Final Results

Sportech PLC 5 March 2002 Sportech PLC Preliminary Results for the 12 months ended 31 December 2001 Sportech plc, owner of Littlewoods Leisure, the UK's leading home gaming company, today announced its preliminary results for the year ended 31 December 2001. Highlights * Operating profits from Littlewoods Leisure of £18.1m and EPS of 1.2 pence, excluding goodwill and non core technology patent business. * Sportech plc today announces a strategic partnership between Littlewoods Leisure and ITV whereby Littlewoods Leisure will provide interactive betting and gaming services linked to ITV programming. The two companies will work together to develop betting and gaming concepts to enhance entertainment for ITV viewers over all platforms. Both companies expect to benefit from the anticipated boom in interactive T.V. gaming and betting in the UK, a market predicted to reach £2.8bn per annum by 2006. This complements the provision of fixed odds betting, previously announced, on the 'attheraces' internet and T.V. channels. * Encouraging progress achieved across main business streams of Littlewoods Leisure: - Good operating performance from Littlewoods Football Pools with significant cost reductions achieved, further stabilisation of customer base and future benefits expected from pool betting duty reform in April 2002. - Profitability already achieved for portfolio of soft gaming and lottery products with future benefits expected from new games, affiliate arrangements and our on-line casino, Littlewoodscasino.com. - Strong growth of Littlewoods Bet Direct telephone and internet betting since October 6 duty change, with revenues 47% higher than previous year. * Over £10m generated for charities and good causes. Further de-regulation of the charity lotteries market, as proposed by the Budd report, would create opportunities to develop this market further and increase contributions to good causes. Colin McGill, Managing Director, Sportech said: 'These results are very pleasing, reflecting a first full year's trading from Littlewoods Leisure, our core business. We have established a clear strategy which aims to strengthen Littlewoods Leisure's position as the UK's leading home gaming company. Today's announcements, including the ground breaking deal with ITV, show that we are delivering on this strategy. 'Our key markets continue to offer significant growth potential to build on our brand distribution channels and strong customer base. Each week, 1.5 million people enjoy our range of gaming and betting products. We are able to offer both our customers and potential strategic partners the widest range of products from pools to lotteries and sports betting. We will continue to invest in new products, which are both entertaining and convenient to play and can be delivered through many channels. We are particularly excited by the potential of gaming opportunities surrounding television and, as demonstrated by our strategic partnerships with ITV and 'attheraces', we will be at the forefront of developments in this high growth market.' Enquiries Sportech Colin McGill, Managing Director 0151 288 3059 Gary Speakman, Finance Director 0151 288 3059 Suzanne Judge, Head of Corporate Communication 0151 288 3059 Bell Pottinger Financial Jonathon Brill / Charles Reynolds 020 7861 3232 Strategy Following the acquisition of Littlewoods Leisure in September 2000, the implementation of our strategy to deliver future growth and shareholder value is well underway. The strategy is centred on three core strengths namely: * the Littlewoods Leisure brand proposition, * multiple, convenient, distribution channels into the home * the widest range of gaming products available in the UK. We recognise that our 1.5m customers each week, already enjoy the convenience of our telephone services, our electronic hand held terminals, the internet and other electronic channels. To build on this we are making our existing and new gaming products increasingly accessible and easy to play. We are also improving the value of our betting products and extending, selectively, the range of gaming products we offer. We see the interactive television marketplace offering particularly exciting opportunities for the gaming industry and are looking to be at the forefront of developments in this area. We have been actively seeking a series of partnerships that can deliver compelling content and wide audience reach. In February we announced that we had secured a place as a fixed odds provider to the 'attheraces' interactive channels along with Ladbrokes and Surrey Sports. We are looking forward to developing