of amounts generally arising from transactions outside the usual operating activities of the Group such
as the proceeds from disposal of investment. Due to the short-term nature of the other current receivables, their carrying
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amount is considered to be the same as their fair value. For the majority of the non-current receivables, the fair values are also
not significantly different to their carrying amounts.
(iv) Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks
and rewards of ownership and it does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either
all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not
derecognised.
(v)
Impairment
The Group assesses all types of financial assets that are subject to the expected credit loss model:
•
•
•
trade receivables
debt investments carried at amortised cost
cash and cash equivalents
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. Trade receivables are grouped based on their days past due.
The historical credit losses assessed are adjusted to reflect current and forward-looking information on macroeconomic factors
affecting the ability of the customers to settle the receivables.
Financial liabilities
(iv) Classification and measurement
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is
classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are
measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial
liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign
exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
(vi) Derecognition
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group
also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially
different, in which case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid
(including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
(vii) Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and
only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net
basis or to realise the asset and settle the liability simultaneously.
(q) 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
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Notes to the financial statements continued
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.
(r) 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.
(s) 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.
(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, 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 exempt from IFRS 16
The Group excludes leases with low-value assets (<£4,000 asset values) and leases with terms of less than 12 months from
IFRS 16 requirements to capitalise the lease and hold a corresponding liability on the balance sheet. Instead, payments made
under these 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) Exceptional items
The Group defines exceptional items as those items which, by their nature or size, if not separately identified, would distort the
comparability of the Group’s results from year to year.
(z) Share capital and reserves
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.
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The capital redemption reserve represents the nominal value of shares cancelled.
Other reserve includes the cumulative actuarial gains and losses charged/credited to this reserve in relation to defined benefit
pension schemes and also merger relief.
Foreign exchange includes gains/losses arising on retranslating the net assets of overseas operations.
Retained earnings includes cumulative net gains and losses recognised in the consolidated statement of comprehensive
income.
(aa) 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 2019, and
are therefore applicable for the 31 December 2019 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 2019.
New standards and amendments effective for periods beginning on or after 1 January 2019 and therefore relevant to these
financial statements:
Applicable for financial
Standard or interpretation year beginning on or after
IFRS 16 Leases 1 January 2019
IFRS 9 (2014) Financial Instruments (Amendment – Prepayment Features with Negative
Compensation and Modifications of Financial Liabilities 1 January 2019
IAS 28 – Investments in Associate and Joint Ventures (Amendment – Long-term Interests
in Associates and Joint Ventures) 1 January 2019
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) 1 January 2019
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments 1 January 2019
Amendments to IAS 19 Employee Benefits 1 January 2019
Of the pronouncements above, the amendment to IFRS 9 is not relevant to the Group. All of the other pronouncements are
relevant, but only the application of IFRS 16 and IFRIC 23 results in the accounting applied by the Group changing.
IFRIC 23
The Group assessed its tax provisions in light of the requirements of IFRIC 23 which has resulted in the release of provisions of
£1,562k. It was considered more likely than not that the Group would not be required to pay this additional level of tax in relation
to the tax due on the disposal of the Football Pools division in 2017.
IFRS 16
The Group has initially adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on-balance sheet
accounting model for leases. As a result, the Group, as a lessee, has recognised right-of-use assets recognising its rights to use
the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting is not
applicable to the Group but would have remained the same under IFRS 16 if it were.
The Group has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial
application is recognised in retained earnings on 1 January 2019. Accordingly, the comparative information presented for 2018
has not been restated – i.e. it is presented as previously reported, under IAS 17 and related interpretations. The details of the
changes in accounting policies are disclosed below:
A)
Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4
Determining whether an arrangement contains a lease. The Group now assesses whether a contract is or contains a lease
based on a new definition of a lease. Under IFRS 16, a contract is, or contains a lease if a contract conveys the right to control
the use of an identified asset for a period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which
transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not
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Notes to the financial statements continued
identified as leases under IAS 17 and IFRIC 4 were not re-assessed. Therefore, the definition of a lease under IFRS 16 has been
applied only to contracts entered into or changed on or after 1 January 2019.
At inception or reassessment of a contract that contains a lease component, the Group allocates the consideration in the
contract to each lease and non-lease component on the basis of their relative stand-alone process.
B)
As a lessee
The Group leases many assets including property, vehicles and IT equipment.
As a lessee the Group previously classified leases based on its assessment of whether a lease transferred substantially all the
risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases
i.e. these leases are on-balance sheet.
However, the Group has elected to not recognise right-of-use assets and lease liabilities for leases of low-value assets (<£4,000
asset values) and leases with terms of less than 12 months.
The Group presents right-of-use assets separate to tangible fixed assets that it owns. The carrying amounts of right-of-use
assets, by nature of asset, are as per below:
Short Long leasehold
leasehold land land and Fixtures and
and buildings buildings Vehicles Fittings Total
£000 £000 £000 £000 £000
Balance at 1 January 2019 2,685 4,987 237 26 7,935
Balance at 31 December 2019 1,696 4,457 134 25 6,312
The Group presents lease liabilities separately on the face of the balance sheet.
i)
Significant accounting policies
See accounting policy (j) for a description of the Group’s accounting policy in relation to right-of-use assets and lease liabilities.
ii)
Transition
Previously, the Group classified leases as operating leases under IAS 17. These included betting venues, offices, vehicles and IT
equipment. The leases typically run for periods of 3 to 5 years, but some property leases exist with significantly longer terms.
Some property leases include an option to extend the lease for periods of typically three years and some of the longer leases
have termination options, “break clauses”, (some with penalties). Some leases also provide for rent changes based on local
price indices.
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group’s incremental borrowing rate (in the jurisdiction the lease resides) as at
1 January 2019. Right-of-use assets are measured at an amount equal to the lease liability at the inception of the lease,
adjusted by the amount of any prepaid or accrued lease liability.
The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases
under IAS 17.
Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term.
Excluded initial direct costs from measuring the right-of-use asset at the date of initial applications.
Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
–
–
–
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C)
i)
Impacts on the financial statements
Impacts on transition
On transition to IFRS 16, the Group recognises additional right-of-use assets and additional lease liabilities, and derecognises
onerous lease liabilities, recognising the difference in retained earnings, net of deferred tax. The impact on transition is
summarised below.
At 1 January
2019
Note £000
Right-of-use asset presented in property, plant and equipment 16 Dr 7,935
Lease liabilities 24 Cr (9,445)
Onerous lease liability derecognised 23 Dr 214
Deferred tax liability 19 Dr (146)
Retained earnings Dr (1,442)
When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using
its incremental borrowing rates in the jurisdictions in which the leases are located. The weighted average rate applied was
5.75%. The effect of a 1% increase in the discount rates applied would be to reduce the right of use asset recognised by £472k
and reduce the lease liability by £419k.
Deferred tax has been provided as the initial reduction in reserves on transition to IFRS 16 is spread over the remaining lease
term for tax relief purposes.
At
1 January 2019
£000
Operating lease commitment at 31 December 2018 as disclosed in the Group’s consolidated financial statements 12,226
Exclude rentals in JV company included in the above commitments (474)
Restated commitments excluding JV rentals 11,752
Less:
Discounted using the incremental borrowing rates at 1 January 2019 (3,495)
Recognition exemption for leases of low value assets (9)
Recognition exemptions for leases with less than 12 months lease term at transition (30)
Correction of rental amounts to accurately reflect liability (24)
Add:
Extension options reasonably certain to be exercised 1,251
Lease liabilities recognised at 1 January 2019 9,445
ii)
Impacts for the period
In relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease
expense. During the year ended 31 December 2019, the Group recognised £1,392k of depreciation charges and £480k of
interest costs from these leases.
(ab) 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 Applicable
IFRS 17 Insurance Contracts 1 January 2021
IFRS 17 is not relevant to the Group.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the 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 expenditure management believe should be added back (exceptional items). The share option expense is
also excluded given it is not directly linked to operating performance of the divisions. 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 although it may not be comparable to adjusted figures used elsewhere,
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:
2019 2018
Note £000 £000
Operating costs per income statement (53,240) (47,196)
Add back:
Sports betting investment 1,773 1,428
Depreciation 15,16 4,597 2,860
Amortisation, excluding acquired intangible assets 14 2,630 1,917
Amortisation of acquired intangible assets 14 467 –
Profit on sale of property plant, plant and equipment 15 (1) –
Impairment of property, plant and equipment 15 5,020 –
Share option charge, excluding acceleration of charge for departing management 29 676 1,222
Accelerated IFRS 2 charge for departing management 29 746 –
Exceptional items 4 1,230 3,453
Adjusted operating costs, pre sports betting investment (36,102) (36,316)
Other operating income* 4 – 173
Total adjusted net operating costs, pre sports betting investment (36,102) (36,143)
*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.
2019 2018
£000 £000
Revenue 64,783 63,462
Cost of sales (17,896) (17,619)
Gross profit 46,887 45,843
Marketing and distribution costs (1,472) (1,732)
Contribution 45,415 44,111
Adjusted operating income and costs (pre sports betting investment) (36,102) (36,143)
Adjusted EBITDA pre sports betting investment 9,313 7,968
Sports betting investment (1,773) (1,428)
Adjusted EBITDA 7,540 6,540
Adjustment to prior year for IFRS 16 comparability purposes* – 1,748
7,540 8,288
*IFRS 16 transition requires that prior year numbers are not restated. The above figures for IFRS adjustments are for comparability purposes only. They
represent the 2019 lease rentals which would have been operating costs in 2019 if IFRS 16 had not been adopted, translated at 2018 exchange rates.
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Sports betting investment represents the time and cost the Group has incurred on seeking to secure a sports betting licence in
the State of Connecticut and also in seeking partnerships across the rest of the US in sports betting. It includes lobbying costs,
additional staff costs, travel and consultants, and also includes an allocation of senior management time. Of these costs, £699k
(2018: £508k) were external costs and £1,074k (2018: £920k) were internal (payroll and travel, of which £482k was in respect of
Executive Directors (2018: £350k)).
