SPO.L Regulatory News (SPO)

18 Mar 2008 07:02

Sportech PLC18 March 2008 Sportech PLC ("Sportech" or "The Company") Preliminary Results for the year ended 31 December 2007 Financial Highlights • Profit before tax from continuing operations increased by 27% to £11.6m (2006: £9.1m) • Earnings per share from continuing operations of 12.8p (2006: 12.8p, adjusted following share consolidation) • Net debt (excluding deferred consideration for Vernons pools business ("Vernons")) reduced to £86.5m (2006: £89.9m). Including the fair value of deferred consideration payable to Ladbrokes in December 2008 and December 2009, net debt amounts to £92m • Successful Placing and Open Offer raising over £41.4m to part fund acquisition of Vernons and provide additional working capital for investment in enlarged Group • Re-negotiated banking facilities with improved interest rate margins, covenants and repayment terms, providing a more appropriate platform for growth • Reduction in gearing ratio by over a third, from 77% to 49% over the last two years Operational Highlights • Acquisition of Vernons - which is trading well and being successfully integrated, delivering operational and financial synergies • Enhanced new products launched including Premier 10, Fantasy Football, predictor games, fixed odds games and relaunch of Spot the Ball • Significant progress in the upgrade of technology and distribution channels following partnerships with Scientific Games and Orbis • Signing of a data and marketing agreement to become official licensees of the Premier League and Football Leagues and official partners of Scottish equivalents • Launch of The New Football Pools brand with full-scale relaunch of the football pools business on target for August 2008 Ian Penrose, Chief Executive of Sportech, said today: "This has been another year of significant progress for the Company, not leastthe realisation of our primary acquisition target, Vernons, acquired at the endof 2007. The Vernons business is being successfully integrated and has givenfurther impetus to the ongoing transformation of the business. We are focusingon our core football pools business as the platform to develop into a marketleading sport, leisure and gaming business with international reach and havemade significant progress, through investment in products, technology anddistribution, to achieve this objective. "The rebranding of the football pools, as The New Football Pools has alreadybeen introduced online and remains on target for a full launch across the entirefootball gaming business in August 2008. We look forward with confidence to thefuture." -ends- Enquiries: Sportech PLCIan Penrose, Chief Executive 0151 288 3561 Bell Pottinger Corporate & FinancialDavid Rydell/Emma Kent/Rosanne Perry 0207 861 3232 Chairman's Statement Overview The Board completed its strategic review of the Company in 2007 and the processof implementing the changes required to deliver a growth-orientated business isnow well underway. The strategically important acquisition of Vernons wascompleted in December 2007, together with a very successful fundraising; asignificant achievement given the turmoil in the financial markets during theperiod. We have made considerable progress in our objectives to position theunique, market leading and integrity driven product, the football pools, at theheart of our business. We are in the process of relaunching the football poolsbusiness, having invested in new products, technology and modern distributionroutes which will enable us to target a new and younger customer base. TheCompany is well positioned to deliver on its strategic objectives. Acquisition of Vernons and Associated Fundraising We were delighted to complete the acquisition of Vernons on 3 December 2007. Theacquisition process was extremely arduous. The Company announced on 7 March 2007that it had entered into exclusive negotiations with Ladbrokes for theacquisition of the business. On 3 May 2007, the Office of Fair Trading announcedthat it had decided to refer the proposed acquisition to the CompetitionCommission under the provisions of the Enterprise Act 2002. The CompetitionCommission issued its preliminary findings on 31 August 2007, concluding thatthe acquisition was not expected to result in a substantial lessening ofcompetition, and this conclusion was confirmed in the final CompetitionCommission report issued on 11 October 2007. In order to fund the acquisition, the Company raised £41.4m through the issue ofnew ordinary shares by means of a Placing and Open Offer. A share consolidationwas carried out at the same time which resulted in the share capital of theCompany being consolidated with one new share being issued for every tenpreviously held. The Vernons business is trading well and is being successfully integrated intothe existing football pools business and is already delivering cost savings andoperational synergies. Financial Performance Whilst stakes placed and gross win revenues of £356.3m and £59.6m are broadly inline with last year, the continuing improvements in performance are reflected inthe improvement in operating profit to £18.3m, a £2.8m (18%) increase from thatof 2006. Net interest payable rose by £0.3m to £6.7m as a consequence of theadverse movements in the credit markets. Profit before tax on continuingoperations for the year amounts to £11.6m, a £2.5m (27%) improvement on 2006.Earnings per share from continuing operations amounted to 12.8p. Even following the acquisition of Vernons, net debt, excluding deferredconsideration for Vernons, has reduced to £86.5m (2006: £89.9m) reflectingstrong cash management and the associated fundraising. Over the last two yearswe have reduced the gearing ratio by over a third, from 77% to 49%. Furtherreductions in borrowings remain one of the primary objectives for the Company. The Company has also taken the opportunity to re-negotiate its bankingfacilities and terms. As part of the fund raising process undertaken for theacquisition of Vernons, we entered into new arrangements with the Bank ofScotland ("HBOS") in December 2007. These new arrangements significantly improvethe financial standing of the Company. The re-negotiated interest rate margins,covenants and repayment terms are now more tailored to the Company'srequirements and will enable better progress of the growth strategy. Following the year end the Company has implemented its strategy on interest ratehedging and has entered into swap agreements for three to eight years on a totalof £60m at an average rate (before the lending margin of HBOS) of 4.82%. Thiswill significantly reduce the Company's exposure to any volatility in the creditmarkets. No dividend is proposed as the Board believes that it must continue to invest ingrowth opportunities as well as further reducing debt. Board and Employees We were delighted to welcome Jon Holmes onto the Board in July 2007. Jon bringsa wealth of experience of the sports business, in particular the footballindustry, and his knowledge and understanding of sports marketing and brandingwill be invaluable. In line with the growing opportunities overseas, we havestrengthened the executive team in October 2007 by appointing Christian Heap asHead of International Development. A combination of the rapid changes to the business that are being introduced andthe enormous challenge that the acquisition process and associated fundraisingfor Vernons placed on time and resources, put significant pressures on the Boardand employees. I should like to express my thanks to those who contributedduring this challenging year. International expansion and potential acquisitions The Board has stated previously that it believes its unique business model hassignificant international appeal and the Company continues to exploreopportunities in appropriate overseas markets. Substantial progress has beenmade regarding the opportunity to expand into Asia and the Company is hopefulthat it can reach a conclusion in the short term. The Government announced on 5 March 2008 that it intended to sell the UK Tote(The Horserace Totalisator Board) on the open market. The Board can confirm thatit has lodged its interest in this potential transaction with the Government since we believe that this could represent an opportunity to combine the pool betting activities on the two biggest sports in the world, British football and horseracing. We shall await developments with interest. Outlook The business of Sportech is being transformed, a process which began two yearsago. We achieved a great deal in 2007 to address the three key operational areasof product, technology and distribution but there remains more to do. Theacquisition of Vernons is a significant step towards reinvigorating the footballpools business. We anticipate that the rebrand and relaunch of the footballpools, alongside the launch of new products and expansion into new markets, willdeliver continued shareholder value. The Board looks forward to the ongoingtransition of the business and is confident for the future of the Company. Piers PottingerChairman18 March 2008 Corporate Strategy Statement Ian Penrose Strategic Direction The strategic direction of the Company in the short term is to regenerate thefootball pools business through a major rebrand and relaunch, which will providethe platform for the medium to longer term objective of becoming a broad based,market leading sport, leisure and gaming business with international reach. Distinct Global Advantages As the operator of the oldest independent football gaming business in the world,we have a history and heritage associated with our three football poolsbusinesses which is unparalleled across the world. Since the football pools wasfirst established in 1923 we have created lasting benefits for all of our keystakeholders. We have consistently delivered quality and valued products to customers and havepaid billions of pounds in prizes to millions of winning customers. In additionto our customers, the larger stakeholder community has also benefitedsubstantially over the years. The economy has benefited with significant tax andduty revenue generated over this period. Furthermore, the football poolscompanies have provided a lasting legacy to local communities and the Britishpublic through the contribution of £1.1 billion to football, other sports, thearts and good causes.,. At its peak, the weekly involvement of one in three ofthe adult population of the UK playing our games provided unique promotion offootball to the general public. International Marketplace We operate in a global and growing marketplace. Football and particularlyBritish football is experiencing an unprecedented boom in global popularity. Pool (pari-mutuel) gaming and games of skill continue to be the popular forms ofgaming around the world, contrary to the position in the UK which is dominatedby fixed odds, betting exchanges and spread betting. Against an internationalbackdrop of stringent legislation and the prevalence of pool betting and gamesof skill, we will endeavour to work with commercial operators, the sportscommunity and governments to take the world's oldest football gaming business,operating the largest football pool on British football, to the internationalcommunity. Focus on Core Activities The overriding strategic objective for the Company has been to refocus on itscore business, the football pools. The aim is to regenerate the football poolsbusiness and widen the franchise of the pools and associated gaming products.The number one strategic acquisition for the Company, therefore, was Vernons.The acquisition of Vernons enables us to merge the three independent footballpools into one enlarged pool, thereby creating bigger prizes and enhancedprofile. Importantly, as the existing licence to use the "Littlewoods" nameexpires in 2010, the acquisition also provides a timely opportunity to relaunchthe business as "The New Football Pools", strengthening the marketing message ofone business in a very competitive betting and gaming landscape. Our focus on customer retention continues. For the second year running,excluding the one-off impact of product pricing initiatives, customer attritionlevels are at 9%, maintaining the improvement on historic years where customerattrition rates were running in the mid to late teens. Re-establish Links with Football The Football Pools has been synonymous with football since its formation in1923. For years this relationship has extended beyond a financial one, playing acentral role in British family culture, as families huddled around the radio,and more recently the television and internet, in anticipation of winning alarge sum of money at 5 o'clock on a Saturday afternoon. We are pleased that inDecember 2007 we have re-established strong links with football through a dataand marketing agreement to become one of a select number of official licenseesof the Premier League and Football Leagues and official partners of theirScottish equivalents until June 2011. Throughout this period