SPO.L Regulatory News (SPO)

29 Mar 2007 07:02

Sportech PLC29 March 2007 Sportech PLC ("Sportech", "the Group" or "the Company") Preliminary Results for the year ended 31 December 2006 Highlights • Profit after tax for the year of £14.1m (2005: loss of £5.8m) • Profit after tax from continuing operations increased to £7.6m (2005: loss of £1.7m) • Net debt at year end reduced by £18.2m (17%) to £89.9m (2005: £108.1m) • Appointment of new Finance Director and strengthening of management team • Business focused and cash generative with principal operations profitable and growth orientated and loss making operations eliminated •Loss making Bet Direct sold for £12.5m in cash, generating a £10.6m profit on disposal before tax •Termination of ITV contract • Total earnings per share of 2.38p (2005: loss per share of 0.97p). Continuing earnings per share of 1.28p (2005: loss per share of 0.29p) • Strategic technology and distribution partnership announced with Scientific Games • E-gaming technology supply partnership with Orbis • New brand for the football gaming business to be launched in late 2007 Ian Penrose, Chief Executive of Sportech, said today: "Sportech is a Company in transition. We believe we can realise the Company'spotential to become a significantly larger broad-based sports, leisure andgaming business with international reach." "We have made good progress in transforming the business. We have begunmodernisation of our technological infrastructure, our online and new mediapresence is being upgraded, new products and routes to market are being created.Distribution has been a key focus of our strategic review and we are now able tomake real progress enhancing our distribution capabilities, following ourannounced partnerships with Scientific Games and Orbis." ends Enquiries: Sportech PLCIan Penrose, Chief Executive 0151 288 3561 Bell Pottinger Corporate & FinancialDavid Rydell/Emma Kent 020 7861 3232 Chairman's Statement Sportech remains a company in transition. The new Board and management team arecommitted to creating a growth business that will deliver returns forshareholders in the medium to long term. To achieve this and to realise thepotential of the business, fundamental change was required to the previousBoard's strategy. The Board's strategic review is in its closing stages and the Company hasalready implemented a number of major changes. The Company is now a far morefocused and cash generative business with its principal operations nowprofitable and growth orientated and the difficult challenges which the Boardfaces are being addressed with vigour. Implementing Strategy by Transforming Activities We have achieved a number of key strategic objectives during 2006 and thebusiness is seeing the benefit of these changes. We have changed our Board and management team, creating a team with thenecessary experience and skill sets required for Sportech's future. The businessand its organisation have been transformed with the consolidation of threeoperational sites into one. We have terminated our loss making contract to provide betting services to ITVand consequently closed our interactive television operations. In June 2006 wesold our loss making betting division, Bet Direct, for £12.5m in cash achievinga profit on disposal of £10.6m. These two activities alone incurred operatinglosses for Sportech of £8.9m in 2005. The Board is pleased to have eliminated these loss-making activities, to haveeliminated further cash outflows and to have achieved good value for Bet Direct.As a result bank debt has been reduced significantly from £108.1m at 31 December2005 to £89.9m at 31 December 2006. Debt reduction remains one of the primaryobjectives of the Company. We are determined to transform the culture of Sportech from a "small companywith a big company structure" to a "big company with a small companyentrepreneurial culture." Financials The changing nature of the Company's business activities are reflected in theresults for the year. Operating profit amounted to £15.5m, an increase of £8.6mfrom that of 2005. Interest payable reduced to £6.4m from £7.5m last year as aconsequence of focusing on reducing the overall level of debt. The profit aftertax from continuing operations is £7.6m (2005: loss of £1.7m). The Company madea profit after tax from discontinued operations of £6.5m (2005: loss of £4.1m)which when added to the profit from continuing operations delivers an overallprofit for the year of £14.1m (2005: loss of £5.8m). Net debt has been reduced by £18.2m (17%) to £89.9m (2005: £108.1m). No dividendis proposed as your Board looks to invest in growth opportunities as well asfurther reducing debt. Board and Employees One of the key objectives set by our strategic review was to appoint a Board andmanagement team with the experience, energy and drive to transform the business.We now have that team in place following the appointment to the Board of SteveCunliffe as Finance Director on 3 July 2006 and the appointments to theExecutive Team in early Summer of Ted Taylor as Managing Director of LittlewoodsFootball Pools and Jon Sheehy as Marketing Director. 