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
certain 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.
2019 2018
Continuing Continuing Discontinued Total
£000 £000 £000 £000
Adjusted EBITDA 7,540 6,540 175 6,715
Share option charge, excluding acceleration of charge for
departing management (676) (1,222) – (1,222)
Depreciation (4,597) (2,860) (93) (2,953)
Amortisation (excluding amortisation of acquired intangibles) (2,630) (1,917) – (1,917)
Net finance (costs)/income (excluding exceptional finance costs) (442) 18 (18) –
Adjusted (loss)/profit before tax (805) 559 64 623
Tax at 20.3% (2018: 22.7%) 164 (139)
Adjusted (loss)/profit after tax (641) 484
Adjustment to prior year for IFRS 16 comparability purposes* – (86)
(641) 398
*2018 adjustment includes increasing EBITDA by £1,748k for rentals, increasing depreciation by £1,401k and increasing interest by £433k, all in continuing
operations.
Adjusted profit before tax from continuing operations prior to sports betting investment of £1,773k (2018: £1,428k) is £968k
(2018: £1,987k).
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
2. SEGMENTAL REPORTING
Sportech Inter-
Racing Sportech Corporate segment
and Digital Venues costs elimination Group
2019 £000 £000 £000 £000 £000
Revenue from sale of goods 1,420 – – – 1,420
Revenue from Bump 50:50 2,002 – – – 2,002
Revenue from food and beverage sales – 4,395 – – 4,395
Revenue from rendering of services 33,103 24,431 – (568) 56,966
Total revenue 36,525 28,826 – (568) 64,783
Cost of sales (4,446) (14,018) – 568 (17,896)
Gross profit 32,079 14,808 – – 46,887
Marketing and distribution costs (648) (824) – – (1,472)
Contribution 31,431 13,984 – – 45,415
Adjusted net operating costs (note 1) (22,845) (11,756) (1,501) – (36,102)
Adjusted EBITDA (pre sports betting investment) 8,586 2,228 (1,501) – 9,313
Sports betting investment – (1,773) – – (1,773)
Adjusted EBITDA 8,586 455 (1,501) – 7,540
Share option charge, excluding acceleration of
charge for departing management – – (676) – (676)
Depreciation (2,396) (2,169) (32) – (4,597)
Profit on sale of property, plant and equipment 1 – – – 1
Amortisation (excluding amortisation of acquired
intangible assets) (2,388) – (242) – (2,630)
Segment result before amortisation of acquired
intangibles 3,803 (1,714) (2,451) – (362)
Acceleration of IFRS 2 charge for departing
management – – (746) – (746)
Amortisation of acquired intangibles (467) – – – (467)
Impairment of property, plant and equipment – (5,020) – – (5,020)
Exceptional costs (net) (137) (342) (661) – (1,140)
Operating profit/(loss) 3,199 (7,076) (3,858) – (7,735)
Net finance costs (695)
Loss before taxation (8,430)
Taxation (6,034)
Loss for the year (14,464)
Segment assets 107,143 27,697 12,749 (80,789) 66,800
Segment liabilities (37,147) (20,987) (51,478) 80,789 (28,823)
Other segment items
Capital expenditure – Intangible assets 2,602 – 46 – 2,648
Capital expenditure – Property, plant and equipment 971 198 – – 1,169
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Sportech Inter-
Racing and Sportech Corporate segment
2018 Digital Venues costs elimination Group
Restated £000 £000 £000 £000 £000
Revenue from sale of goods 1,770 – – (44) 1,726
Revenue from Bump 50:50 1,502 – – – 1,502
Revenue from food and beverage sales – 4,724 – – 4,724
Revenue from rendering of services 30,732 25,399 – (621) 55,510
Total revenue 34,004 30,123 – (665) 63,462
Cost of sales (3,991) (14,241) – 613 (17,619)
Gross profit 30,013 15,882 – (52) 45,843
Marketing and distribution costs (736) (996) – – (1,732)
Contribution 29,277 14,886 – (52) 44,111
Adjusted operating costs (note 1) (20,634) (13,473) (2,088) 52 (36,143)
Adjusted EBITDA 8,643 1,413 (2,088) – 7,968
Sports betting investment – (1,428) – – (1,428)
Adjusted EBITDA 8,643 (15) (2,088) – 6,540
Share option charge – — (1,222) – (1,222)
Depreciation (1,715) (1,115) (30) – (2,860)
Amortisation (1,743) – (174) – (1,917)
Segment result 5,185 (1,130) (3,514) – 541
Exceptional costs (2,214) (65) (1,174) – (3,453)
Operating profit/(loss) 2,971 (1,195) (4,688) – (2,912)
Net finance income 250
Loss before taxation (2,662)
Taxation (2,019)
Loss for the year – continuing operations (4,681)
Net profit from discontinued operations 1,822
Loss for the year (2,859)
Segment assets 102,967 28,815 16,196 (72,784) 75,194
Segment liabilities (37,007) (12,901) (45,921) 72,784 (23,045)
Other segment items
Capital expenditure – Intangible assets 3,095 – 11 – 3,106
Capital expenditure – Property, plant and equipment 1,529 398 – – 1,927
Information by geographical area
Revenues from
external customers Non-current assets
Restated
2019 2018 2019 2018
£000 £000 £000 £000
United Kingdom 4,784 4,271 792 1,038
North and South America 53,928 53,550 39,751 44,953
Europe 5,664 4,890 473 543
Other 407 751 – –
Total 64,783 63,462 41,016 46,534
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
3. EXPENSES BY NATURE
2019 2018
Note £000 £000
Cost of sales
Tote and track fees 11,124 11,261
F&B consumables 1,326 1,405
Betting and gaming duties and licences 824 738
Repairs and maintenance cost of sales 346 335
Ticket paper 871 888
Programs 498 498
Outsourced service costs 1,846 1,684
Cost of inventories sold, including provision for obsolete inventory 1,061 810
Total cost of sales 17,896 17,619
Marketing and distribution costs
Marketing 1,084 1,261
Vehicle costs 132 232
Freight 256 239
Total marketing and distribution costs 1,472 1,732
Operating costs
Staff costs – gross, excluding share option charges 28,052 27,532
Less amounts capitalised (2,034) (2,923)
Staff costs – net 26,018 24,609
Property costs 3,612 5,314
IT & Communications 1,341 1,355
Professional fees 4,833 4,391
Travel and entertaining 1,242 1,353
Banking transaction costs and FX 264 310
Provision for doubtful debts 18 32 (76)
Other costs 533 488
Adjusted operating costs 37,875 37,744
Share option charge, excluding exceptional accelerated charges 676 1,222
Acceleration of IFRS 2 charge for departing management 746 –
Depreciation 15,16 4,597 2,860
Profit on sale of property, plant and equipment 15 (1) –
Amortisation, excluding amortisation on acquired intangibles 14 2,630 1,917
Amortisation of acquired intangibles 14 467 –
Impairment of property, plant and equipment 15 5,020 –
Exceptional costs 4 1,230 3,453
Total operating costs 53,240 47,196
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4. EXCEPTIONAL ITEMS
Restated
2019 2018
Note £000 £000
Included in operating costs:
Redundancy and restructuring costs in respect of the rationalisation and modernisation
of the business 4(a) 314 1,178
Onerous contract provisions and other losses resulting from exit from Californian
operations 4(b) (184) (291)
Losses from Striders Sports Bar (S&S JV) 249 291
Corporate activity costs 81 –
Costs in relation to the Spot the Ball VAT refund 4(c) 15 205
Costs in relation to legacy tax disputes 4(d) (152) 111
Lot.to Systems Limited acquisition costs 51 –
One off start-up costs of new ventures, including new venue builds and joint ventures 4(e) 266 29
Costs in relation to exiting the Group’s interests in India 20 51
Impairment of contingent consideration in relation to NYX Gaming – 1,729
Legal costs in relation to intellectual property infringement law suit 4(g) – 150
UK defined benefit pension scheme buy-out 4(f) 570 –
1,230 3,453
Included in other income:
Settlement received in relation to IP infringement law suit, net of costs 4(g) (90) –
Included in finance costs:
Interest accrued on corporate tax potentially due and unpaid at the balance sheet date
on STB refund received in 2016 151 223
Net exceptional costs 1,291 3,676
*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 recorded a provision in 2017 against its contractual arrangements in the State of California, including a loss making
joint venture. The provision has been released in the year to the value of the liabilities provided for 2019 (see note 17 and
note 23). The expenses in excess of the provision have 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
Costs were incurred for tax advice in relation to treatment of the 2016 VAT refund for corporation tax purposes.
(d) Costs in relation to legacy tax disputes
The Group had received assessments for underpaid VAT in the holding Company, Sportech PLC. The Group settled the
disputed amounts in 2019 and a release from the provision was credited to the income statement of £250k, less fees incurred
with advisors to reach the settlement of £98k. This matter is now closed.
(e) One off start-up costs of new ventures, including new venue builds and joint ventures
The Group agreed a settlement in the year with the Landlord of a property in Connecticut whereby the Group was required to
fulfil a potential lease obligation where the Group decided against opening a venue in the location.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
(f) UK defined benefit scheme buy-out
The Trustees of the Sportech Pension Scheme entered into a contract with Just Retirement Limited (“Just”) on 28 March 2019
to insure the liabilities of the scheme. The Trustees and Just completed a full buy-out and winding up of the scheme in
December 2019. The policy cost was £2,450k which was paid utilising the assets in the scheme, which were valued at £2,216k
and an additional cash payment from the Company of £234k. The Company also paid all administrative, actuarial and legal
costs the Scheme incurred in the process. The Group now has no further future obligations in relation to the scheme.