we have alsoestablished formal links with the Football Foundation and football relatedcharities to support grass roots and club related initiatives. Strengthened Financial Position The strategic review of the Company completed in 2007 highlighted the need tore-negotiate the banking facilities, improve the balance sheet position andsignificantly reduce the gearing ratio. In December 2007, we entered into new banking arrangements which significantlyimprove the financial standing of the Company with interest rate margins,covenants and repayment terms appropriate to the Company going forward, ratherthan the unsuitable and challenging arrangements previously in place. In addition, the Company further strengthened its balance sheet by the raisingof £41.4m in December 2007 from new and existing shareholders to part fund theacquisition of Vernons. As a result of the acquisition of Vernons, the associated fundraising,elimination of loss making activities and strict management of cash, the gearingratio over the last two years has been reduced by over a third, from 77% to 49%. Investing in Products, Technology and Distribution The strategic review highlighted that there had been significant underinvestmentover many years in the three key operational areas of the business: products,technology and distribution. We were delighted to sign a strategic technology and distribution partnershipwith Scientific Games, the New York-based operator of pari-mutuel (pool)systems, lotteries and betting terminals early in 2007. At the same time, wealso signed a contract with a second technology partner, Orbis, a leadingprovider of interactive betting and gaming solutions. Technology is the facilitator of change which will enable us to attract a newand younger customer base. By investing in new technology we will enable ourcurrent and enhanced range of products to be delivered down new distributionchannels, making them easier to access and easy to play. Brand The "Littlewoods" name is used under a licence agreement which expires in 2010and therefore the Board, as part of its strategic review, has committed toensuring a smooth transition away from the Littlewoods name over the next twoand a half years. The first milestone in this process is the launch of the newbrand, The New Football Pools, for our football gaming business. This is nowwell underway and the new branding is already present on our online footballpools and gaming suite. Relaunch of the Football Pools Alongside the rebranding exercise the Company will be relaunching the footballpools business in August 2008, as The New Football Pools, to coincide with thestart of the 2008/09 football season. Currently we deliver our products downpredominantly traditional routes to market (collector and direct mail). However,following completion of the next phase of our technology overhaul, due to bedelivered ahead of August 2008, we will develop this business into one thatoffers a broader, more engaging range of football pools, media, football contentand football games, distributed to new and existing customers via online,retail, licensed betting offices, mobile and international outlets, as well asour existing traditional routes to market. A full marketing and advertising campaign is planned to support this next phasein the development of the football pools business. E-gaming Our strategy for the e-gaming business has been to refocus and refine thisbusiness through better customer relationship management and more sophisticatedmarketing activity. As a result we are already seeing a substantial increase inprofitability. We have also successfully relocated our Casino and Poker businessto Malta, providing a more stable framework within which to operate, includingthe ability to continue advertising in the UK. Outlook The Board has established a clear strategy for the Company, one that is expectedto deliver increases in shareholder value in the medium term. Trading for thecurrent period has started well. We remain focused on the major businessinitiatives to be put into place prior to the relaunch of the football pools inAugust 2008 and we are making significant progress with our internationalexpansion plans. We anticipate being able to update the market of latestdevelopments in the potentially lucrative Asian markets in the near future. Ian R PenroseChief Executive18 March 2007 Business Review Overview During the year we have made good progress implementing changes that ourstrategic review highlighted as necessary, both operationally and also toimprove our customer experience. The acquisition of Vernons absorbed asignificant amount of management time which distracted but did not deter us fromour strategic and operational objectives. Operations have been consolidated fromthree sites into one (which will become four sites into one following the entirerelocation of Vernons), which has significantly improved communication andoperational efficiency. We are extremely focused on all aspects of our turnaround strategy. We have putthe football pools at the heart of our business, and we are focusing on gettingour basics right to ensure we can deliver profitable growth. Financial Overview Total operating profit amounted to £18.3m (2006: £15.5m), an improvement of 18%.Operating profit, before exceptional costs and amortisation of acquiredintangibles, increased by £0.4m to £18.8m, a significant turnaround on the £3.8mreduction suffered in 2006. Net interest payable increased by £0.3m to £6.7m(2006: £6.4m) following adverse credit market conditions. Profit before tax fromcontinuing operations increased to £11.6m (2006: £9.1m). The tax charge oncontinuing operations is £3.5m (2006: £1.5m) reflecting normalised tax rates in2007 whereas 2006 benefited from unutilised tax losses brought forward. In 2006 the Company disposed of Bet Direct for £12.5m generating a profit ondisposal of £10.6m. The tax charge associated with the profit on disposal andthe trading losses incurred prior to disposal amounting to £4.1m in totalreduced the profit from discontinued operations to £6.5m in 2006. There was nosuch gain from disposals in 2007. On a continuing operations basis, earnings per share have remained constant at12.8p (2006: 12.8p).Total earnings per share are 12.8p (2006: 23.8p reflectingthe profit on the sale of Bet Direct in 2006, amounting to 11.0p). No dividend is proposed as the Board continues to focus on investing incontinuing activities and reducing debt. The Group reports under two distinct divisions: the football gaming