2006 has been a verychallenging year as the Company changed its Board, management team, commercialfocus, office locations and corporate aspirations. This has put many pressureson the employees at Sportech and I should like to express my thanks to those whohave remained steadfast in their commitment to the business Acquisition Opportunity On 7 March 2007 the Company was pleased to announce that it had entered intoexclusive negotiations with Ladbrokes Plc regarding the potential acquisition ofthe Vernons Pools business. The Company has now commenced due diligence and willmake a further announcement in due course. Outlook There remains much to do but the Board is committed to growth and implementingthe necessary changes to the business. The significant changes already made ineliminating loss making activities, reducing debt and focusing on our coreprofitable businesses have created a foundation upon which the Company cancontinue its growth and improve returns to its shareholders. Sportech is now ina position to capitalise on the significant opportunities ahead and I lookforward to the future with confidence. Piers PottingerChairman29 March 2007 Chief Executive's Review Corporate Strategy Statement The strategic direction of the Company is to create a market leading sport,leisure and gaming business. We will take the strengths and qualities of ourheritage and build upon these to re-establish Sportech's position in the market. We are reinvigorating our football pools business putting it at the heart of theCompany. We operate the world's largest football pools focused on the world'smost popular sport: British football. We have a customer database with over500,000 active customers playing every week for a jackpot of up to £2m. We operate in a global and growing market place. Football and particularlyBritish football is experiencing an unprecedented boom in global popularity.Pool (pari-mutuel) gaming and games of skill enjoy popularity around the worldand we will look to build upon this with our market leading position in poolbetting on British football. Investing in Products, Technology and Distribution The strategic review highlighted three key operational areas: products,technology and distribution. Our commitment is to get the products anddistribution basics right and if we do get them right we are confident of ourability to build an enlarged football gaming business. Investing in newtechnology is a vital component to make our games accessible and easy to playfor all, thereby broadening our range of potential customers. Products Growth is being pursued through a dual strategy: enhancing and refining existingproducts to make them more engaging and accessible; and creating new productsthat will be attractive to a wider audience. We are in the process of developingand assembling a suite of products which will be launched over the next 18months focusing initially on predictor games, fantasy football, league tables,quizzes, Spot the Ball and other football (and subsequently other sports)related content. Technology And Distribution Modernising our distribution channels will enable the Company to offer itsproducts to the mass market via the internet, mobile phones, retail outlets,sports and social clubs and internationally, in addition to our existing primarysources of distribution: door to door collections and direct mail. Making our games easy to access and play is fundamental to restoring growth tothe business and this morning we are pleased to announce two significanttechnology partnerships. We have signed a strategic technology and distributionpartnership with Scientific Games, the New York based operator of pari-mutuelsystems (pool), lotteries and betting terminals. Alongside this partnership wehave also signed a contract with a second technology partner Orbis, a leadingprovider of interactive betting and gaming solutions. These two partnershipswill enable the Company to develop enhanced distribution of its games throughnew and existing channels, including the potential within the global customernetwork of Scientific Games. The programmed delivery dates for our new technical offering commences with thenew football season in August 2007 with subsequent phased implementationsthrough to next spring. Other Products We will broaden the range of products that we offer to our customer base. Inaddition to Casino and Poker, we launched online Bingo in 2006 and consider theability to sell our suite of products to our extensive customer base to be aunique asset of the Company. Brand The "Littlewoods" name is used under a licence agreement which expires in 2010.Therefore the Board, as part of its strategic review, recognised the need todevelop new branding by way of a full marketing makeover. The creation of thisnew brand for the football gaming business is underway and is expected to belaunched in late 2007. Outlook We have made good progress in transforming the Sportech business. We operate ina growing global marketplace, with many exciting opportunities available to theCompany. We have begun modernising our technology and IT infrastructure, ouronline and new media presence is being upgraded and new products and routes tomarket are being created. Distribution has been a key focus of our strategicreview and our partnerships with Scientific Games and Orbis should enable us tomake real progress enhancing our distribution