Intellectual property (“IP”) infringement law suit
(g)
The Group believed its intellectual property in Datatote (England) Limited had been infringed and sought to prevent further
infringement and damages for lost revenues and costs incurred. The costs of defending this position were expensed as incurred
and a settlement of £250k was received in October 2019 and credited to operating income net of the costs incurred during the
year.
Below is a summary of exceptional cash (outflows)/inflows:
2019 2018
£000 £000
Exceptional cash outflows:
Redundancy and restructuring costs in respect of the rationalisation and
modernisation of the business (982) (1,332)
Expenses in relation to the UK defined benefit pension scheme “buy-out” (336) –
UK defined benefit pension scheme “buy-in” insurance contract purchased (234) –
Staff bonuses paid in relation to Football Pools disposal plus final costs paid – (307)
Acquisition costs in relation to Lot.to Systems Limited (51) –
Spot the Ball bonus paid to former Director and associated legal fees – (315)
Costs in relation to the Spot the Ball VAT refund (60) (73)
Costs in relation to legacy tax disputes (68) (111)
One off start-up costs of new ventures, including new venue builds and joint ventures — (32)
Costs in relation to the Group’s lease in Norco, California (70) –
Costs in relation to exiting the Group’s interests in India (20) –
Legal costs in relation to intellectual property infringement lawsuit – (150)
Total exceptional cash outflows (1,821) (2,320)
Exceptional cash inflows:
Cost settlement received from HMRC regarding Spot the Ball VAT refund – 487
Settlement received for alleged IP infringement, net of costs 90 —
Total exceptional cash inflows 90 487
5. EMPLOYMENT COSTS
Average number of monthly employees (full-time equivalents) including Executive Directors, excluding employees of
discontinued operations, comprised:
2019 2018
Number Number
Sales and marketing 17 15
Operations and distribution 479 499
Administration and management 32 28
Total employees 528 542
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Their aggregate remuneration comprised:
2019 2018
£000 £000
Wages and Salaries 22,684 21,538
Social security costs 3,732 3,764
Pension costs – defined contribution scheme (note 26) 411 177
Pension costs – defined benefit scheme (note 26) 191 97
Employee remuneration, excluding share option charges 27,018 25,576
Share option expense, including acceleration of IFRS 2 charge for departing management 1,422 1,222
Total remuneration 28,440 26,798
6. DIRECTORS AND KEY MANAGEMENT REMUNERATION
Directors Key management
2019 2018 2019 2018
£000 £000 £000 £000
Short-term employee benefits 978 714 1,067 752
Consultancy fees – 76 – 76
Share-based payments 149 388 149 388
Accelerated IFRS 2 charge for departing management 706 – 706 –
Pay in lieu of notice 296 – 296 –
Post-employment benefits 2 5 2 5
Total remuneration 2,131 1,183 2,220 1,221
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration report on pages
53 to 57. This information forms part of the financial statements. Retirement benefits are accruing under defined benefit pension
schemes for nil Directors (2018: nil). One Director exercised share options in the year (2018: 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 page 54. Consultancy fees of
£100k in 2018, paid to Richard McGuire are included in short-term employee benefits.
7. AUDITOR REMUNERATION
Fees paid to the Auditors of the consolidated financial statements during the period comprise:
2019 2018
£000 £000
Audit fees – previous auditor 63 294
Audit fees – current auditor 269 –
Corporate finance services – current auditor 50 –
Other assurance services 11 –
Total fees 393 294
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
8. NET FINANCE COSTS
Restated
2019 2018
£000 £000
Finance costs:
Interest payable on bank loans, derivative financial instruments and overdrafts – (22)
Interest accrued on corporation tax liabilities (151) (223)
Interest on lease obligations (note 24) (480) –
Interest on defined benefit pension obligation (net) (note 26) (25) (45)
Foreign exchange loss on financial assets and liabilities denominated in foreign currency (78) –
Unwinding of interest on discounted provisions (note 23) (24) –
Total finance costs (758) (290)
Finance income:
Interest received on bank deposits 63 85
Foreign exchange gain on financial assets and liabilities denominated in foreign currency — 363
Unwinding of interest on discounted non-current balances — 92
Total finance income 63 540
Net finance (costs)/income (695) 250
Of the above amounts the following have been excluded for the purposes of deriving the alternative performance measures in
note 1.
2019 2018
£000 £000
Foreign exchange (loss)/gain on financial assets and liabilities denominated in foreign currency (78) 363
Interest accrued on corporation tax liabilities (151) (223)
Unwinding of interest on discounted provisions (note 23) (24) –
Unwinding of interest on discounted non-current balances — 92
(253) 232
9. TAXATION
The Group’s tax charge from continuing operations comprises:
2019 2018
£000 £000
Current tax:
Current tax on profit for the year 1,115 1,977
Adjustments in respect of prior years 136 (570)
Total current tax 1,251 1,407
Deferred tax:
Origination and reversal of temporary differences (1,509) (1,089)
Effect of changes in tax rates 1 53
Adjustments in respect of prior years 104 (13)
Derecognition of previously recognised deferred tax assets 6,187 1,661
Total deferred tax 4,783 612
Total tax charge 6,034 2,019
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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:
Restated
2019 2018
£000 £000
Loss before tax (8,430) (2,662)
Tax calculated at domestic tax rates applicable to (losses)/profits in the respective countries (1,762) (570)
Tax effects of:
– expenses not deductible for tax purposes net of income not taxable 1,382 1,562
– effect of changes in tax rates 1 53
– adjustments in respect of prior years – current tax 136 (570)
– adjustments in respect of prior years – deferred tax 104 (13)
– deferred tax not previously provided (14) (104)
– derecognition of previously recognised deferred tax assets 6,187 1,661
Total tax charge 6,034 2,019
Included within expenses not deductible for tax purposes net of income not taxable 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 were revalued downwards by £6,187k in 2019 (2018: £1,661k, predominantly foreign taxes paid in the
Dominican Republic), following a review of recoverability. Group cashflow forecasts were used and any assets not showing as
recoverable within five years were considered not recoverable and a valuation allowance was charged to the income statement.
These financial statements account for the change in the UK Corporation Tax rate from 19% to 17% for financial years beginning
1 April 2020 based on enacted legislation. 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%. The
group notes that the UK corporation tax cut to 17% has been cancelled and will account for this when it is substantively
enacted.
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 and the treatment of the disposal of the trade and
assets of the Football Pools division in 2017. The provision for the tax on the disposal of the Football Pools division has been
reduced in the second half of the year and is therefore a change in estimate from what was determined as at 30 June 2019.
An analysis of the current tax liabilities is as follows:
2019 2018
Note £000 £000
At 1 January 6,563 7,106
Release of provision – transition to IFRIC 23 (1,562) –
5,001 7,106
Charged to the income statement 1,251 1,407
Paid during the year (1,356) (2,029)
Acquired with subsidiary 10 3 –
Foreign exchange movements (19) 79
At 31 December 4,880 6,563
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
10. 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 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 also helps 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 which has developed turn-key solutions. 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.
Goodwill arising on the acquisition amounted to £604k and is determined to be knowledge and expertise of the workforce.
The following table summarises the fair value of consideration paid for Lot.to and the amounts of the assets acquired and
liabilities assumed recognised at acquisition date.
2019
Fair value of consideration at 1 February 2019 Note £000
Ordinary shares in Sportech PLC (2,000,000 shares at 35.7p*) 29 714
Repayment of shareholder loan 25 1,300
Total fair value of consideration transferred 2,014
Recognised fair value of identifiable assets acquired and liabilities assumed
Intangible fixed assets – software 14 1,377
Intangible fixed assets – licences 14 150
Tangible fixed assets – fixtures and fittings 15 1
Cash at bank and in hand 71
Trade and other receivables 99
Trade and other payables (14)
Corporation tax liability 9 (3)
Deferred tax on acquired intangibles 19 (271)
Total identifiable net assets 1,410
Goodwill 13 604
Total fair value of consideration transferred 2,014
*Share price of the Company on 1 February 2019.
The valuation of software intangible assets was determined by reference to cost of development incurred to the date of
acquisition plus a mark up of 30%. The valuation of licences intangible assets was determined by reference to external advisory
costs expected to be incurred to obtain the licence again.
There was no contingent consideration payable. The shareholder loan was agreed to be repaid in three instalments of £300k on
completion date, £500k by 31 March 2019 and £500k by 31 December 2019. The final instalment was subsequently mutually
agreed to be paid on 2 January 2020.
Acquisition costs amounted to £51k and have been recognised as an expense in the consolidated income statement as an
exceptional item (see note 4).
No contingent liabilities have been recognised as at the acquisition date.
Lot.to has contributed revenues of £570k and a loss after tax of £540k to the Group results from the acquisition date to
31 December 2019. Had the acquisition occurred on 1 January 2019, the Group’s revenue for the period ended 31 December
2019 would have been £64,792k and the Group’s loss for the period would have been £14,528k. These amounts have been
determined by applying the Group’s accounting policies and adjusting the results of Lot.to to reflect additional amortisation that
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would have been charged, assuming the fair value adjustments to intangible assets had been applied from 1 January 2019.
Lot.to’s loss after tax for the period 1 February 2019 to 31 December 2019 excluding amortisation of acquired intangibles net of
deferred tax was £162k and for the period prior to acquisition from 1 January 2019 was a profit after tax of £7k.
The premium on the shares issued in Sportech PLC of £314k is recorded as a merger reserve in Other reserves.
11. DISCONTINUED OPERATIONS
Results from discontinued operations in the prior year 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”), disposed of in July
2018.
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.
A reconciliation of the net (loss)/profit on discontinued operations is shown below.