division,comprising the traditional football pools products run under the Littlewoods,Vernons and Zetters brand names and associated games such as Spot the Ball,Premier 10, Lucky Clover and Lotto; and the e-gaming division comprising theonline activities of Littlewoods Poker, Littlewoods Casino, Littlewoods Bingoand Game On. 2007 2006 Football E- Total Football E- Total Gaming Gaming Gaming Gaming £m £m £m £m £m £m Gross winrevenue 47.2 12.4 59.6 49.6 11.2 60.8 ------------------------------------------------------------ Operatingprofit preexceptionalcosts andamortisationof acquiredintangibles 16.2 2.6 18.8 17.4 1.0 18.4 Exceptional costs (0.3) - (0.3) (2.9) - (2.9)Amortisationof acquiredintangibles (0.2) - (0.2) - - - ----------------------------------------------------------- Operating profit 15.7 2.6 18.3 14.5 1.0 15.5 ----------------------------------------------------------- Products The Company's aim is to achieve growth by offering customers new and improvedproducts. We are enhancing and refining existing products, to make them moreengaging and accessible. Alongside these existing products we are creating newgames that will be attractive to a wider audience. The delivery of this enhancedsuite of products has already begun with the recently launched Premier 10,Fantasy Football, several football predictor games and a portfolio of fixed oddsgames. We will be launching additional predictor games and a remodelled Spot theBall in 2008. To augment our football prediction games, we are building a content-rich websiteaimed directly at the football fan. In addition to the current streaming ofbreaking football headlines, we will introduce a community-focused fans' forum,quizzes, bespoke player league tables and other football related content. Wewill continue to generate our own unique content, having launched the FootballFever report in January 2007 which examined each of the 92 football clubs andidentified by ranking the most stressful to support. This award-winning report(National CIPR Excellence Award) was followed up in September 2007 by the launchof Football Fever 2, looking at which clubs have the most and least optimisticsupporters and in February 2008 by Football Fever 3, looking at fierce footballrivalries across the country. All three reports can be viewed atwww.footballpools.com. Technology Making our games easy to access and play is fundamental to restoring growth.Investing in new technology is a vital step in order to achieve this, enablingnew distribution channels and delivering operational benefits. We were delightedto sign a strategic technology and distribution partnership with ScientificGames, the New York-based operator of pari-mutuel (pool) systems lotteries andbetting terminals, earlier this year. At the same time, we also signed acontract with a second technology partner, Orbis, a leading provider ofinteractive betting and gaming solutions. These two partnerships will enable the Company to overhaul its technologybackbone completely at a cost of £3.5m, thereby delivering significant customerbenefits, distribution enhancements and operational synergies. The first phaseof the technology roll out plan was delivered for the start of the 2007/08football season and we have a series of upgrades and launches scheduledthroughout 2008 as we transform our technical capabilities. Distribution We are currently modernising our distribution channels to enable the Company tooffer its new and existing products in an easy-to-play format for the massfootball market. The investment in technology will help facilitate thisexpansion of the distribution network and will augment the historic methods ofdistribution of primarily door to door collectors and direct mail. Online As stated previously, we have extended the distribution of our products online,with the first phase launch of the website in August 2007. This will be subjectto a number of major enhancements over the next few months. The strategic technology and distribution partnership signed early in 2007 withScientific Games will offer the Company the potential to develop enhanceddistribution of its games to customers within Scientific Games' global customernetwork, once the new technology is fully implemented and operational. Thisinitiative offers significant potential for 2009 and beyond. Retail Extending our reach into retail venues remains a key goal for the business. TheFootball Pools can be played on many of the Paypoint terminals across theirnetwork of 17,500 retailers and we continue to work with Paypoint to increasethe potential for retailing the football pools via this network. As part of the Vernons acquisition we have secured a marketing and distributionagreement with Ladbrokes to offer certain of our products in a minimum of 1,750of their licensed betting offices. We continue to work with Ladbrokes tointegrate into their EPOS system, and to design the appropriate marketing andpromotional inventory. We expect this route to market to become fullyoperational in August 2008. We continue to evaluate other opportunities in thisfield and will update the market accordingly. International We consider that the international marketplace offers great potential for ourpari-mutuel games of skill, and we have held discussions with a number ofpartners for distribution into a selection of overseas territories. Whilst theintroduction of a strong technological backbone is paramount for internationaldevelopment, we have made significant progress in our plans for expanding ourreach into Asian markets and the Company is hopeful that it can reach aconclusion in the short term. Following our acquisition of Vernons, we are nowthe largest gaming operator in Mauritius and as a consequence will look to buildupon the potential on the island. The Board considers that there is significant potential for developing ourinternational operations by using pool betting and games of skill, inconjunction with football content, for commercial, governmental, sporting andgood cause benefits as has been witnessed over the last 85 years here in the UK.Pari-mutuel betting requires the utmost level of integrity and we have a historysecond to none. Product Enhancement and Spend Per Head Following a period of extensive customer research and internal businessanalysis, we took the decision in 2007 to enhance our product offering andincrease the associated price points in an attempt to increase the averageweekly spend per head in our Littlewoods Football Pools business. This was thefirst time in