capabilities. Sportech has takenthe first steps in its transition towards being a profitable sports, leisure andgaming business with international reach and growth potential. Ian PenroseChief Executive29 March 2007 Business Review Overview 2006 has been a year of great change which has laid the foundations on which togrow the business and established a strategic direction for the Company. We havehad a major change in personnel, closed down certain operations and sold ourbookmaking operation in order to eliminate loss making activities and enableefforts to be focused on our core profitable business activities. We are investing heavily in our technology, distribution and products addressingmany years of under-investment. Operations have been consolidated from threesites into one which has improved communication and operational efficiency. Significant strides have been made in reducing bank debt, and in improvingoperational cash flow. This improvement in the strategic, operational and financial position of theCompany has enabled it to be in a position to enter into exclusive discussionsto acquire Vernons, the UK's number two football pools operator, from LadbrokesPlc. Financial Overview The profit after tax from continuing operations of £7.6m (2005: loss of £1.7m),together with the profit after tax from discontinued operations of £6.5m (2005:loss of £4.1m) has resulted in an overall profit after tax for the year of£14.1m (2005: loss of £5.8m), an improvement of £19.9m. Net debt at the end ofthe period was £89.9m (2005: £108.1m), a reduction of £18.2m, some 17%. Operating profit from continuing operations amounted to £15.5m (2005: £6.9m).Interest payable reduced by 15% to £6.4m (2005: £7.5m) following significantprogress in reducing the overall level of debt, resulting in an increase inprofit before tax from continuing operations to £9.1m (2005: loss of £0.6m). Thetax charge on continuing operations is £1.5m (2005: £1.1m). The profit of £10.6m on the sale of Bet Direct for £12.5m exceeded initialexpectations. The associated tax charge and trading losses incurred prior todisposal amounting to £4.1m reduced the profit from discontinued operations to£6.5m (2005: loss of £4.1m). Total earnings per share have increased to 2.38p (2005: loss per share of0.97p). On a continuing operations basis, earnings per share have increased to1.28p (2005: loss per share of 0.29p). No dividend is proposed as the Board continues to focus on investing incontinuing activities and reducing debt. Following the disposal of Bet Direct in June 2006 and in accordance with IFRS 5:"Non-current Assets Held for Sale and Discontinued Operations", the profit andloss statement discloses separately the results from continuing operations fromthose of discontinued. The Group now reports under two distinct segments, thefirst segment being the football gaming division, comprising the traditionalfootball pools products run under the Littlewoods and Zetters brand names andassociated games such as Spot the Ball, Premier 10 and Lotto with the secondsegment being the e-gaming division comprising the online activities ofLittlewoods Poker, Littlewoods Casino, Littlewoods Bingo and Game On. 2006 2005 Football E- Total Football E- Total Gaming Gaming Gaming Gaming £m £m £m £m £m £mGross winrevenue 49.6 11.2 60.8 57.4 9.7 67.1 ------- ------ ----- ------- ------- ------Operatingprofit/(loss)prerestructuringcosts 17.4 1.0 18.4 24.4 (2.2) 22.2Exceptionalrestructuringcosts (2.9) - (2.9) (0.5) (14.8) (15.3) ------- ------ ----- ------- ------- ------Operatingprofit/(loss) 14.5 1.0 15.5 23.9 (17.0) 6.9 ------- ------ ----- ------- ------- ------ Football Gaming This remains the driving force of the financial performance of the Group.Following many years of underinvestment and lack of focus, we are reinvigoratingour football gaming business. The technology partnerships announced today with Orbis and Scientific Games willenable us to become more operationally efficient on a modern technologyinfrastructure and, importantly, will facilitate future integration onto gamingmachines and EPOS systems in the retail environment. Our enhanced range ofproducts will then be available to the retailer and customer in a simple, modernand user-friendly form. We are in discussions with a number of retail-led thirdparties to significantly increase our distribution. The Board considers that the growth in popularity of British football, alliedwith the Company's 84-year reputation for integrity and the popularity of poolbetting overseas, will present significant opportunities for internationalexpansion. Consequently the Company is in discussions with a number of partnersfor distribution into a selection of overseas territories. The strategictechnology and distribution partnership with Scientific Games brings additionalpotential within their global customer network. During the year we have endeavoured to establish a more robust football gamingbusiness. Whilst the strategic review was ongoing, we focused our early effortson slowing the rate of customer decline. We are pleased that the weekly customerattrition has slowed significantly to 9.3% (2005: 13.7%), the lowest rate ofdecline since 1994. Encouragingly the direct channel football pools business hasseen an absolute halt in customer number decline for the first time since launchin the 1990s. Weekly customer numbers remain in excess of 500,000. We arecarrying out a review into the structure and performance of our collectordivision, which continues to suffer levels of customer attrition which are toohigh. 