2019 2018
FP Holland* Total FP* Holland Total
£000 £000 £000 £000 £000 £000
Revenue – – – – 3,065 3,065
Cost of sales, marketing and distribution and adjusted
operating expenses – – – 78 (2,968) (2,890)
Adjusted EBITDA – – – 78 97 175
Depreciation and amortisation – – – – (93) (93)
Exceptional items – – – – (461) (461)
Finance costs – – – – (18) (18)
Profit/(loss) before tax – – – 78 (475) (397)
Tax, excluding tax arising on disposal – – – (169) – (169)
Loss after tax – – – (91) (475) (566)
Gain on disposal (note 11a) – – – 59 2,329 2,388
Net result from discontinued operations – – – (32) 1,854 1,822
*Holland results for 2018 are to the date of disposal of 26 July 2018.
Exceptional costs incurred in the prior period by Sportech Holland were redundancy and restructuring costs in respect of a
rationalisation of this business.
For Football Pools: £78k of income in the prior period related to a £115k release of a provision no longer required, net of £37k of
costs incurred in the year. 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.
No further costs are expected going forward within either of these legacy divisions.
105
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
11a) Net gain/(loss) on disposal
FP Holland Total
2018 2018 2018
£000 £000 £000
Consideration, net of working capital adjustments 73 3,007 3,080
Net assets disposed of – (318) (318)
Goodwill relating to the Football Pools division – – –
Transaction costs incurred in the year – (360) (360)
Pre-tax gain/(loss) on disposal 73 2,329 2,402
Tax arising on disposal (14) – (14)
Gain/(loss) on disposal 59 2,329 2,388
At 31 December 2017, £202k was accrued as a receivable from Op Capita, the acquirers of The Football Pools. During 2018,
an amount of £275k was agreed as payable (and was paid in December 2018), and therefore further consideration of £73k was
credited to the income statement as gain on disposal. The additional proceeds were taxed at 19%.
Of the consideration receivable for Sportech Racing BV, £2,692k was received in cash during the prior year and £314k was
recorded as contingent consideration receivable and was received in January 2019. Transaction costs of £78k were also paid in
January 2019, the rest having been settled in cash in 2018. No tax was payable on the disposal of Sportech Racing BV as
Substantial Shareholder Relief was being applied.
12. EARNINGS PER SHARE
(a) Basic
Basic earnings per share is calculated by dividing the (loss)/profit attributable to equity holders of the Parent Company by the
weighted average number of ordinary shares in issue during the year.
2019 2018
Restated Restated
Total Continuing Discontinued Total
£000 £000 £000 £000
(Loss)/profit attributable to the owners of the Company (14,464) (4,681) 1,822 (2,859)
Weighted average number of ordinary shares in issue (’000) 188,543 186,393 186,393 186,393
Basic (loss)/earnings per share (7.7)p (2.5)p 1.0p (1.5)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.
2019 2018
Restated Restated
Total Continuing Discontinued Total
£000 £000 £000 £000
(Loss)/profit attributable to the owners of the Company (14,464) (4,681) 1,822 (2,859)
Weighted average number of ordinary shares in issue (’000) 188,543 186,393 186,393 186,393
Dilutive potential ordinary shares N/A N/A – N/A
Total potential ordinary shares 188,543 186,393 186,393 186,393
Diluted (loss)/earnings per share (7.7)p (2.5)p 1.0p (1.5)p
The number of potentially dilutive shares not taken into account in respect of the VCP is 5 million, this represents the limit on the
number of shares which can settle any vesting of the 2017 VCP. In addition, in 2018 there were 2,037,000 share options
outstanding under the PSP which were not considered dilutive.
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Adjusted
c)
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.
2019 2018
Weighted Weighted
Adjusted average Adjusted average
Loss number of Per share Profit number of Per share
after tax shares amount after tax shares amount
£000 £000 Pence £000 £000 Pence
Basic adjusted EPS (641) 188,543 (0.3)p 484 186,393 0.3p
Diluted adjusted EPS (641) 188,543 (0.3)p 484 186,393 0.3p
13. GOODWILL
Goodwill brought forward arose on a historic acquisition made by the Group of eBet Online, Inc. in December 2012 of £5.5m.
The goodwill is in the Sportech Racing division. The goodwill was impaired in full in 2016 following an impairment review.
Goodwill arose during the year on the acquisition of Lot.to Systems Limited on 1 February 2019. The goodwill is in the Sportech
Racing division and is attributable to the knowledge and expertise of the workforce.
Movements in the Group’s goodwill are shown below:
2019 2018
eBet Lot.to eBet
Online Systems Total Online
£000 £000 £000 £000
Cost
At 1 January 5,548 – 5,548 5,548
Addition – Lot.to Systems Limited — 604 604 –
At 31 December 2019 5,548 604 6,152 5,548
Accumulated impairment charges
At 1 January and 31 December (5,548) – (5,548) (5,548)
Closing net book value – 604 604 –
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
14. INTANGIBLE FIXED ASSETS
Customer
contracts and
relationships Software Licences Other Total
2019 £000 £000 £000 £000 £000
Cost
At 1 January 2019 862 32,870 16,874 2,792 53,398
Additions – 2,480 – 168 2,648
Acquired with subsidiary – 1,377 150 – 1,527
Transferred from property, plant and equipment – 831 – – 831
At 31 December 2019 862 37,558 17,024 2,960 58,404
Accumulated amortisation
At 1 January 2019 862 26,992 13,133 3,609 44,596
Charge for year – 2,946 45 106 3,097
At 31 December 2019 862 29,938 13,178 3,715 47,693
Exchange differences at 1 January 2019 – 1,447 2,225 1,077 4,749
Movement in the year – (289) (236) – (525)
Exchange differences at 31 December 2019 – 1,158 1,989 1,077 4,224
Net book amount at 31 December 2019 – 8,778 5,835 322 14,935
Of the amounts capitalised in the year in continuing operations, £2,034k arose from capitalising staff costs for development
expenditure (2018: £2,923k). Amortisation has been included within operating costs. The Group undertook a review of its assets
registers during the year and concluded that certain transfers between asset categories was required in order to correctly define
the nature of each asset and the associated accumulated depreciation.
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
£5,730k ($7,569k, 2018: £5,966k, $7,569k). 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 2019. In testing for impairment, other assets
used solely to generate cash flows in the Venues CGU are also included (post impairment identified in the year), totalling
£8,756k, $11,567k (2018: £15,180k, $19,261k).
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 8.0% in 2020 and 5.0% per
annum thereafter and 1.0% decline into perpetuity;
9.9% increase in online handle in 2020, 3% in 2021, 2% in 2022 and 2023 and 2% into perpetuity;
Handle at our Stamford venue is assumed to remain flat through the period to 2023 and into perpetuity;
a 3.1% increase in core F&B revenues, which excludes the Stamford venue, in 2020 and then declines of 6.0% in 2021,
0.9% in 2022 and 2023 and thereafter stable revenues into perpetuity;
F&B revenues at the Stamford venue are forecasted to increase by 12.6% in 2020 and remain flat thereafter to 2023 and
then grow 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
–
–
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–
–
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a post-tax discount rate of 9.5% (2018: 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 13.3% (2018: 12.0%).
The above assumptions are together considered by management to be the most likely trading performance outcome for the
CGU, having taken into account past experience and knowledge of the future trading environment.
Following the impairment review, the recoverable amount of those assets was deemed to be £15,137k and accordingly no
impairment was identified (2018: no impairment).
The below assumptions represent a reasonable downside case for sensitivity purposes and value the CGU at £5,214k, being an
impairment of £9,272k 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 £3,542k.
–
–
–
–
in 2020, extra income from enforcement of online exclusivity in Connecticut is only realised to 50% of expectation;
core handle remains the same in 2020 but declines by a further 5% each year from 2021 to 2023, but remains at 1%
decline into perpetuity;
opex savings in the plan are not achieved and restructuring savings are only 50% achieved; and
Stamford food and beverage revenue remains flat at 2019 levels through to 2023 but continues to grow 2% into perpetuity.
For information, if a 1% increase in the post-tax discount rate to 10.5% was used in the Base Case model this would lead to an
impairment of £888k or an impairment of £9,697k in the downside case.
Customer
contracts and
relationships Software Licences Other Total
2018 £000 £000 £000 £000 £000
Cost
At 1 January 2018 862 29,893 16,874 2,663 50,292
Additions – 2,977 – 129 3,106
At 31 December 2018 862 32,870 16,874 2,792 53,398
Accumulated amortisation
At 1 January 2018 862 25,142 13,133 3,542 42,679
Charge for year – continuing operations – 1,850 – 67 1,917
At 31 December 2018 862 26,992 13,133 3,609 44,596
Exchange differences at 1 January 2018 – 1,075 1,862 1,079 4,016
Movement in the year – 372 363 (2) 733
Exchange differences at 31 December 2018 – 1,447 2,225 1,077 4,749
Net book amount at 31 December 2018 – 7,325 5,966 260 13,551
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
15. PROPERTY, PLANT AND EQUIPMENT
Long
Short leasehold Assets
leasehold and owned Fixtures in the
land and land and Plant and and course of
buildings buildings machinery fittings construction Total
2019 £000 £000 £000 £000 £000 £000
Cost
At 1 January 2019 246 16,249 10,952 5,323 1,016 33,786
Additions – – 931 200 38 1,169
Acquired with subsidiary – – – 1 – 1
Disposal – – (29) – (709) (738)
Transfer 53 25 (69) (101) (271) (363)
At 31 December 2019 299 16,274 11,785 5,423 74 33,855
Accumulated depreciation
At 1 January 2019 139 5,517 2,231 3,788 709 12,384
Charge for year 23 549 2,058 575 – 3,205
Disposal – – (29) – (709) (738)
Transfer – 72 – (138) – (66)
Impairment – 5,020 – – – 5,020
At 31 December 2019 162 11,158 4,260 4,225 – 19,805
Exchange differences at 1 January 2019 36 2,326 1,470 494 609 4,935
Movement in the year (7) (352) (272) (69) (609) (1,309)
Exchange differences at
31 December 2019 29 1,974 1,198 425 – 3,626
Net book amount at
31 December 2019 166 7,090 8,723 1,623 74 17,676
Proceeds from assets disposed of were £1k, generating a profit on sale of £1k. Depreciation charges have been included in
operating costs. The Group undertook a review of its assets registers during the year and concluded that certain transfers
between asset categories was required in order to correctly define the nature of each asset and the associated accumulated
depreciation.