eight years that such an initiative had been undertaken and wehave been very pleased with the results. Average stakes increased by 20% to£2.21 per customer per week, partially offset by a one off customer loss of 6%.The initiative began in September 2007 and we anticipate seeing the fullfinancial benefit in 2008. In addition, we have managed to enhance the customerexperience and improve our internal customer focus. Football Gaming Financials Following several years of severe decline in the performance of the footballgaming business, the Company has focused on managing the core football poolsbusiness more effectively, and we are pleased to report that major progress hasbeen made in this area. After exceptional costs, and excluding Vernons,operating profit has increased by 3% to £14.9m (2006: £14.5m), with the rate ofdecline of operating profit before exceptionals (excluding Vernons) being slowedby over two thirds to £2.2m the year, from £7m in 2006. Our focus on customer retention continues and we are pleased to report that forthe second year running, excluding the expected one-off impact of productenhancement and pricing initiatives, customer attrition levels are at 9%,maintaining the improvement on historic years where customer attrition rateswere running in the mid to late teens. Having strengthened our customer basewith the acquisition of Vernons we now have more than 700,000 customers playingthe football pools each week. Acquisition of Vernons Vernons began offering football pools in 1925. Today it provides football poolsand lottery and other games to its customers via post, telephone and theinternet. Vernons has approximately 230,000 weekly customers and is the secondlargest football pools business in the UK behind Littlewoods Pools. Thecustomers are predominantly UK-based and are served from Vernons' head office inLiverpool. Following the completion of the Company's strategic review and turnaroundstrategy, the Company has focused its activities on regenerating the footballpools business and developing related products. The acquisition of Vernons hasenabled the Company to own all three major football pools operations in the UK,representing approximately 99% of the total football pools market. Upon fullintegration of the Vernons business into our existing operations, there will bea bigger pool of customers, larger jackpots and more winners. Significantoperational synergies are expected to be realised in the areas of sharedoverheads and direct costs. The Board also believes that the enlarged Group willhave opportunities to increase revenue through focused marketing and crossselling. The Company completed the acquisition on 3 December 2007 for a totalconsideration of £51m, £45m payable on completion, £3m on the first anniversaryof acquisition and £3m on the second anniversary. Costs of £4.9m were incurredreflecting the high level of regulatory clearance work that was undertaken, thefundraising associated with the transaction and all other legal, accounting andinvestment banking advice sought. In line with IFRS3, the Company undertook a valuation of the intangible assetsacquired with the business and attributed a value of £35m to these intangibles.These intangibles are required to be amortised over their estimated useful lifeand in the one month of ownership in the 2007 financial year this amounted to£0.2m. The remainder of the acquisition cost is recognised in the balance sheetas goodwill and amounts to £20.3m and is subject to an annual impairment review. In the period since acquisition, Vernons has contributed gross win revenue of£2.1m and an operating profit pre amortisation of acquired intangibles of £1.0m. We are pleased that the integration of Vernons is running ahead of schedule, aswe relocate the business and staff of Vernons to our offices in Walton House,Liverpool. We expect this process to be completed in all material respects byJuly 2008, ahead of the initial timetable. The level of synergies to be derivedin 2008 are anticipated to be ahead of the £1m expected, whilst the one offcosts of delivering these synergies are anticipated to be lower than the £1.5mexpected. The Board remains confident that savings could amount to approximately£2.5m per annum and that the full benefit of these savings will be available in2009. Customer numbers Registered Active 2007 2006 2007 2006 ('000) ('000) ('000) ('000) Football Gaming 989 699 701 547 Casino and Poker 135 107 23 23 Bingo 123 45 13 6 Game On 27 12 11 8 ----------------------------------------------------- Total 1,274 863 748 584 ----------------------------------------------------- E-gaming Following the significant strides made in 2006 in refocusing our E-gamingoperations, we are pleased to report a substantial increase in the profitabilityof this division as we build upon the stronger foundations laid. Performance by channel is illustrated in the table below: 2007 2007 2006 2006 Gross win Operating Gross win Operating revenue profit revenue profit £m £m £m £m Casino and Poker 11.5 3.0 10.7 1.8 Bingo 0.7 0.2 0.3 (0.3) Game On 0.2 (0.6) 0.2 (0.5) ------------------------------------------------------- Total 12.4 2.6 11.2 1.0 ------------------------------------------------------- Casino and Poker Our casino and poker business has delivered a profit of £3m, a 67% (£1.2m)increase on last year. Gross win increased by 7% (£0.8m) to £11.5m. LittlewoodsCasino.com has enjoyed considerable success through refining themarketing activity, a better CRM process and improved high roller management.This strategy, rewarding loyal customers and reducing the acquisition of "bonusabusers" has continued to grow the gross win and increase revenue per player.This focused strategy has led to the total number of active customers decreasingslightly to 22,600 (2006: 23,000). In addition, the introduction of a number ofbranded games based on the Marvel characters has improved the customerexperience and appeal of our casino product. LittlewoodsPoker.com, like many inthe industry, had a more challenging year. We continue to work with our softwaresupplier Cryptologic to address certain of the network and industry-wide issuesthat affect the poker room performance. We were pleased to receive the Gambling Online Readers Choice Awards with Bronzefor Top Casino and Silver for Top Poker Software Provider. Following the changes introduced by the Gambling Act 2005 we successfullyrelocated our Casino and Poker business to Malta from Curacao in the DutchAntilles. This has provided the two