250,000 customers choose to play via the collector network, where apyramid structure of 26 regional depots, support 500 main collectors who in turnsupport 12,000 collectors. The focus to rebuild our football pools business has meant establishing anoperating and cost structure focused on growth rather than managing decline. Wehave established a marketing department ready to support the initiatives thatwill be started later this year to address margin that was lost as a result ofpricing decisions taken earlier in the year to retain selected lapsingcustomers. The decision to delay the relaunch of the business for 12 months, originallyscheduled for August 2006, so that we could ensure we had the products,technology and distribution to support the relaunch, has had further operationaland financial effects, although it has been in the medium term interests of theCompany. Operating profit before exceptional restructuring costs from footballgaming amounted to £17.4m (2005: £24.4m). E-Gaming We have made significant strides in refocusing our e-gaming operations, as weendeavour to establish an organisational structure in order to deliver on theopportunities available, including the launch of an online football gamingbusiness later this year. Our e-gaming business is now refocused and generating profits. We have grownboth our registered and active customer base. Performance by channel isillustrated in the table below: 2006 2006 2005 2005 Gross win Operating Gross win Operating revenue profit/(loss) revenue profit/(loss) pre restructuring pre restructuring costs costs £m £m £m £m Casino and Poker 10.7 1.8 9.3 1.7Bingo 0.3 (0.3) - -Game On 0.2 (0.5) 0.4 (3.9) ------- ----------- --------- ----------- Total 11.2 1.0 9.7 (2.2) ------- ----------- --------- ----------- Casino and poker Following on from three consecutive six month periods of decline we set aboutrebuilding our casino and poker business. We restructured the management team,shortened internal reporting lines and carried out a thorough marketing audit toreview and evaluate the efficiency and effectiveness of our marketinginvestment. In addition we have made progress on developing our relationshipwith Cryptologic, our software provider for both our online casino and pokerproducts. During the year the industry suffered as a consequence of the US Government'sdecision to implement the Unlawful Internet Gambling Enforcement Act. However,following the decision taken by your Board earlier in the year not to accepttransactions from US citizens, we did not suffer any financial loss. As a consequence of the above actions and in the face of a very competitivemarket, we are pleased that we have now successfully reversed the trend ofdeclining six monthly profits to growth. Gross win for the first eleven weeks of2007 is 25% ahead of that for the comparable period last year. Our casino and poker business has generated a 15% improvement in gross win to£10.7m (2005: £9.3m). Following three successive periods of falling operatingprofit we reported in the first half of 2006 a halting of this decline and arenow pleased to report that an operating profit of £1.0m has been achieved in thesecond half of 2006. This evidences clearly the more focused approach to ouractivities, delivering a total operating profit for the year of a growing £1.8mrather than the declining £1.7m in 2005. Bingo Littlewoodsbingo.com was launched in 2006, to develop an online gaming businessthat would sit comfortably alongside the 500,000 households who play thefootball pools every week. Initially soft launched in February 2006, the productwas relaunched in September 2006 following management changes and arepositioning of the commercial relationship with our technology and networkpartner St Minver. We have experienced an encouraging start to this product offering. Start upoperating losses of £0.3m were incurred in 2006 and we are continuing toexperience strong growth in customer numbers and gross win and have moved intooverall profitability on a monthly basis. Game On Game On, our fixed odds games business, is being totally refreshed in the secondhalf of 2007. Operating losses before exceptional restructuring costs of £0.5mwere incurred in 2006, a £3.4m improvement year on year (2005: loss of £3.9m)predominantly due to the termination of the ITV contract at the end of 2005. Customer numbers Registered Active ('000) ('000) 2006 2005 2006 2005Casino and Poker 106.8 75.3 23.0 22.7Bingo 44.7 - 5.6 -Game On 11.7 9.6 8.0 6.3 -------- -------- --------- ---------- Total 163.2 84.9 36.6 29.0 -------- -------- --------- ---------- Exceptional Items Other Other exceptional restructuring costs of £2.9m have been incurred in the year(2005: £1.7m) relating primarily to asset impairments and building costsresulting from the strategic review of the business currently underway andrelate to the rationalisation of building infrastructure and asset impairmenttogether with associated staff redundancy costs. ITV Exit Costs