this opportunity, which will be launched on Sky in May. We are also delighted to announce today a strategic partnership between Littlewoods Leisure and ITV whereby Littlewoods Leisure will provide interactive betting and gaming services linked to ITV programming. The two companies will work together to develop betting and gaming concepts to enhance entertainment for ITV viewers over all platforms. Both companies expect to benefit from the anticipated boom in interactive T.V. gaming and betting in the UK, a market predicted to reach £2.8bn per annum by 2006 (source KPMG). Our strategic aim is to strengthen our position as the UK's leading home gaming company. Financial Review These are the first full year results since the acquisition of Littlewoods Leisure and therefore prior year results are not directly comparable. The financial results for 2001 are very pleasing reflecting a full 12 months of trading from our core gaming business Littlewoods Leisure. Operating profits before goodwill from Littlewoods Leisure were £18.1m offset by £0.6m of costs relating to the non core technology patent business. The group profit before tax and interest payable, was £8.6m. The effective tax rate is reduced to 20.5% reflecting the reversal of timing differences in respect of capital allowances upon which no deferred tax asset had been recognised. Excluding the impact of the non core technology patent business and goodwill, underlying EPS was 1.2p (based on the loss of £2.3m adjusted for goodwill amortisation of £8.9m and a post tax loss of £0.4m from the patent technology business). Net cash flow from operating activities, including restructuring payments of £1.8m provided in the 2000 accounts, was £15.7m. Littlewoods Leisure generated operating cashflow, excluding restructuring, of £18.1m. This strong underlying cash flow is being used to drive our strategy forward and satisfy our financial obligations. Net debt at the end of the period increased marginally to £125.0m (£124.2m 2000) principally due to final tax payments relating to the technology patent business. Bank borrowings were reduced by an early repayment of £6.0m to £133.8m. Operating Review Sportech has two business segments being Littlewoods Leisure and its technology patent portfolio from which we seek to realise further value. The Littlewoods Leisure business streams reflect the key product categories, namely football pools, games and lotteries and sports betting: Analysis of Littlewoods Leisure Profits (£m) for the 12 months period ended 31 December 2001. Football Pools Sports Games and On-Line Total Lotteries Betting Development Littlewoods Leisure Turnover 119.0 51.8 12.5 183.3 Operating Profit Before 23.2 (4.0) 0.5 (1.6) 18.1 Amortisation of Goodwill and Restructuring Note: Lotteries turnover within the Games & Lotteries business stream represents the fee earned by Littlewoods as the Lottery Manager. The actual customer spend generated by the Games and Lotteries business stream was £25.3m. Football Pools The football pools business performed strongly with operating profits at £23.2m. There was further stabilisation of the main football pools competition with average revenues 17% lower compared to the prior year, a lower rate of decline than that experienced in previous years. The business continues to evolve and now more than 68% of pools entries are gathered by direct methods such as telephone and electronic hand held terminals. Revenues from these direct methods were down just 10.5% compared to the previous year. The increased automation of processing and marking has enabled costs to be reduced dramatically and this will continue as new scanning technologies are introduced in May. In terms of the future development of this business, we have been encouraged by the positive research into new football games and the government announcement that they will change the basis of pool betting duty from April 2002. Sports Betting As reported in the interim results, our telephone betting revenues in the first half of the year were impacted by a combination of bad weather, foot and mouth disease and offshore tax concessions. The tax burden had been particularly significant with £0.8m of tax subsidies contributing to the £4m full year loss. However, in the final quarter of the year, aided by the stimulation of the duty reform and the Littlewoods Bet Direct 'best value' concessions, sports betting revenues began to drive forward with renewed vigour, up 47% on the previous year. We have continued to invest in the business with customer numbers also increased from 165,000 at December 2000, to 227,000 at December 2001. Gross