Impairment
Management considered that indicators of impairment of assets at the Stamford sports bar venue in Connecticut, USA had
arisen during the year, based on its trading performance, and therefore an impairment test was carried out to determine the
value-in-use of the assets at the venue. The carrying value of the assets at 31 December 2019, prior to any impairment was
£7,460k ($9,854k). The following key assumptions were made in the value-in-use calculation, which were also used in the
impairment test for the Venues CGU (note 14):
Handle is assumed to remain flat through the period at 2019 levels to 2023 and into perpetuity;
F&B revenues are forecasted to increase by 12.6% in 2020 and remain flat thereafter to 2023 and then grow by 2% into
perpetuity;
capital expenditure is included in the cash flows at management’s best estimate of industry norm for reinvestment in similar
retail outlets; and
a post-tax discount rate of 9.5% (2018: 9.1%) was used representing a market-based weighted average cost of capital
appropriate for the Sportech Venues CGU.
–
–
–
–
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Following the impairment review, the recoverable amount of those assets was deemed to be £2,582k ($3,411k) and accordingly
an impairment of £5,020k ($6,443k) was identified and has been charged to the income statement within operating costs.
The below assumptions represent a reasonable possible change in assumptions used for a downside case and value the assets
at £1,809k ($2,390k), being a further impairment of £773k ($1,021k), to the carrying value of the assets.
–
Food and beverage revenue growth remains flat at 2019 levels until 2023 but continues to grow 2% into perpetuity.
Long
Short leasehold Assets
leasehold and owned Fixtures in the
land and land and Plant and and course of
buildings buildings machinery fittings construction Total
2018 £000 £000 £000 £000 £000 £000
Cost
At 1 January 2018 246 16,018 9,867 5,095 643 31,869
Additions – – 1,058 2 867 1,927
Disposals – – (10) – – (10)
Transfer – 231 37 226 (494) –
At 31 December 2018 246 16,249 10,952 5,323 1,016 33,786
Accumulated depreciation
At 1 January 2018 119 5,005 472 3,229 709 9,534
Charge for year 20 512 1,769 559 – 2,860
Disposals – discontinued operations – – (10) – – (10)
At 31 December 2018 139 5,517 2,231 3,788 709 12,384
Exchange differences at 1 January 2018 27 1,538 992 377 436 3,370
Movement in the year 9 788 478 117 173 1,565
Exchange differences at 31 December 2018 36 2,326 1,470 494 609 4,935
Net book amount at 31 December 2018 143 13,058 10,191 2,029 916 26,337
16. RIGHT-OF-USE ASSETS
Short Long
leasehold leasehold
land and and owned Fixtures and
buildings land buildings Vehicles fittings Total
2019 £000 £000 £000 £000 £000
Cost
At 1 January 2019 – on transition to IFRS 16 2,685 4,987 237 26 7,935
Additions 26 – – 14 40
At 31 December 2019 2,711 4,987 237 40 7,975
Accumulated depreciation
Charge for year 941 341 97 13 1,392
At 31 December 2019 941 341 97 13 1,392
Exchange differences arising during the year (74) (189) (6) (2) (271)
Net book amount at 31 December 2019 1,696 4,457 134 25 6,312
Depreciation charges have been included in operating costs.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
17. 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 2017 and ceased trading in December 2019.
a) Movements in the Group’s net investment in joint ventures and associates
2019 2018
S&S Venues Total S&S Venues Total
£000 £000 £000 £000
At 1 January – – – –
Additions 184 184 291 291
Income statement items:
Impairment – – (44) (44)
Share of loss after tax (1,213) (1,213) (247) (247)
Restriction of losses recognised 1,029 1,029 – –
Net income statement charge (see below) (184) (184) (291) (291)
Exchange differences – – – –
At 31 December – – – –
The share of loss after tax (restricted to the level of investment made) of the S&S Venues joint venture has been charged to
exceptional costs (see note 4), given the movement in provision for onerous contracts in relation to this joint venture, equivalent
to the losses incurred, has been released to exceptional costs, the original provision having been recorded through exceptional
costs in 2017.
Capital commitments and future obligations
b)
Sportech Venues Inc. is a guarantor for certain future obligations of S&S Venues California LLC. As the Group had decided to
exit California those commitments have been provided for in full. See note 23 for further details.
Summarised financial information of joint venture investments held at the reporting date
c)
Summarised financial information of the Striders bar in San Diego is presented as below:
2019 2018
£000 £000
Non-current assets 401 1,901
Current assets 68 133
Total assets 469 2,034
Current liabilities (205) (72)
Non-current liabilities (684) –
Total liabilities (889) (72)
Net (liabilities)/assets (420) 1,962
Revenue 603 607
Expenses (3,029) (1,102)
Loss for the year (2,426) (495)
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18. TRADE AND OTHER RECEIVABLES
2019 2018
£000 £000
Non-current
Trade receivables 877 1,041
Less provision for impairment of receivables (566) (589)
Trade receivables – net 311 452
Other receivables 188 215
Non-current trade and other receivables 499 667
Current
Trade receivables 5,712 6,292
Less provision for impairment of receivables (309) (980)
Trade receivables – net 5,403 5,312
Other receivables 834 1,644
Accrued income 363 177
Prepayments 1,003 1,036
Current trade and other receivables 7,603 8,169
Total trade and other receivables 8,102 8,836
The fair value of trade and other receivables is not considered to be different from the carrying value recorded above.
Movements in the provision for impairment of receivables in the year is shown below:
2019 2018
£000 £000
At 1 January 1,569 1,606
(Charged)/released to the income statement 32 (76)
Utilisation of provision (720) (34)
Foreign exchange movements (6) 73
At 31 December 875 1,569
The carrying amounts of trade and other receivables are denominated in the following currencies:
2019 2018
£000 £000
Sterling 1,562 1,092
US Dollar 5,601 5,689
Euro 415 1,582
Other 524 473
Total 8,102 8,836
Trade receivables that are not more than three months past due are not considered impaired. As at 31 December 2019, £956k
(2018: £1,041k) of trade receivables were more than three months past due and not impaired. Management also considers that
these receivables are recoverable in full.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
19. DEFERRED TAX
The movement on the net deferred tax balance is as follows:
Asset Liability Net
2019 2019 2019 2018
Note £000 £000 £000 £000
Net deferred tax asset at 1 January 5,979 – 5,979 6,406
Transition to IFRS 16 (146) – (146) –
Income statement (debit)/credit – continuing operations 9 (4,872) 89 (4,783) (612)
Income statement debit – discontinued operations – – – (175)
Business combination 10 – (271) (271) –
Tax credited/(debited) directly to other comprehensive
income 117 – 117 (83)
Exchange differences (88) – (88) 443
Net deferred tax asset at 31 December 990 (182) 808 5,979
Included in:
Non-current assets 990 – 990 5,979
Current liabilities – (89) (89) –
Non-current liabilities – (93) (93) –
990 (182) 808 5,979
Deferred tax assets
Losses and Other
Capital foreign tax temporary
Pension allowances credits differences Total
£000 £000 £000 £000 £000
At 1 January 2018 397 939 3,810 1,260 6,406
Income statement (charge)/credit (112) (161) (712) 198 (787)
Tax debited directly to other comprehensive income (83) – – – (83)
Currency translation differences 24 51 213 155 443
At 31 December 2018 226 829 3,311 1,613 5,979
Transition to IFRS 16 – – – (146) (146)
Income statement charge (341) (808) (3,236) (487) (4,872)
Tax credited directly to other comprehensive income 117 – – – 117
Currency translation differences (2) 12 (75) (23) (88)
At 31 December 2019 – 33 – 957 990
In addition to the deferred tax asset which has been recognised, the Group has not recognised further deferred tax assets on
gross timing differences of: £26,143k (2018: £12,924k) arising from unutilised trading losses and carried forward foreign tax
credits; £1,060k from pension timing differences; £6,230k from capital tax allowances versus accounting charges; and £3,019k
from other short term timing differences. The Directors reviewed the recoverability of the deferred tax assets in the US during the
year and did not consider there is sufficient certainty of future profits against which these losses/credits which could be offset
due to expected future profit generation levels in this particular business units. The increase in the deferred tax assets not
recognised is due to this derecognition.
Deferred tax assets are recognised when it is probable that future taxable profits will be generated against which assets can be
utilised.
All deferred tax is expected to unwind in more than one year’s time.
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Deferred tax liabilities
Other
temporary
differences Total
Note £000 £000
At 1 January 2018 and 2019 – –
Business combination 10 (271) (271)
Income statement credit 89 89
At 31 December 2019 (182) (182)
The deferred tax liability was recognised on the acquisition of Lot.to Systems Limited, in relation to intangible assets identified.
£89k will unwind within one year and £93k in more than one year.
20. INVENTORIES
2019 2018
£000 £000
Work in progress 70 103
Spare parts 2,329 2,217
Finished goods 217 256
2,616 2,576
The cost of inventories recognised as an expense and included in cost of sales amounted to £1,061k for terminal inventory and
£1,326k for food and beverage inventory (2018: £810k and £1,405k respectively). Food and beverage inventory is included in
finished goods. Provisions for obsolescence held against inventories at 31 December 2019 amounted to £455k (2018: £286k).
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.