The contract with ITV was signed in March 2002 by Sportech to capitalise on theprojected growth market of betting via interactive television. Sportech, throughLittlewoods Gaming, agreed to supply interactive betting and gaming serviceslinked to ITV programming. The contract had been loss making for Sportech sinceits inception and, with no prospect of a commercial return, the Board decided toterminate the contract. The decision to terminate the ITV contract resulted in Sportech eliminating anexpected operating loss in 2006 and avoiding further potential losses of up to£30m over the remaining three years of the contract. As a consequence of thetermination, the 2005 results were impacted by an additional exceptional chargeof £13.6m, reflecting the write off of payments already made to ITV, relatedassets and redundancies. The cash cost of the termination amounted to £0.7m.There are no further costs or payments to be made with regards to the ITVcontract. Discontinued Activities We have completed the withdrawal from sportsbook betting activities followingthe sale of Bet Direct for £12.5m in June 2006. Whilst we were pleased with the 35% improvement in trading achieved by BetDirect through to June 2006 and additional increases forecast for the secondhalf of 2006, the Board decided that the weekly trading loss of over £50,000,even with the incremental improvements anticipated, was too high to tolerate asthe business had lost over £30m since its formation. Retained profit for Bet Direct (shown as discontinued activities) of £6.5m(2005: loss of £4.1m) was due to the sale of the business for a cashconsideration of £12.5m generating a profit of £10.6 offset by the operatingloss up to disposal of £1.3m (2005: loss of £5.8m) and taxation of £2.8m (2005:credit of £1.7m). The Board were very pleased in the circumstances with the level of sale proceedsreceived for the business. Debt Debt reduction remains a priority for the Group and we are pleased to reportthat net debt has reduced by £18.2m to £89.9m at the year end (2005: £108.1m).Operating cash flow before movement in charity cash has increased by 26% to£7.8m (2005: £6.2m). In addition a further £10.8m cash was generated from thesale of Bet Direct being the cash consideration of £12.5m offset by £1.7m ofdisposal and associated restructuring costs. Cash generated from operations has remained constant at £15.0m (2005: £14.9m)but with a reduction in net interest payments to £6.4m (2005: £7.3m), taxpayments remaining constant at £2.0m (2005: £1.9m) and charity cash balancesreducing by £1.2m (2005: £0.5m) has resulted in operating cash flow increasingby 26% to £7.8m. At the year end the Group's current bank facilities included scheduledrepayments of long-term bank debt of £20.0m. Subsequent to the year end, newfacilities have been agreed with the bank to facilitate both the potentialacquisition of Vernons and the refinancing of the current debt incorporatingrepayment levels more appropriate to the Group's cash generation. Outlook A lot has been achieved in the last year but there is still much to do. We haveestablished a clear strategy and have made significant strides towards itsimplementation. We have established foundations from where we are able to growthe business. Trading for the first eleven weeks of the year is in line withexpectations and 2007 will see us continue to build upon these initialsignificant improvements. Ian PenroseChief Executive Steve CunliffeFinance Director 29 March 2007 Consolidated Profit and Loss AccountFor the year ended 31 December 2006 Group -------------- 2006 2005 Continuing operations Note £m £m------------------------------ --------- -------- -----------Stakes placed* 352.7 347.1Gross win revenue 2 60.8 67.1Cost of sales (17.1) (19.6)------------------------------ --------- -------- -----------Gross profit 43.7 47.5Other income - 0.4Distribution costs (0.8) (0.8)Administrative expenses (27.4) (40.2)------------------------------ --------- -------- -----------Operating profit before restructuring costs 18.4 22.2Exceptional restructuring costs - ITV exit costs 4 - (13.6)Exceptional restructuring costs - Other 4 (2.9) (1.7)------------------------------ --------- -------- -----------Operating profit 2 15.5 6.9Interest payable and similar items (6.4) (7.5)Interest receivable - ------------------------------- --------- -------- -----------Profit/(loss) before taxation 9.1 (0.6)Taxation 5 (1.5) (1.1)----------------------------- --------- ---------- -----------Profit/ (loss) for the financial year fromcontinuing operations attributable to equity shareholders 7.6 (1.7)----------------------------- --------- ---------- -----------Discontinued OperationsProfit/(loss) for the financial year fromdiscontinued operations 3 6.5 (4.1)----------------------------- --------- ---------- -----------Profit/(loss) for the financial yearattributable to equity shareholders 14.1 (5.8) ----------------------------- --------- ---------- -----------Earnings/(loss) per shareBasic and diluted 6 2.38 (0.97)p----------------------------- --------- ---------- -----------Earnings/(loss) per share from continuingoperationsBasic and diluted 6 1.28 (0.29)p----------------------------- --------- ---------- ----------- --------- ---------- ----------- * 