margins, measured as stakes less winnings, held up well during this period at 11.2% which was in line with our full year performance. After allowing for the impact of the gross profits tax and levies, net margins during the final quarter at 8.2% were 1.4% pts lower than pre October 6. However the growth prospects for telephone and internet betting, enhanced further by our presence on the 'attheraces' and ITV channels, means that this business is now well positioned to deliver profits in 2002. Games & Lotteries The portfolio of games and lottery products is now profitable and prospects for future growth are good. Spot The Ball competition and the PrizeBuster lottery performed particularly well. Our investment in new distribution channels and new games has continued, particularly in pay to play gaming concepts for the emerging television, internet and electronic channels. We believe strongly that we have the brand, product range and customer base to take advantage of the growth prospects from these new channels into the home. We have recently launched a new football quiz game, Shoot2Win, which is one of the first SMS (short messaging service) based games to be available on all four mobile networks. A new soft game internet portal will be launched by mid 2002. We are also developing affiliate agreements, for example in early February we introduced the Jewish Lottery in partnership with Totally Plc and Jewish Care. Future benefits are also expected from our on-line casino, Littlewoodscasino.com Regulatory Developments The Directors recognise the high level of trust associated with the Littlewoods gaming brand and believe strongly that operating from a UK regulatory environment, with its unrivalled reputation, is key to achieving the company's strategy. Indeed, in line with our strategy, we resisted the temptation to locate our on line and telephone sports betting business, Littlewoods Bet Direct, outside the UK jurisdiction. Although this came at a cost in the period to October 6 2001, Littlewoods Bet Direct is now very well placed to take advantage of the projected growth within the UK and, in due course, the international markets. Having decided to extend our extensive product range even further, to encompass on-line casino games, we were delighted to be awarded, along with MGM and Sun International, one of the first licences to operate such a business in the Isle of Man, another jurisdiction with a highly regarded reputation. During the last year we have continued to work closely with the UK government during it's review of legislation and taxation and we were pleased that we were able to commit to the football pools supporting good causes for a further two years. Our overall contributions to good causes and charities in the year was over £10m. The reforms of both general betting duty from October 6 2001 and pool betting duty from April 2002, will be of significant benefit to our organisation. The prospects for further de-regulation are also good, which, if implemented, should bring a boost to our lotteries business in particular and the charities that it supports. Proposed reduction of share capital As at 31 December 2001, the Company had a deficit on its own profit and loss account of some £55.9m. This deficit arose mainly as a result of losses incurred in the period prior to the Company's acquisition of Littlewoods Leisure. Accordingly, the company is currently unable to pay dividends. The Board has decided that a proposal should be put to shareholders to reduce the share capital of the Company by cancelling the Company's share premium account in order to reduce the accumulated deficit on the Company's profit and loss account. This will bring forward the time when the company may be able to pay dividends in the future. Such a capital reduction is subject to the passing of a special resolution at the Annual General Meeting and to the confirmation of the Court of Session in Scotland, which would be sought immediately after the passing of the special resolution. Board Malcolm McIver retired from the Board as Chairman on December 31 2001. I would like to thank Malcolm on behalf of the Board for his contribution over almost 20 years as a Board member. We wish him well on his retirement. Outlook The company enters 2002 well positioned to build upon its success of the last year. Immediate growth prospects are good, particularly when one considers the potential benefits arising from the 2002 World Cup from our strong association with football through pools competitions and betting. In the medium and long term there are significant opportunities surrounding