21. CASH AND CASH EQUIVALENTS
2019 2018
Note £000 £000
Cash and short-term deposits 12,985 14,728
Customer funds 22 2,580 3,187
15,565 17,915
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 £2,580k (2018: £3,187k) are held on behalf of customers in respect of certain online and telephone betting
activities (amounts deposited by telephone betting customers in Connecticut, USA are held in separate accounts). The
corresponding liability is included within trade and other payables (see note 22).
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
22. TRADE AND OTHER PAYABLES
Restated
2019 2018
Note £000 £000
Trade payables 6,083 4,018
Other taxes and social security costs 327 113
Accruals 3,519 5,605
Deferred income 344 246
Player liability 21 2,580 3,187
12,853 13,169
There is no difference between book values and fair values of trade and other payables. All amounts are due within one year.
23. PROVISIONS
Onerous Other
contracts Provisions Total
£000 £000 £000
At 1 January 2018 2,514 112 2,626
Utilised during the year (96) – (96)
Credit to the income statement – share of loss of JV (291) – (291)
Expense discount interest to the income statement 22 – 22
Currency differences 143 7 150
At 31 December 2018 2,292 119 2,411
Derecognition on transition to IFRS 16 (214) – (214)
Utilised during the year (247) – (247)
Credit to the income statement – share of loss of JV (184) – (184)
Release to the income statement – (109) (109)
Expense discount interest to the income statement 24 – 24
Currency differences (74) (2) (76)
At 31 December 2019 1,597 8 1,605
Of which:
Current provisions 579 – 579
Non-current provisions 1,018 8 1,026
1,597 8 1,605
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.
The Group has a number of committed financial obligations with its joint venture in California. The amounts provided for
represent management’s best estimate based on scenario analysis of what the Group is expecting to pay to settle the liabilities.
Management has estimated the expected liability for each site which is likely to be incurred. Actual liabilities could differ from
management’s expectations.
The release of these provisions, as costs are settled, will be credited to exceptional costs to net against the investments made in
the JV which will be charged to the same line in the income statement.
On transition to IFRS 16, provisions for onerous leases have been derecognised and replaced by lease liabilities.
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24. LEASE LIABILITIES
2019
Maturity analysis – contractual undiscounted cashflows £000
Less than one year 1,685
Between 2 and 5 years 3,715
More than 5 years 5,423
Total 10,823
The weighted average incremental borrowing rate applied to the lease liabilities was 5.75%, lowest rate being 2.75% and
highest rate of 8.45%.
2019
Lease liabilities included in the balance sheet £000
Current 843
Non-current 6,881
Total 7,724
2019
Movement in lease liability during the year £000
At 1 January 2019 – on transition to IFRS 16 9,445
Interest charged to the income statement 480
Lease rentals paid (1,879)
Movement as a result of foreign exchange (322)
Total 7,724
25. FINANCIAL LIABILITIES
2019 2018
£000 £000
Deferred consideration due within one year, recognised within:
Current liabilities 500 –
Non-current liabilities – –
500 –
Deferred consideration outstanding at the balance sheet date represented amounts due for the acquisition of Lot.to Systems
Limited. The amount was paid in full in January 2020.
Movements on this financial liability in the year are as below:
2019 2018
£000 £000
At 1 January – 175
Deferred consideration arising 1,300 –
Instalment payments made (800) (167)
Currency movements – (8)
At 31 December 500 –
Prior year opening contingent consideration related to earn out amounts for Bump (Worldwide) Inc.
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
26. PENSION SCHEMES
The Group operates defined contribution schemes, and up until its buy-out and dissolution in December 2019, a funded defined
benefit scheme in the UK. Datatote and Lot.to employees contribute to a separate defined contribution scheme to that of
Sportech PLC employees. The Group operates a further funded defined benefit scheme in the US, two defined contribution
schemes in the US and a defined contribution scheme in Ireland.
Summary of pension contributions paid
2019 2018
£000 £000
Defined contribution scheme contributions 411 177
Defined benefit scheme contributions 755 692
Total pension contributions 1,166 869
Defined contribution schemes
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 makes contributions to a limit of
50% of the first 6% of participant contributions.
For employees in Ireland (of which there are 13), 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 2017, the defined benefit pension scheme was
retained by Sportech.
The scheme was formed on 6 April 2001 and was governed by a Definitive Trust Deed and Rules. It was a Registered Pension
Scheme under Chapter 2 of Part 4 of the Finance Act 2004. The scheme was contracted out of the State Second Pension
Scheme and was not open to new members. The assets of this scheme were held in an independent Trustee administered
fund. In March 2019, the Group agreed a buy-in of the scheme with Just Financial Services and the buy-out was completed in
November 2019 and as such the scheme was dissolved in December 2019.
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:
2019 2018
US UK Total US UK Total
£000 £000 £000 £000 £000 £000
Fair value of plan assets 3,687 – 3,687 3,652 2,168 5,820
Present value of the schemes’ liabilities (4,766) – (4,766) (4,583) (2,139) (6,722)
Deficit in the schemes (1,079) – (1,079) (931) 29 (902)
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 £126k (2018: £15k), and will be settled by the Group in
2020.
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The figures below have been determined by qualified actuaries at the balance sheet date using the following assumptions:
US UK US UK
2019 2019* 2018 2018
Discount rate 3.25% 1.9% 4.25% 2.7%
Rate of increase in salaries N/A 3.3% N/A 3.5%
Rate of inflation N/A 3.3% N/A 3.5%
Mortality table Pri-2012 Total S2NxA RP-2014 S2NxA
Dataset CMI 2018 Total Dataset CMI 2017
(Employee/ projections Adjusted to projections
Retiree) with 1.5% per 2006 with 1.5% per
Scale MP- annum long- Scale MP- annum long-
2019 term rate of 2018 term rate of
improvement improvement
* At date of buy-out.
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:
Present Fair
value of value of
obligation plan asset Total
£000 £000 £000
At 1 January 2019 6,722 (5,820) 902
Income statement expense/(income):
– Current service cost 191 – 191
– Interest expense/(income) 232 (207) 25
– Administrative expenses – 77 77
423 (130) 293
Remeasurements:
– Currency exchange movements (203) 161 (42)
– Loss/(gain) from change in actuarial assumptions 446 (47) 399
243 114 357
Curtailments (2,160) 2,442 282
Contributions:
– Employer’s – (755) (755)
Payments from plans:
– Benefit payments (462) 462 –
At 31 December 2019 4,766 (3,687) 1,079
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
Present Fair
value of value of
obligation plan asset Total
£000 £000 £000
At 1 January 2018 6,778 (5,241) 1,537
Income statement expense/(income):
– Current service cost 97 – 97
– Interest expense/(income) 217 (172) 45
– Administrative expenses – 136 136
314 (36) 278
Remeasurements:
– Currency exchange movements 289 (195) 94
– (Gain)/loss from change in actuarial assumptions (433) 118 (315)
(144) (77) (221)
Contributions:
– Employer’s – (692) (692)
Payments from plans:
– Benefit payments (226) 226 –
At 31 December 2018 6,722 (5,820) 902
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 £10k.
For the US, if the discount rate were to be increased to 3.75% the liabilities would decrease by £205k.
Future commitments – employer contributions
The expected employer annual contributions to the schemes for the financial year ending 31 December 2020 amount to £454k
(year ended 31 December 2019: £528k).
Future commitments – benefit payments
Estimated future benefit payments for the next ten fiscal years for the US scheme are:
Less than 1 and 2 2 and 5 Over 5
a year years years years Total
£000 £000 £000 £000 £000
US pension scheme 590 464 932 6,796 8,782
The weighted average duration of the US scheme is approximately 9.8 years (2018: 8.4 years).
Pension risks
Through its defined benefit pension plans, the Group is exposed to a number of risks, however now the UK plan is dissolved,
the Group is no longer subjected to inflation risk as benefits for members of the US scheme are fixed and funds are invested in a
guaranteed return investment. The remaining significant risks are detailed below:
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to the Pru Above Mean Curve; if plan assets
underperform this yield, this will create a deficit. The US pension scheme assets are invested in a guaranteed return fund. The
plan purchases annuities under the GR-03607 contract at retirement. Under this contract, annuities are purchase based on a
table of fixed factors that are not subject to the rate environment at retirement, which removes volatility and risk on asset values.
Changes in the Pru Above Mean Curve
A decrease in the Above Mean Curve will increase plan liabilities.
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Life expectancy
The plan’s 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.
27. 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 and is influenced
mainly by the individual characteristics of each customer. However, management also considers the factors that may influence
the credit risk of its customer base, including the default risk associated with the industry, country in which customers operate.
Credit risk is managed locally by assessing the creditworthiness of each new customer before agreeing payment and delivery
terms.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on
shared credit risk characteristics and the days past due. The expected loss rates are based on annual revenue and the
corresponding historical credit losses experienced over the past five years as annual percentages. On that basis, no loss
allowance as at 31 December 2019 and 1 January 2019 (on adoption of IFRS 9) was determined other than specific provisions
for bad debts in trade receivables.
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.
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 2019, there were no outstanding
commitments on foreign exchange forward contracts (2018: none). The Group did not enter into any forward contracts during
the year (2018: the Group did not enter into any forward contracts).
The functional currencies of the individual entities in the Group is kept under review.
The average rate for the US Dollar and Euro in both the current and previous reporting period are as outlined below.
2019 2018
Average Closing Average Closing
US Dollars 1.27 1.32 1.33 1.27
Euro 1.14 1.18 1.13 1.11
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
If the exchange rates in 2019 were comparable to those in 2018, loss after tax would have been £11,426k and the net assets
would have been £44,480k at 31 December 2019.
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.
Financial assets and liabilities
At each reporting date, the Group had the following categories of financial assets and liabilities:
Restated
2019 2018
£000 £000
Financial assets measured at amortised cost 7,099 7,800
Financial liabilities measured at amortised cost (13,009) (12,924)
Maturity of financial liabilities
Except for lease obligations (see note 24) all non-derivative financial liabilities are all payable within twelve months.