operations (LittlewoodsCasino.com andLittlewoodsPoker.com) with a more stable framework in which to operate,including the ability to continue to advertise in the UK. The software agreement with Cryptologic to power our Casino and Poker businessesexpires in September 2008. We have commenced the process of reviewingcompetitive suppliers to take account of the quality of software, networkliquidity, product offerings and administrative software and support. We intendto improve both the quality of our customer offering and the financial termsthrough this process. Bingo LittlewoodsBingo.com, which was launched in 2006, has had a strong year,reporting a profit of £0.2m for 2007, a £0.5m improvement on the loss of £0.3min 2006. Registered customers grew by 175% to 122,700, and active players grewby 131% to 13,000. Growth is continuing as a result of focused marketing activity, and we will bestepping up this activity further with a high-profile television campaign inApril 2008, leveraging the household name of Littlewoods and its reputation asthe trusted name in gaming. Following this early success, we have managed to renegotiate the financial termsof our contract with our technology and network partner St Minver, the benefitsof which we expect to see in the coming year. Game On Game On, our fixed odds games business, has been refreshed in the latter part of2007 with the launch of a suite of new games. The establishment of a focusedteam will deliver improved performance in 2008. For 2007, gross win revenueremained constant at £0.2m (2006: £0.2m) with operating losses of £0.6m (2006:£0.5m) being incurred reflecting certain costs associated with the websiteupgrade. Exceptional Costs Exceptional costs of £0.3m have been incurred in the year (2006: £2.9m) relatingto redundancy costs in respect of the continuing rationalisation of the businessand initial seeding costs for new games, offset by the release of amountsaccrued in previous years in respect of building costs following the surrenderof a lease in the current year for an amount lower than that accrued.Exceptional costs in the prior year relate to asset impairments, rationalisationof building infrastructure and related staff redundancy costs resulting from thestrategic review of the business. Debt Debt reduction remains a priority for the Group and we are pleased to report,that even following the acquisition of Vernons, net bank debt has reduced by£3.4m to £86.5m at the year end (2006: £89.9m). Including the fair value ofdeferred consideration payable to Ladbrokes in December 2008 and December 2009,net debt amounts to £92m. Our gearing ratio has improved substantially during the last two years with areduction of over a third from 77% to 49% due to the continued focus on cashmanagement, the fundraising associated with the Vernons acquisition and theelimination of loss making activities. Cash generated from operations has increased to £19.3m (2006: £15.0m). With netinterest payments increasing to £6.7m (2006: £6.4m), tax payments alsoincreasing to £2.9m (2006: £2.0m) and charity cash balances remaining constant(2006: reduction of £1.2m), net operating cash flow has increased by 24% to£9.7m (2006: £7.8m). Capex for the year amounted to £2.0m (2006: £0.4m) predominantly comprising ofamounts spent on new technology. In the previous year, £10.8m of cash wasgenerated from the sale of Bet Direct being the cash consideration of £12.5moffset by £1.7m of disposal and associated restructuring costs. Finally, a net £45.7m was spent in relation to the acquisition of Vernons, beinginitial consideration of £45m, total fees of £4.9m offset by £4.2m of workingcapital cash acquired with the business. The majority of this cash outflow wasmet by the proceeds from the new share issue of £41.4m. The Company has also during the year re-negotiated its banking facilities andterms. As part of the fund raising process undertaken for the acquisition ofVernons, we entered into new arrangements with HBOS in December 2007. In total,£124m of facilities were agreed with the Bank of Scotland comprising of, up to£110m of long term debt facilities, £8m annually approved working capitalfacilities and £6m guarantee facilities in respect of the deferred considerationpayable on the acquisition of Vernons. These new arrangements significantlyimprove the financial standing of the Company. The re-negotiated interest ratemargins, covenants and repayment terms are now significantly more suited for theCompany and will enable better progress of the growth strategy. Following the year end the Company has also implemented its strategy on interestrate hedging, and has entered into a number of swap agreements for periodsranging between three and eight years on a total of £60m of term debt at averagerates (before the lending margin of HBOS) of 4.82%. The swap agreements arestructured in line with the Company's intentions to repay long term debt. Thiswill significantly reduce the Company's exposure to the continued volatility inthe credit markets. Equity In order to fund the acquisition and help strengthen the balance sheet, theCompany raised £41.4m through the issue of new ordinary shares by means of aPlacing and Open Offer. A share consolidation was carried out at the same time,which resulted in the share capital of the Company being consolidated with onenew share being issued for every ten previously held. Regulatory 2007 was a busy year on the regulatory front. Following the changes introducedby the Gambling Act 2005, the Company applied for and received six licensesunder this Act, which encompass our UK-based pool betting, gaming and lotterybusinesses. In addition, to enable the Company to continue to advertise to itsUK player base, we transferred our Casino and Poker business from Curacao in theDutch Antilles to Malta. To ensure that the obligations placed on the Company bythe new Act are adhered to and in furtherance of our policy of maintaining thehighest standards of compliance and integrity, the Company has appointed aSecurity and Compliance Manager to work alongside the Executive Board. Ian R PenroseSteve Cunliffe 18 March 2008 Consolidated Income StatementFor the year ended 31 December 2007 Group 2007 2006Continuing operations Note £m £mStakes placed* 356.3 352.7Gross win revenue 2 59.6 60.8Cost of sales (15.9) (17.1) ----------------Gross profit 43.7 43.7Distribution costs (0.9) (0.8)Administrative expenses (24.5) (27.4) ----------------Operating profit before amortisation ofacquired intangibles and exceptional costs 