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 2006 Group -------------- 2006 2005 £m £m -------- -----------Profit/(loss) for the financial year 14.1 (5.8)Actuarial gain on defined benefit scheme - 0.1 -------- -----------Total recognised income/(expense) for the year 14.1 (5.7) -------- ----------- Consolidated Balance SheetAs at 31 December 2006 Group --------------- 2006 2005 £m £m ------- ------------ASSETSNon-current assetsGoodwill 145.2 145.2Other intangible assets 0.2 1.0Property, plant and equipment 2.1 4.8Retirement benefit assets 0.3 0.3Deferred tax assets 1.0 1.3------------------------------ ---------- ------- ------------ 148.8 152.6------------------------------ ---------- ------- ------------Current assetsTrade and other receivables 2.2 2.9Cash and cash equivalents 0.4 1.6------------------------------ ---------- ------- ------------ 2.6 4.5------------------------------ ---------- ------- ------------LIABILITIESCurrent liabilitiesFinancial liabilities - borrowings (21.8) (22.8)Trade and other payables (14.0) (17.3)Current tax liabilities (1.5) ------------------------------- ---------- ------- ------------ (37.3) (40.1)------------------------------- ---------- ------- -----------Net current liabilities (34.7) (35.6)------------------------------- ---------- ------- -----------Non-current liabilitiesFinancial liabilities - borrowings (68.1) (85.3)Deferred tax liabilities (0.3) (0.3)------------------------------- ---------- ------- ----------- (68.4) (85.6)------------------------------- ---------- ------- -----------NET ASSETS 45.7 31.4------------------------------- ---------- ------- -----------SHAREHOLDERS' EQUITYOrdinary shares 29.6 29.6Other reserves 0.2 0.2Retained earnings 15.9 1.6------------------------------- ---------- ------- -----------TOTAL SHAREHOLDERS' EQUITY 45.7 31.4------------------------------- ---------- ------- ----------- Consolidated Cash Flow StatementFor the year ended 31 December 2006 Group ----------------- 2006 2005 Note £m £m -------- --------- -----------Cash flows from operating activitiesCash generated from operations 7 15.0 14.9Interest received - 0.2Interest paid (6.4) (7.5)Tax paid (2.0) (1.9)------------------------------- -------- --------- -----------Net cash from operating activities 6.6 5.7------------------------------- -------- --------- -----------Net cash from operating activities beforecharity cash movement 7.8 6.2Charity cash movement (1.2) (0.5)------------------------------- -------- --------- -----------Net cash from operating activities 6.6 5.7------------------------------- -------- --------- -----------Cash flows from investing activities------------------------------- -------- --------- -----------Proceeds from sale of Bet Direct 10.8 -Proceeds from sale of property, plant and equipment - 0.4Purchase of intangible fixed assets (0.1) (0.7)Purchase of property, plant and equipment (0.3) (1.1)------------------------------- -------- --------- -----------Net cash generated by /(used in) investing activities 10.4 (1.4)------------------------------- -------- ---------- -----------Cash flows from financing activitiesFinance lease principal payments (0.5) (0.3)Repayment of borrowings (15.0) (9.0)------------------------------- -------- --------- -----------Net cash used in financing activities (15.5) (9.3)------------------------------- -------- --------- -----------Net increase /(decrease) in cash and cash equivalents 1.5 (5.0)Cash and cash equivalents at 31 December 2005 (2.9) 2.1 ------------------------------------------- -------- --------- -----------Cash and cash equivalents at 31 December 2006 (1.4) (2.9)-------------------------------------------- -------- --------- -----------Cash and cash equivalents consists of:Cash and cash equivalents 0.4 1.6Overdrafts (1.8) (4.5)------------------------------- -------- --------- ----------- (1.4) (2.9)------------------------------- -------- --------- -----------Reconciliation of net debtIncrease/(decrease) in cash in period 1.5 (5.0)Movement in charity cash 1.2 0.5------------------------------- -------- --------- -----------Change in net debt resulting from cash flows 2.7 (4.5)Cash outflow from repayment in loans 15.0 9.0Cash outflow from repayment of finance lease agreements 0.5 0.3Other non-cash changes - (0.1)------------------------------- -------- --------- -----------Movement in net debt for the period 18.2 4.7At 1 January 2006 (108.1) (112.8)------------------------------- -------- --------- -----------At 31 December 2006 (89.9) (108.1)------------------------------- -------- --------- -----------Net debt comprisesCash and cash equivalents including charity cash (1.4) (2.9)Less charity cash balances (0.4) (1.6)------------------------------- -------- --------- -----------Available cash and cash equivalents (1.8) (4.5)Leases (0.1) (0.6)Loans repayable within one year (20.0) (18.0)Loans repayable after one year (68.0) (85.0)------------------------------- -------- --------- -----------At 31 December 2006 (89.9) (108.1)------------------------------- -------- --------- ----------- Notes to the Preliminary StatementFor the year ended 31 December 2006 1. Basis of reporting a) The preliminary results have been prepared on the basis of the accountingpolicies set