28. 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
2018 presentation under IAS 17 Leases: 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.
2019 presentation under IFRS 16 Leases: The Group includes all leases on balance sheet as Right-of-use assets with a
corresponding lease liability, other than leases which are short leases (terms of 12 months or less) or low value leases (asset
value of less than $5,000). Leases that qualify for these exemptions are included within the disclosures below for 2019.
The expenditure charged to the income statement was £2k (2018: £2,249k).
The future aggregate minimum lease payments under non-cancellable leases not accounted for elsewhere under IFRS 16, are
as follows:
2019 2018
£000 £000
No later than one year 2 1,932
Later than one year and no later than five years 15 4,414
Later than five years – 5,880
Total 17 12,226
Other financial commitments
The Group continues to provide a performance guarantee bond in Turkey amounting to $200k at 31 December 2019. 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 judgement. The judgements 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
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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
Judgement 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 judgement exists, and a possible further tax liability
could arise.
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 (£2018: 0.5m). Management are of the view that the risk of those outflows
arising is not probable and accordingly they are considered contingent items.
29. ORDINARY SHARES
2019 2018
Authorised, issued and fully paid ordinary shares of 20p each ’000 £000 ’000 £000
At 1 January 186,751 37,350 185,614 37,123
New shares issued to satisfy vesting of PSP – – 1,137 227
New shares issued to satisfy acquisition of Lot.to Systems Limited 2,000 400 – –
At 31 December 188,751 37,750 186,751 37,350
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:
2019 2018
£000 £000
Outstanding awards at 1 January 2,037 3,255
Increase in awards for dividend in December 2018 – 1,091
Exercised – (1,137)
Lapsed as a result of failure to meet performance conditions (2,037) (1,139)
Lapsed due to employees leaving the Group – (33)
Outstanding awards at 31 December – 2,037
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
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 2018 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
2017 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 25%
Between equal to the index and upper quartile Pro rata between 25% and 100%
Upper quartile or better 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 none of the award would vest, accordingly all awards lapsed in 2019.
2015 grant
The vesting of one-half of the award (‘Part A’) was dependent on the Company’s TSR over a fixed three-year period beginning
on the date of grant relative to that of the FTSE Small Cap Index (excluding investment trusts). For the purpose of calculating
TSR, the base figure is averaged over the six weeks preceding the start of the performance period and the end figure is
averaged over the last six weeks of the performance period. No portion of Part A 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 2017 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 0%
4% per annum 25%
Between 4% and 10% per annum Pro rata between 25% and 100%
10% or better 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.
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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:
March November March
Grant date 2017* 2016 2015
Exercise price £nil £nil £nil
Number of employees issued shares 14 19 25
Share price at date of valuation £0.988 £0.653 £0.667
Expected term (fixed) 2.67 years 3 years 3 years
Expected volatility 34.2% 43.0% 35.2%
Dividend yield 0% 0% 0%
Fair value of award £0.585 £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 2019 was nil (2018: ten
months). The weighted average exercise price of awards granted during the period was £nil (2018: £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.
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) 11 September 2019 29 June 2018 21 July 2017
VCP performance period start date 01 January 2017 01 January 2017 01 January 2017
End of vesting period 31 December 2021 31 December 2021 31 December 2021
Share price at period start date £0.978 £0.978 £0.978
Expected term 2.3 years 3.5 years 4.43 years
Expected volatility 40% 40% 35%
Dividend yield 0% 0% 0%
Risk free rate 0.47% 0.80% 0.51%
Fair value of each issued share in VCP £8 £279 £463
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SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
30. CASH GENERATED FROM OPERATIONS
Reconciliation of loss before taxation to cash generated from operations, before exceptional items:
Restated
Note 2019 2018
£000 £000
Loss before tax – continuing operations (8,430) (2,662)
Adjustments for:
Net exceptional items (included in operating costs/income) 4 1,140 3,453
Depreciation and amortisation 14,15,16 7,694 4,777
Profit on sale of property, plant and equipment 15 (1)
Impairment of assets 15 5,020 –
Net finance costs/(income) 8 695 (250)
Share option expense 1,422 1,222
Employers’ taxes paid on options vested – (67)
Changes in working capital:
Decrease in trade and other receivables 734 1,831
(Increase)/decrease in inventories (40) 76
Decrease in trade and other payables (149) (2,805)
(Decrease)/increase in customer funds 21 (607) 315
Cash generated from operating activities, before exceptional items 7,478 5,890
31. RELATED PARTY TRANSACTIONS
The extent of transactions with related parties of Sportech PLC and the nature of the relationships with them are summarised
below:
Key management compensation is disclosed in note 6.
The Group also invested cash into its joint ventures during the year as outlined in note 16. There were no trading
transactions between the Group and any of its joint ventures, and no amounts outstanding at the reporting date.
a.
b.
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32. RELATED UNDERTAKINGS
During the year, the Group held investments in related undertakings as follows:
Country of Registered Class of
Subsidiaries, excluding dormant companies incorporation address shares held Shareholding
Sportech Group Holdings Limited England & Wales 1 Ordinary 100%
Sportech Gaming Limited England & Wales 1 Ordinary 100%
Sportech Pools Limited England & Wales 1 Ordinary 100%
Sportech Pools Games Limited England & Wales 1 Ordinary 100%
Sportech Holdco 1 Limited England & Wales 1 Ordinary 100%
Sportech Holdco 2 Limited England & Wales 1 Ordinary 100%
Datatote (England) Limited England & Wales 1 Ordinary 100%
Lot.to Systems Limited England & Wales 1 Ordinary 100%
Playlot.to Limited England & Wales 1 Ordinary 100%
Sportech Mauritius Limited Mauritius 2 Ordinary 100%
Sportech, Inc. United States 3 Ordinary 100%
Sportech Venues, Inc. United States 3 Ordinary 100%
eBet Technologies, Inc. United States 3 Ordinary 100%
Sportech Venues California, LLC United States 3 Ordinary 100%
Sportech Venues CA Holdco, LLC United States 3 Ordinary 100%
Sportech Games Holdco, LLC United States 3 Ordinary 100%
Sportech Racing, LLC United States 4 Ordinary 100%
Bump Worldwide, Inc. Canada 5 Ordinary 100%
Sportech Racing Canada, Inc. Canada 5 Ordinary 100%
Sportech Racing Panama, Inc. Panama 6 Ordinary 100%
Sportech Racing Limited British Virgin Islands 7 Ordinary 100%
Racing Technology Ireland Limited Ireland 8 Ordinary 100%
Autotote Europe GmbH Germany 9 Ordinary 100%
Sportech Racing GmbH Germany 10 Ordinary 100%
Sportech Racing Turkey Turkey 11 Ordinary 100%
Sportech Racing SAS France 12 Ordinary 100%
Country of Registered Class of
Joint ventures and associates incorporation address shares held Shareholding
Sportshub Private Limited (non-trading) India 13 Ordinary 50%
S&S Venues California, LLC United States 3 Ordinary 50%
DraftDay Gaming Group, Inc (non-trading) United States 14 Ordinary 30%
127
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements continued
Country of Registered Class of
Dormant companies incorporation address shares held Shareholding
Sportech Trustees Limited England & Wales 1 Ordinary 100%
Thepools.com Limited England & Wales 1 Ordinary 100%
C&P Promotions Limited England & Wales 1 Ordinary 100%
Pools Promotions Limited England & Wales 1 Ordinary 100%
Sportech Pools Competitions Company Limited England & Wales 1 Ordinary 100%
Bet 247 Limited England & Wales 1 Ordinary 100%
Pools Company Limited England & Wales 1 Ordinary 100%
Sportech Management Limited Scotland 15 Ordinary 100%
Sportech Pools Trustee Company Limited Scotland 15 Ordinary 100%
Registered addresses
Number Country Address
1 England & Wales Icarus House, Hawkfield Close, Hawkfield Business Park, Whitchurch, Bristol, BS14 0BN
2 Mauritius Intercontinental Trust Limited, Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius
3 United States 600 Long Wharf Drive, New Haven, CT 06511
4 United States 1095 Windward Ridge Parkway, Suite 170, Alpharetta, GA 30005
5 Canada CSC North America Inc., 45 O’Connor Street, Suite 1600, Otawa, Ontario K1P 1A4
7 Panama Arias, Fabrega & Fabrega, Plaza 2000 Building, 50th Street, Panama
7 British Virgin Islands Trident Chambers, POB 146, Road Town, Tortola, British Virgin Islands
8 Ireland Unit 3, IDA Technology Park, Garrycastle, Athlone, Co. Westmeath, Ireland
9 Germany Nienhausenstrasse 42, 45883 Gelsenkirchen, Germany
10 Germany Katernbergerstrasse 107, 45327 Essen, Germany
11 Turkey AksuKosuyolu Cad. KalayciogluSitesi No: 19/1 Bakirkoy Istanbul
12 France 8 Rue des Freres Caudron, 78140 Velizy, Villacoublay, France
13 India Tower 2, 4th Floor, International Infotech Park, Vashi Railway Station, New Mumbai
14 United States Corporation Service Company, 2711 Centreville Road, Suite 400, Wilmington, DE 19808
15 Scotland Collins House, Rutland Square, Edinburgh, Midlothian, EH1 2AA
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Company Balance Sheet
AT 31 DECEMBER 2019
2019 2018
Note £000 £000
ASSETS
Non-current assets
Intangible fixed assets C5 775 998
Investment in subsidiaries C7 64,071 92,673
Trade and other receivables C8 2,846 3,844
Deferred tax assets 7 73
67,699 97,588
Current assets
Trade and other receivables C8 1,477 1,505
Income tax receivable 429 421
Cash and cash equivalents 5,699 8,303
7,605 10,229
TOTAL ASSETS 75,304 107,817
LIABILITIES
Current liabilities
Trade and other payables C9 (21,977) (19,754)
Net current liabilities (14,372) (9,525)
NET ASSETS 53,327 88,063
EQUITY
Ordinary shares 37,750 37,350
Other reserves 10,626 10,312
Retained earnings carried forward 4,951 40,401
TOTAL EQUITY 53,327 88,063
The loss after tax for the Company for the year was £36,872k (2018: profit of £1,159k).