18.8 18.4 Amortisation of acquired intangibles (0.2) -Exceptional costs 4 (0.3) (2.9) ----------------Operating profit 2 18.3 15.5 ----------------Finance costs (6.8) (6.4)Finance income 0.1 - ----------------Profit before taxation 11.6 9.1Taxation 5 (3.5) (1.5) ----------------Profit for the financial year from continuingoperationsattributable to equity shareholders 8.1 7.6 ----------------Discontinued operationsProfit for the financial year from 3 discontinued operations - 6.5 ----------------Profit for the financial year attributable to equity shareholders 8.1 14.1 ----------------Earnings per shareBasic and diluted 6 12.8p 23.8p ----------------Earnings per share from continuing operationsBasic and diluted 6 12.8p 12.8p ----------------Adjusted earnings per shareBasic and diluted 6 13.4p 14.1p ---------------- * Stakes placed does not represent a statutory number and is given forinformation purposes only. Statement of Recognised Income and ExpenseFor the year ended 31 December 2007 Group 2007 2006 £m £mProfit for the financial year 8.1 14.1Actuarial gain on retirement benefit obligations - - ----------------Total recognised income for the year attributable to equity shareholders 8.1 14.1 ---------------- Consolidated Balance SheetAs at 31 December 2007 Group 2007 2006 £m £mASSETSNon-current assetsGoodwill 165.5 145.2Other intangible assets 36.2 0.2Property, plant and equipment 2.0 2.1Retirement benefit assets 0.3 0.3Deferred tax assets 0.5 1.0 ------------------- 204.5 148.8 -------------------Current assetsTrade and other receivables 2.8 2.2Current tax receivables 0.7 -Cash and cash equivalents 7.9 0.4 ------------------- 11.4 2.6 -------------------LIABILITIESCurrent liabilitiesFinancial liabilities (8.9) (21.8)Trade and other payables (18.1) (14.0)Current tax liabilities (2.2) (1.5) ------------------- (29.2) (37.3) -------------------Net current liabilities (17.8) (34.7) -------------------Non-current liabilitiesFinancial liabilities (90.6) (68.1)Deferred tax liabilities (0.7) (0.3) ------------------- (91.3) (68.4) -------------------NET ASSETS 95.4 45.7 ------------------- SHAREHOLDERS' EQUITYOrdinary shares 50.3 29.6Share premium 20.7 -Other reserves 0.6 0.4Retained earnings 23.8 15.7 -------------------TOTAL SHAREHOLDERS' EQUITY 95.4 45.7 ------------------- Consolidated Cash Flow StatementFor the year ended 31 December 2007 Group 2007 2006 Note £m £mCash flows from operating activitiesCash generated from operations 7 19.3 15.0Interest received 0.1 -Interest paid (6.8) (6.4)Tax paid (2.9) (2.0) ------------------Net cash generated from operating activities 9.7 6.6 ------------------Net cash from operating activities before charity cash movement 9.7 7.8Charity cash movement - (1.2) ------------------Net cash generated from operating activities 9.7 6.6 ------------------Cash flows from investing activitiesProceeds from sale of Bet Direct - 10.8Acquisition of Vernons, net of cash acquired (45.7) -Purchase of intangible fixed assets (1.4) (0.1)Purchase of property, plant and equipment (0.6) (0.3) ------------------Net cash (used in)/generated by investing activities (47.7) 10.4 ------------------Cash flows from financing activitiesFinance lease principal payments (0.1) (0.5)Proceeds from issue of new shares 41.4 -Proceeds from borrowings 94.0 -Repayment of borrowings (88.0) (15.0) ------------------Net cash generated by/(used in) financing activities 47.3 (15.5) ------------------Net increase in cash, cash equivalents and bank overdrafts 9.3 1.5Cash, cash equivalents and bank overdrafts at 31 December 2006 (1.4) (2.9) ------------------Cash, cash equivalents and bankoverdrafts at 31 December 2007 7.9 (1.4) ------------------ Cash, cash equivalents and bankoverdrafts consist of:Cash and cash equivalents 7.9 0.4Overdrafts - (1.8) ------------------ 7.9 (1.4) ------------------ Reconciliation of net debtIncrease in cash in year 9.3 1.5Movement in charity cash - 1.2 -----------------Change in net debt resulting from cash flows 9.3 2.7Cash outflow from repayment in loans 88.0 15.0Cash inflow from loans taken (94.0) -Cash outflow from repayment of finance lease agreements 0.1 0.5 -----------------Movement in net debt for the year 3.4 18.2At 1 January 2007 (89.9) (108.1) -----------------At 31 December 2007 (86.5) (89.9) ----------------- Net debt comprises:Cash, cash equivalents and bank overdrafts including charity cash 7.9 (1.4)Less charity cash balances (0.4) (0.4) -----------------Available cash, cash equivalents and bank overdrafts 7.5 (1.8)Leases - (0.1)Loans repayable within one year (6.0) (20.0)Loans repayable after one year (88.0) (68.0) -----------------At 31 December 2007 (86.5) (89.9) ----------------- Notes to the Preliminary StatementFor the year ended 31 December 2007 1. Basis of reporting a) The preliminary results have been prepared on the basis of the accountingpolicies set out in the Group's 2006 financial statements. b) The financial information set out in this announcement does not constitutethe Group's statutory financial statements for the year ended 31 December 2007,but is extracted from those financial statements. The auditors have reported onthose financial statements and have given an unqualified report which does notcontain a statement under section 237 (2) or 237 (3) of the Companies Act 1985. 2. Segmental reporting 2007 Football e-Gaming Telephone Gaming Betting GroupContinuing operations £m £m £m £mGross win revenue 47.2 12.4 - 59.6 -------------------------------------Segment result before amortisationof acquired intangibles andexceptional costs 16.2 2.6 - 18.8Amortisation of acquired intangibles (0.2) - - (0.2)Exceptional costs (0.3) - - (0.3) -------------------------------------Segment result 15.7 2.6 - 18.3 -------------------------------------Finance costs (6.7) -------------------------------------Profit before tax 11.6Taxation (3.5) -------------------------------------Profit for the year fromcontinuing operations 8.1 ------------------------------------- 2006 Football Telephone Gaming e-Gaming Betting GroupContinuing operations £m £m £m £mGross win revenue 49.6 11.2 - 60.8 --------------------------------------Segment result before exceptional costs 17.4 1.0 - 18.4Exceptional costs (2.9) - - (2.9) --------------------------------------Segment result 14.5 1.0 - 15.5 --------------------------------------Finance costs (6.4) --------------------------------------Profit before tax 9.1Taxation (1.5) --------------------------------------Profit for the year fromcontinuing