de-regulation of the UK betting and gaming market and the further development of gaming in the home, particularly via television. The combination of our brand strength, extended distribution channels and the breadth of our quality product lines means Sportech is excellently placed to reap the benefits of an exciting future. The Board approved this preliminary statement on Monday 4 March 2002. David Mathewson, Chairman 4th March 2002 Consolidated Profit & Loss Account For the year ended 31 December 2001 Unaudited Audited 12 months 15 months ended 31 Dec ended 31 Dec Notes 2001 2000 £m £m Group turnover 183.3 63.0 Cost of sales (129.3) (46.9) --------------------- --------------------- Gross profit 54.0 16.1 Net operating (expenes)/ income (45.4) 9.6 Operating profit before restructuring costs, amortisation of goodwill and other operating income 17.5 2.5 Exceptional - restructuring costs 2. - (1.8) Amortisation of goodwill (8.9) (2.8) Other operating income 3. - 27.8 --------------------- --------------------- Operating profit 8.6 25.7 Discount on redemption of loan stock 4. - 3.9 Net interest payable (9.2) (2.9) --------------------- --------------------- Interest and similar items (9.2) 1.0 --------------------- --------------------- (Loss)/profit on ordinary activities (0.6) 26.7 before taxation Tax on (loss)/profit on ordinary 5. (1.7) (4.6) activities --------------------- --------------------- Retained (loss)/profit for the financial period (2.3) 22.1 ========== ========== Earnings per share 6. (0.39)p 4.79p Basic ========== ========== 1.11p 5.40p Pre amortisation of goodwill ========== ========== The group has no recognised gains or losses other than its profit for the financial period. All operations are continuing. Reconciliation of movement in group shareholder's funds For the year ended 31 December 2001 Unaudited Audited 12 months 15 months to 31 Dec to 31 Dec 2001 2000 £m £m Profit for the financial period (2.3) 22.1 Proceeds of ordinary shares issued for cash - 28.7 Issue expenses charged to share premium account - (0.8) ------------------- ------------------- Net change in shareholders' funds (2.3) 50.0 Shareholders' funds at 1 January 2001 29.6 (20.4) ------------------- ------------------- Shareholders' funds at 31 December 2001 27.3 29.6 =========== =========== Consolidated Balance Sheet as at 31 December 2001 Group Unaudited Audited 31 Dec 31 Dec 2001 2000 £m £m FIXED ASSETS Intangible assets - goodwill 162.1 169.8 Tangible assets 7.2 8.7 ---------------- --------------- 169.3 178.5 CURRENT ASSETS Stocks 0.2 0.2 Debtors 5.7 8.5 Cash at bank and in hand 12.9 17.9 ---------------- --------------- 18.8 26.6 CREDITORS Amounts falling due within one year (42.9) (34.0) ---------------- --------------- NET CURRENT LIABILITIES (24.1) (7.4) ---------------- --------------- TOTAL ASSETS LESS CURRENT LIABILITIES 145.2 171.1 CREDITORS Amounts falling due after more than one year (117.9) (139.7) PROVISIONS FOR LIABILITIES AND CHARGES - (1.8) ---------------- --------------- 27.3 29.6 ========= ========= CAPITAL AND RESERVES Called up share capital 30.5 30.5 Share premium account 47.1 47.1 Profit & loss account (50.3) (48.0) ---------------- --------------- TOTAL SHAREHOLDERS' FUNDS (including non-equity interests) 27.3 29.6 ========= ========= Consolidated Cash Flow Statement For the year ended 31 December 2001 Unaudited Audited Year 15 months to 31 Dec to 31 Dec Notes 2001 2000 £m £m £m £m Net cash inflow from operating activities 7. 15.7 32.4 Returns on investments and servicing of finance: Interest received 0.4 0.6 Interest paid (10.2) (2.8) Issue costs of new bank loans - (0.4) Purchase of interest rate cap (0.9) - ---------- ---------- Net cash outflow from returns on investments and servicing of finance (10.7) (2.6) Taxation (4.3) (2.2) Capital expenditure and financial investment Purchase of tangible fixed assets (2.0) (0.3) Sale of tangible fixed assets 0.2 - ----------- ---------- Net cash outflow from capital expenditure and (1.8) (0.3) financial investment Acquisition of subsidiary undertakings: Acquisition of Littlewoods Leisure - (162.5) Acquisition expenses - (1.6) Net cash acquired with subsidiaries - 2.3 ----------- ---------- Net cash inflow from acquisitions and disposals - (161.8) ----------- ---------- Cash outflow before management of liquid (1.1) (134.5) resources and finance Financing: Issue of ordinary share capital - 28.7 Expenses of share issue - (0.8) Net loans (repaid)/taken (6.0) 123.6 ----------- ---------- Net cash (outflow)/inflow from financing (6.0) 151.5 ----------- ---------- (Decrease)/increase in net cash 8. (7.1) 17.0 ====== ====== Notes 1. Basis of reporting a) The preliminary results have been prepared on the basis of the accounting policies set out in the group's 2000 financial statements. The preliminary results have been drawn up for the period from 1 January 2001 to 4 January 2002. b) The preliminary results for the year ended 31 December 2001 are unaudited. The financial information on pages 6 to 12 does not amount to full financial statements within the meaning of Section 240 of the Companies Act 1985 (as amended). 