out in the Group's 2005 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 2006,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 2006 ------------------------- Football Telephone Pools E-Gaming Betting GroupContinuing operations £m £m £m £m------------------------------ -------- -------- -------- --------Gross win revenue 49.6 11.2 - 60.8------------------------------ -------- -------- -------- --------Segment result before restructuring costs 17.4 1.0 - 18.4Exceptional restructuring costs - other (2.9) - - (2.9)------------------------------ -------- -------- -------- --------Segment result 14.5 1.0 - 15.5------------------------------ -------- -------- -------- --------Interest expense (6.4)------------------------------ -------- -------- -------- --------Profit before tax 9.1Taxation (1.5)------------------------------ -------- -------- -------- --------Profit for the year from continuingoperations 7.6------------------------------ -------- -------- -------- --------Discontinued operations------------------------------ -------- -------- -------- --------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 from discontinuedoperations 6.5------------------------------ -------- -------- -------- --------Net profit attributable to equityshareholders 14.1------------------------------ -------- -------- -------- -------- 2005 ------------------------- Football Telephone Pools E-Gaming Betting GroupContinuing operations £m £m £m £m------------------------------ -------- -------- -------- --------Gross win revenue 57.4 9.7 - 67.1------------------------------ -------- -------- -------- --------Segment result before restructuring costs 24.4 (2.2) - 22.2Exceptional restructuring costs - ITVexit costs - (13.6) - (13.6)Exceptional restructuring costs - other (0.5) (1.2) - (1.7)------------------------------ -------- -------- -------- --------Segment result 23.9 (17.0) - 6.9------------------------------ -------- -------- -------- --------Interest expense (7.5)------------------------------ -------- -------- -------- --------(Loss) before tax (0.6)Taxation (1.1)------------------------------ -------- -------- -------- --------(Loss) for the year from continuingoperations (1.7)------------------------------ -------- -------- -------- --------Discontinued operations------------------------------ -------- -------- -------- --------Gross win revenue - 2.6 5.5 8.1------------------------------ -------- -------- -------- --------Segment result before restructuring costs - (2.7) (2.3) (5.0)Exceptional restructuring costs - other - - (0.8) (0.8)------------------------------ -------- -------- -------- --------Segment result - (2.7) (3.1) (5.8)------------------------------ -------- -------- -------- --------Taxation 1.7------------------------------ -------- -------- -------- --------(Loss) for the year from discontinuedoperations (4.1)------------------------------ -------- -------- -------- --------Net (loss) attributable to equityshareholders (5.8)------------------------------ -------- -------- -------- -------- 3. Discontinued Activities 2006 2005 £m £m Trading losses (1.3) (5.8)Tax on trading losses- current 0.4 1.7 ------- -------- 0.9 (4.1) ------- --------Profit on disposal of Bet Direct 10.6 -Tax on profit on disposal of Bet Direct- current (1.1) -- deferred (2.1) - ------- -------- 7.4 - ------- --------Profit/(loss) for the period from discontinued operations 6.5 (4.1)------------------------------------------ ------- -------- 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 gain 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 are as follows: 2006 2005 £m £mOperating (2.5) (3.1)Investing 10.7 (1.3)Financing (0.5) (0.2)------------------------------------------ ------- -------Net cash inflow /(outflow) 7.8 (4.6)------------------------------------------ ------- ------- 4. Restructuring costs All restructuring costs for continuing operations are included withinadministration costs within the profit and loss account. 2006 2005Continuing operations £m £m------------------------------------------ ------- --------Exceptional restructuring costs - e-Gaming - ITV exit costs - 13.6------------------------------------------ ------- --------Exceptional restructuring costs: - OtherFootball Pools 2.9 0.5e-Gaming - 1.2------------------------------------------ ------- -------- 2.9 1.7 ------- -------- 2.9 15.3 ------- --------Discontinued operationsExceptional restructuring costs: - Other - Telephone Betting - 0.8------------------------------------------ ------- --------Exceptional restructuring costs 2.9 16.1------------------------------------------ ------- --------ITV exit costsThe write off comprises:Write off of advance commissions 10.1Impairment of plant and equipment 1.6Impairment of intangible assets 1.0Other costs 0.9------------------------------------------ ------- -------- 13.6 ------- -------- The contract with ITV was terminated in the prior financial year. The exit costs comprised the write off of advance payments made since theinception of the contract with ITV that were to have been recovered againstfuture commissions to be earned by ITV over the life of the contract. Thesepayments were not recoverable in the event of a termination. The impairment of plant and