The Company financial statements on pages 129 to 136 were approved and authorised for issue by the Board of Directors on
18 March 2020 and were signed on its behalf by:
Richard McGuire Thomas Hearne
Director Director
Company Registration Number: SC069140
129
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Company Statement of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2019
Capital
Ordinary redemption Other Retained
shares reserve reserve earnings Total
£000 £000 £000 £000 £000
At 1 January 2018 37,123 10,312 – 38,087 85,522
Other reserves
Comprehensive income
Profit of the year – – – 1,159 1,159
Transactions with owners
Share option charge – – – 1,222 1,222
Employer taxes paid on vesting of options – – – (67) (67)
New shares issues in relation to the PSP 227 – – (227) –
Shares gifted to the EBT – – – 227 227
At 31 December 2018 37,350 10,312 – 40,401 88,063
Comprehensive expense
Loss for the year – – – (36,872) (36,872)
Transaction with owners
Share option charge – – – 1,422 1,422
New shares issues in relation to Lot.to Systems Limited acquisition 400 – 314 – 714
At 31 December 2019 37,750 10,312 314 4,951 53,327
The premium on the shares issued of £314k is recorded as a merger reserve in Other reserves.
130
Company Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
Note £000 £000
Cash flows from operating activities
Cash generated from operations, before exceptional items C11 2,355 2,522
Interest paid (81) (19)
Interest received 120 125
Tax paid (9) (152)
Net cash generated from operating activities before exceptional items 2,385 2,476
Exceptional cash outflows (553) (1,863)
Net cash generated from operating activities 1,832 613
Cash flows from investing activities
Investment in subsidiaries C7 (4,390) (3,374)
Investment in intangible fixed assets C5 (46) (62)
Net cash used in investing activities (4,436) (3,436)
Net decrease in cash and cash equivalents (2,604) (2,823)
Net cash and cash equivalents at the beginning of the year 8,303 11,126
Net cash and cash equivalents at the end of the year 5,699 8,303
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131
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the Company Financial
Statements
C1. ACCOUNTING POLICIES
The accounting policies applied by the Company are consistent to those disclosed on pages 82 to 93 where applicable.
C2. RESULT OF COMPANY
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 18 March 2020.
C3. AUDITOR REMUNERATION
Fees payable to the Company auditors for the audit of these financial statements are £60k (2018: £60k). 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
Directors Key management
2019 2018 2019 2018
£000 £000 £000 £000
Short-term employee benefits 978 714 1,067 752
Consultancy fees – 76 – 76
Share-based payments 149 388 149 388
Accelerated IFRS 2 charge for departing management 706 – 706 –
Pay in lieu of notice 296 – 296 –
Post-employment benefits 2 5 2 5
Total remuneration 2,131 1,183 2,220 1,221
The Company had four employees at 31 December 2019 (2018: three).
Details of individual Directors’ remuneration and share-based incentives granted are given in the Remuneration report on pages
51 to 60. This information forms part of the financial statements. Retirement benefits are accruing under defined benefit pension
schemes for nil Directors (2018: nil). Nil Directors exercised share options in the year (2018: 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 of the 2018 Group Consolidated Financial Statements.
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C5. INTANGIBLE FIXED ASSETS
Software Total
2019 £000 £000
Cost
At 1 January 2019 18,140 18,140
Additions 46 46
Disposal (83) (83)
At 31 December 2019 18,103 18,103
Accumulated amortisation
At 1 January 2019 17,142 17,142
Charged during the year 269 269
Disposal (83) (83)
At 31 December 2019 17,328 17,328
Net book amount at 31 December 2019 775 775
2018 Software Total
£000 £000
Cost
At 1 January 2018 18,078 18,078
Additions 62 62
At 31 December 2018 18,140 18,140
Accumulated amortization
At 1 January 2018 16,835 16,835
Charged during the year 307 307
At 31 December 2018 17,142 17,142
Net book amount at 31 December 2018 998 998
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.
C6. PROPERTY, PLANT AND EQUIPMENT
Plant and
machinery Total
£000 £000
Cost
At 1 January 224 224
Disposal (41) (41)
At 31 December 2019 183 183
Accumulated depreciation
At 1 January 2019 224 224
Disposal (41) (41)
At 31 December 2019 183 183
Net book amount at 1 January and December 2019 – –
133
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the Company Financial
Statements continued
Plant and
machinery Total
£000 £000
Cost
At 1 January and 31 December 2018 224 224
Accumulated depreciation
At 1 January 2018 214 214
Charged during the year 10 10
At 31 December 2018 224 224
Net book amount at 31 December 2018 – –
C7. INVESTMENTS IN SUBSIDIARIES
A full list of the Company’s subsidiaries and other related undertakings is included in note 32 of the Group Consolidated
Financial Statements.
At 31 December 2019, the Company held direct investments in the following entities:
Company Nature of business
Sportech Group Holdings Limited (“SGHL”) Holds investments in Group companies
Sportech Trustees Limited Dormant
Sportech Management Limited Dormant
Lot.to Systems Limited Lottery software supplier
Movement in the book value of the Company’s investments is shown below:
2019 2018
£000 £000
At 1 January 92,673 231,989
Addition 2,014 –
Capital contributions 4,390 3,374
Impairment (35,006) (142,690)
At 31 December 64,071 92,673
The addition in the year represents the acquisition of 100% of the ordinary share capital of Lot.to Systems Limited on 1 February
2019 for fair value consideration of £2,014k.
Analysis of capital contributions made:
2019 2019 2018 2018
£000 US$000 £000 US$000
2 January 2019 1,891 2,400 – –
5 March 2019 345 450 – –
26 March 2019 1,149 1,500 – –
31 May 2019 1,005 1,300 – –
22 August 2018 – – 1,143 1,500
6 September 2018 – – 1,077 1,400
20 September 2018 – – 1,154 1,500
4,390 5,650 3,374 4,400
Each contribution was translated at the exchange prevailing at the time.
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The Directors considered the carrying value of the investments for impairment during the year. It was concluded that as at
31 December 2019 the enterprise value of the subsidiaries of SGHL amounted to £64,071k and as a result an impairment of
£35,006k has been charged to operating costs in the income statement. Following the impairment, the Directors consider the
carrying value of £64,071k to be supported by the underlying net assets and cash flows of the Group including those forecasts
outlined in note 14 of the consolidated financial statements. 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.
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.
C8. TRADE AND OTHER RECEIVABLES
2019 2018
£000 £000
Non-current
Amounts owed by Group companies 2,846 3,844
Current
Amounts owed by Group companies 1,375 622
Other receivables 84 842
Prepayments 18 41
Current trade and other receivables 1,477 1,505
Total 4,323 5,349
Amounts due in more than one year are from:
2019 2018
£000 £000
Datatote (England) Limited 839 247
Racing Technology (Ireland) Limited – 2,075
Lot.to Systems Limited 600 –
Bump (Worldwide) Inc 177 176
Sportech Racing GmbH 1,230 1,346
2,846 3,844
Amounts owed by Group companies due in more than one year 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. The Directors consider the
intercompany loans to be recoverable in full.
C9. TRADE AND OTHER PAYABLES
2019 2018
£000 £000
Trade payables 201 101
Amounts owed to Group companies 20,614 19,129
Social security and other taxes 20 23
Accruals 642 501
Deferred consideration 500 –
Total 21,977 19,754
135
SPORTECH PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the Company Financial
Statements continued
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 2020. Given the expected settlement no interest has been charged on these payables during the year. The payables to
the Football Pools companies amount to £13,925k (2018: £15,047k).
Deferred consideration is in relation to the acquisition of Lot.to Systems Limited on 1 February 2019. It was paid in full on
2 January 2020.
C10. CONTINGENCIES AND COMMITMENTS
Contingent items
The Company is exposed to certain contingent items for corporation tax, M&A activity and legal claims. Further details of those
are disclosed in note 28 of the Group Consolidated Financial Statements.
C11. CASH GENERATED FROM OPERATIONS
Reconciliation of profit before taxation to cash generated from operations, before exceptional items:
2019 2018
Note £000 £000
(Loss)/profit before taxation (36,732) 6,422
Adjustments for:
Investment income – (150,000)
Net exceptional costs 797 1,058
Depreciation of property, plant and equipment C6 – 10
Amortisation of intangible assets C5 269 307
Impairment of investments C7 35,006 142,690
Finance costs 81 19
Finance income (120) (125)
Other finance expense/(income) 178 (157)
Share option charge 1,422 1,222
Shares gifted to EBT – 227
Changes in working capital:
Movement in trade and other receivables 1,026 (2,100)
Movement in trade and other payables 428 2,949
Cash generated from operating activities, before exceptional items 2,355 2,522
C12. RELATED PARTY TRANSACTIONS
The Company had the following transactions with subsidiaries during the year:
2019 2018
£000 £000
Management charges received 631 833
Management charges paid (65) –
Royalty income received 1,967 1,866
Investment income – 150,000
Interest paid on inter-company loan balances (81) (19)
Interest received on inter-company loan balances 71 46
The amount outstanding in relation to management charges at the balance sheet date was £196k (2018: £77k).
All inter-company transactions are on an arm’s-length basis.
136
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
BDO LLP
55 Baker Street
Marylebone
London W1U 7EU
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.
0871 664 0300
Tel:
E-mail: enquiries@linkgroup.co.uk
Designed and printed by Sterling
www.sterlingfp.com
137
Icarus House
Hawkfield Business Park
Bristol, BS14 0BN
United Kingdom
Delivering a
Winning Experience
to our Clients
www.sportechplc.com
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