2. Exceptional item - Prior period restructuring costs The restructuring costs comprise largely of redundancy costs in respect of the integration of Littlewoods Leisure and the closure of the Edinburgh office of Sportech following the acquisition of Littlewoods Leisure. 3. Other operating income 2001 2000 £m £m Proceeds from settlement of Seagate litigation - 27.8 ===== ====== On 18 November 1992 the company initiated litigation against Seagate Technology Inc. in the United States District Court for the Central District of California seeking damages for wilful infringement by Seagate of the company's '383 patent and for unfair competition and interference with prospective economic advantage. In January 2000, on the advice of its lawyers, Sportech agreed to participate in mediation discussions with Seagate. As a result of the mediation, Sportech and Seagate agreed to settle their dispute, without admission of liability by either party, and Seagate paid to Sportech the sum of £27.8m in full and final settlement of Sportech's claims under its '383 patent. 4. Discount on redemption of loan stock In January 2000, the company negotiated to pay the Bank of Scotland £16.9m out of the proceeds received from Seagate in full settlement of its outstanding loan stock. The bank agreed to a discount of £3.9m as part of negotiations. 5. Taxation The taxation charge for the period has been reduced by £0.8m by the reversal of timing differences in respect of capital allowances upon which no deferred tax asset had been recognised. 6. Earnings per Share The calculations of earnings per share are based on the following profits and numbers of shares. 2001 2000 Earnings Weighted Per Earnings Weighted Per Average Share Average Share Number of Amount Number of Amount shares pence shares pence £m '000 £m '000 Basic EPS excluding goodwill amortisation 6.6 592,074 1.11p 24.9 462,532 5.40p Effect of goodwill amortisation (8.9) 592,074 (1.50p) (2.8) 462,532 (0.61p) ------------ ------------- ----------- ------------ ------------ ---------- Basic EPS (2.3) 592,074 (0.39p) 22.1 462,532 4.79p ======= ======= ====== ======= ====== ===== 7. Reconciliation of operating profit to operating cash flows 2001 2000 £m £m Operating profit 8.6 25.7 (Decrease)/increase in provisions (1.8) 1.8 Depreciation on tangible fixed assets 2.2 1.2 Amortisation of goodwill 8.9 2.8 Amortisation of loan arrangement fee 0.1 0.1 Surplus on disposal of tangible fixed assets (0.1) - Decrease in stocks - 0.1 Decrease in trade debtors 0.6 1.9 Decrease/(increase) in other debtors 0.9 (0.1) Decrease in prepayments 2.2 0.5 Increase/(decrease) in trade creditors 0.8 (2.1) (Decrease) in other taxes (0.3) (0.6) (Decrease)/increase in accruals and deferred income (6.4) 1.1 --------------- ------------- Net cash inflow from operating activities 15.7 32.4 ======== ======= 8. Analysis and reconciliation of net debt At 1 January Cash flow Other movement At 2001 31 December 2001 £m £m £m £m Cash at bank and in hand excluding charity cash balances 16.3 (4.6) - 11.7 Bank overdrafts (0.8) (2.1) - (2.9) ------------ ------------ ----------- ------------ 15.5 (6.7) - 8.8 ------------ ------------ ----------- ------------ Debt due within one year - - (15.9) (15.9) Debt due after one year (139.7) 6.0 15.8 (117.9) ------------ ------------ ----------- ------------ (139.7) 6.0 (0.1) (133.8) ------------ ------------ ----------- ------------ (124.2) (0.7) (0.1) (125.0) ======= ======== ======= ======== 2001 2000 £m £m (Decrease)/increase in cash in period (7.1) 17.0 Decrease/(increase) in charity cash 0.4 (1.6) --------------- -------------- Change in net debt resulting from cash flows (6.7) 15.4 Cash outflow/(inflow) from reduction/(increase) in loans 5.9 (123.3) Discount on redemption of loan - 3.9 --------------- -------------- Movement in net debt for the period (0.8) (104.0) At 1 January 2001 (124.2) (20.2) -------------- -------------- At 31 December 2001 (125.0) (124.2) ========= ======== This information is provided by RNS The company news service from the London Stock Exchange

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