equipment related to specific items used for thedelivery of service to ITV. The impairment of intangible assets related to thewrite off of unrecovered costs incurred in securing the ITV contract as well ase-Gaming software. Other costs mainly comprised staff redundancy expenses. Other restructuring costs Other exceptional restructuring costs in the current year relate to assetimpairments and accrued building lease payments resulting from the strategicreview of the business currently underway and relate to the rationalisation ofbuilding infrastructure and asset impairment charges, together with associatedstaff redundancy costs. Other exceptional restructuring costs in the prior year relate to further costsin respect of the establishment of an in house call centre and rationalisationof the e-Gaming cost base together with associated head office support costswithin the e-Gaming and Telephone Betting segments as well as rationalisation ofthe operating cost base within the Football Pools segment. 5. Tax on profit/(loss) on ordinary activities 2006 2005 £m £m --------- ----------Current tax - continuing operationsUK corporation tax at 30% (2005: 30%) 3.2 -Adjustments in respect of prior periods 0.1 -------------------------------------- --------- ----------Total current tax 3.3 -------------------------------------- --------- ----------Deferred tax - continuing operationsCurrent year (credit)/charge (0.4) 1.1Adjustments in respect of prior periods (1.4) -------------------------------------- --------- ----------Total deferred tax (1.8) 1.1------------------------------------- --------- ----------Total taxation charge 1.5 1.1------------------------------------- --------- ---------- The taxation charge for the period is lower (2005: higher) than the standardrate of corporation tax in the UK (30%). The differences are explained below: 2006 2005 £m £m --------- ----------Profit/(loss) on ordinary activities before tax 9.1 (0.6)------------------------------------- --------- ----------Profit/(loss) on ordinary activities multiplied by thestandard rate of corporation tax in the UK of 30%(2005: 30%) 2.7 (0.2)Effects of:Permanent differences 0.2 0.1Trading losses not previously recognised (1.5) -Trading losses not recognised - 1.2Adjustments to tax in respect of prior periods 0.1 -------------------------------------- --------- ----------Total taxation charge 1.5 1.1------------------------------------- --------- ---------- 6. Earnings/(loss) per share The calculations of earnings/(loss) per share (EPS) are based on the followingprofits/(losses) attributable to ordinary shareholders and the weighted averagenumbers of shares: 2006 2005 ------------------- ------------------ Weighted Weighted average average number of Per share number of Per share Profit shares amount Loss shares Amount £m '000 Pence £m '000 Pence------------------- ------ -------- -------- -------- -------- ---------Basic and diluted EPS 14.1 592,074 2.38 (5.8) 592,074 (0.97) -------------- ------ -------- -------- -------- -------- --------- Earnings per share from continuing operations--------------- ------ -------- -------- -------- -------- ---------Basic and diluted EPS 14.1 592,074 2.38 (5.8) 592,074 (0.97)Profit on sale ofBet Direct (net of tax) 7.4 592,074 (1.25) - 592,074 -Pre-tax losses fromdiscontinued operations (1.3) 592,074 0.22 5.8 592,074 0.97Tax relating todiscontinued operations 0.4 592,074 (0.07) (1.7) 592,074 (0.29) ------ -------- -------- -------- -------- -----------------------Basic and dilutedEPS from continuing operations 7.6 592,074 1.28 (1.7) 592,074 (0.29)--------------- ------- -------- -------- -------- -------- -------- 7. Cash flow from operating activities Reconciliation of operating profit to net cash flow from operating activities Group ------------- 2006 2005 Continuing operations £m £m---------------------------------------- -------- ---------Net profit/(loss) 7.6 (1.7)Adjustments for:Taxation 1.5 1.1Depreciation 0.8 2.0Impairment of property, plant and equipment 1.2 1.6Profit on disposal of property, plant and equipment - (0.4)Amortisation of intangibles 0.3 0.6Impairment of intangibles 0.1 1.0Interest expense 6.4 7.5Other non-cash changes 0.2 0.2Changes in working capital:Decrease in prepayments - 5.9(Increase)/decrease in trade and other receivables (0.2) 1.7(Decrease)/increase in trade and other payables (1.0) (0.4)---------------------------------------- -------- ---------Cash generated from/(used in) continuing operations 16.9 19.1---------------------------------------- -------- ---------Discontinued operations---------------------------------------- -------- ---------Net profit/(loss) 6.5 (4.1)Adjustments for:Taxation 2.8 (1.7)Depreciation - 0.2Profit on disposal of Bet Direct (10.6) -Amortisation of intangibles 0.1 0.8Changes in working capital:Decrease in trade and other receivables - 0.3Decrease in trade and other payables (0.7) 0.3---------------------------------------- -------- ---------Cash (used in) discontinued operations (1.9) (4.2)---------------------------------------- -------- ---------Cash generated from operations 15.0 14.9---------------------------------------- -------- --------- This information is provided by RNS The company news service from the London Stock Exchange