operations 7.6 -------------------------------------- Discontinued operations(note 3)Gross win revenue - 1.4 2.6 4.0 --------------------------------------Segment result - (0.4) (0.9) (1.3) --------------------------------------Profit on disposal of operation 10.6 --------------------------------------Taxation (2.8) --------------------------------------Profit for the year fromdiscontinued operations 6.5 -------------------------------------- Net profit attributable toequity shareholders 14.1 -------------------------------------- 3. Discontinued operations 2007 2006 £m £mTrading losses - (1.3)Tax on trading losses current - 0.4 --------------- - (0.9) ---------------Profit on disposal of Bet Direct - 10.6Tax on profit on disposal of BetDirect- current - (1.1)- deferred - (2.1) --------------- - 7.4 ---------------Profit for the year from discontinued operations - 6.5 --------------- On 7 June 2006 the Group disposed of its Bet Direct branded Sports Bettingbusiness to 32Red plc for £12.5m. A summary of the net assets disposed and ofthe profit and net cash generated is as follows: 2006 £mTangible assets 0.7Intangible assets 0.7Current assets 0.4Current liabilities (1.6) --------Net assets disposed 0.2Disposal costs 1.7Net profit on disposal 10.6 --------Sale proceeds 12.5Less customer deposits transferred to 32Red plc (1.5) --------Net cash inflow on sale 11.0 -------- Reconciliation to net cash in cashflow statement:Sale proceeds 12.5Disposal costs (1.7) --------Net cash inflow on sale of Bet Direct per cash flow statement 10.8 -------- The net cash flows after tax for the Bet Direct business were as follows: 2007 2006 £m £mOperating - (2.5)Investing - 10.8Financing - (0.5) ----------------Net cash inflow - 7.8 ---------------- There have been no disposals or discontinuance of activities during 2007. 4. Exceptional costs All exceptional costs for continuing operations are included withinadministrative costs within the income statement: 2007 2006Continuing operations £m £mExceptional costsFootball Gaming 0.3 2.9 ----------------- Exceptional costs in the current year relate to redundancy costs in respect ofthe continuing rationalisation of the business and initial seeding costs inrespect of new games, offset by the release of amounts accrued in previous yearsin respect of building costs following the surrender of a lease in the currentyear for an amount lower than that accrued. Exceptional costs in the prior yearrelate to asset impairments, rationalisation of building infrastructure andrelated staff redundancy costs resulting from the strategic review of thebusiness. 5. Tax on profit on ordinary activities 2007 2006Current tax - continuing £m £moperationsUK corporation tax 3.4 3.2Adjustments in respect of prior years (0.8) 0.1 -----------------Total current tax 2.6 3.3 -----------------Deferred tax - continuingoperationsCurrent year charge/(credit) 0.4 (0.4)Adjustments in respect of prior years 0.5 (1.4) -----------------Total deferred tax 0.9 (1.8) -----------------Total taxation charge 3.5 1.5 ----------------- The taxation charge for the period is in line with (2006: lower than) thestandard rate of corporation tax in the UK (30%). A reconciliation is shownbelow: 2007 2006 £m £mProfit on continuing operations before tax 11.6 9.1 -----------------Profit on ordinary activities multiplied bythe standardrate of corporation tax in the UK of 30% (2006: 30%) 3.5 2.7Effects of:Permanent differences 0.3 0.2Trading losses not previously recognised - (1.5)Adjustments to tax in respect of prior years (0.3) 0.1 ----------------Total taxation charge 3.5 1.5 ---------------- 6. Earnings per share The calculations of earnings per share (EPS) are based on the following profitsattributable to ordinary shareholders and the weighted average numbers of sharesadjusted following share consolidation: 2007 2006 Restated Weighted Weighted average Per average Per number share number share Profit of amount Profit of amount shares shares £m 000 Pence £m 000 PenceBasic and diluted EPS 8.1 62,954 12.8 14.1 59,207 23.8 -----------------------------------------------EPS from continuing operationsBasic and diluted EPS 8.1 62,954 12.8 14.1 59,207 23.8Profit on sale of Bet Direct (net of tax) - 62,954 - (7.4) 59,207 (12.5)Pre-tax losses from discontinued operations - 62,954 - 1.3 59,207 2.2Tax relating to discontinued operations - 62,954 - (0.4) 59,207 (0.7) -----------------------------------------------Basic and diluted EPS from continuing operations 8.1 62,954 12.8 7.6 59,207 12.8 ----------------------------------------------- The calculations of adjusted EPS are based on the following profits attributableto ordinary shareholders and the weighted average numbers of shares and anestimated tax charge of 30%: 2007 2006 Restated Weighted Weighted average Per average Per number share number share Profit of shares amount Profit of shares amount £m 000 Pence £m 000 PenceOperating profit beforeexceptional costs andamortisation of acquired intangibles 18.8 62,954 29.9 18.4 59,207 31.1Net interest (6.7) 62,954 (10.8) (6.4) 59,207 (10.9) ------------------------------------------------------Adjusted profit before tax 12.1 62,954 19.1 12.0 59,207 20.2Tax at 30% (3.6) 62,954 (5.7) (3.6) 59,207 (6.1) ------------------------------------------------------Adjusted EPS 8.5 62,954 13.4 8.4 59,207 14.1 ------------------------------------------------------ 7. Cash flow from operating activities Reconciliation of operating profit to net cash flow from operating activities: Group 2007 2006Continuing operations £m £mNet profit 8.1 7.6Adjustments for:Taxation 3.5 1.5Depreciation 0.7 0.8Impairment of property, plant and equipment - 1.2Amortisation of intangibles acquired with Vernons 0.2 -Amortisation of other intangibles 0.2 0.3Impairment of intangibles - 0.1Interest expense 6.7 6.4Share option charge 0.2 0.2Changes in working capital:Decrease/(increase) in trade and other receivables 1.3 (0.2)Decrease in trade and other payables (1.6) (1.0) ------------------Cash generated from continuing operations 19.3 16.9 ------------------ Discontinued operationsNet profit - 6.5Adjustments for:Taxation - 2.8Profit on disposal of Bet Direct - (10.6)Amortisation of intangibles - 0.1Changes in working capital:Decrease in trade and other payables - (0.7) ------------------Cash used in discontinued operations - (1.9) ------------------Cash generated from operations 19.3 15.0 ------------------ This information is provided by RNS The company news service from the London Stock Exchange