Interim Results

Sportech PLC 4 September 2001 4 September 2001 Sportech PLC Interim Results for six months ended 30th June 2001 Highlights * Operating profits from Littlewoods Leisure of £9.3m (EBITDA £11m) * First stage of interactive television strategy implemented with contract signed to develop games content and promote Littlewoods games on ITV digital platform * Product portfolio widening with planned launch of Littlewoods On Line Casino in October * Continued strong growth in Sports Betting customer base to over 208,000 registered customers * Significant benefits expected from changes to betting tax in October and further de-regulation of gaming market, particularly for Pools and Lotteries. Colin McGill, Managing Director, Sportech said: 'During the six month period, we have delivered an excellent profit performance from the Littlewoods football pools business, providing a sustainable platform for investment in innovative gaming products and new distribution capabilities. Littlewoods Leisure has a great brand, access to a customer base of over 1.6 million households and the widest range of gaming products available in the UK. 'The markets in which we operate currently offer unparalleled growth potential and we are uniquely placed to take advantage of these opportunities, both on our own and in conjunction with the right partners. Enquiries Sportech Colin McGill, Managing Director Gary Speakman, Finance Director 020 7353 9203 on 4th September 0151 525 3677 thereafter Bell Pottinger Financial Jonathon Brill/Rebecca Fox/Oliver Jones 020 7353 9203 SPORTECH PLC Unaudited Interim Results for 6 months ended 30th June 2001 Chairman's Statement I am pleased to report to shareholders that during the six months ended 30th June we have made real progress in the development of our business whilst delivering a very satisfactory financial performance. Sportech, through the acquisition of Littlewoods Leisure, is now firmly focused on gaming. In July of this year, the Company signed an agreement with Scipher Plc to exploit the portfolio of 20 US and European patents managed by our Rodime Technology subsidiary. The agreement will allow us to reduce the day to day running costs of managing the portfolio, whilst extending our expertise in seeking commercial opportunities for our intellectual property. This agreement with Scipher Plc allows the Board to concentrate on the significant opportunities within the gaming market as we pursue our aim to be the pre-eminent supplier of gaming products to the home. Operating profit from Littlewoods Leisure was £9.3m for the six months ended 30th June 2001 (EBITDA £11m), largely due to a strong profit performance from our football pools business. During the period, and subsequently, we have also increased our investment in new products and new distribution channels with a number of major initiatives designed to take the business forward: * In August we announced that Littlewoods Leisure will become the exclusive sponsor of ITV's interactive football coverage. Littlewoods Leisure will offer ITV Digital's 1.2 million households the opportunity to predict match statistics during live football games. ITV will also promote Littlewoods own gaming products focused around our football pools game which now offers a £2m prize each week, but also including Littlewoods Bet Direct's sports betting and Prizebuster Lotteries. This unique interactive package will bring an enhanced viewing experience to ITV Digital's customers. At the same time, we will be able to generate revenues from Littlewoods products and expand our established customer base of over 1.6 million households through this new channel. * We have continued to recruit customers to our Littlewoods Bet Direct sports betting business. With over 208,000 registered customers (165,000 at December 2000) this business is poised to derive significant benefit from the impending changes in general betting duty. * The development of a Littlewoods on-line casino is well advanced with an expected launch in late October. A further update on progress towards the launch of the casino will be given before the end of September. * Our new channel developments are not restricted to e-gaming. In July we announced that we would launch a new Sports Magazine concept to promote betting opportunities and our games. This magazine will be launched at the end of September and distributed to at least 100,000 carefully targeted homes, thereby achieving immediately the largest circulation for any sports magazine in the UK. We also welcome the findings of the Government Gambling Review Body. Essentially this provides significant opportunities for our Pools and Lottery businesses. Many of the restrictions that have limited the diversity of products and access to them will be removed if the Review Body's proposals are implemented. Financial Review These are the first interim results since the acquisition of Littlewoods Leisure in September 2000 and therefore prior year results are not directly comparable. Reported operating profits for the entire business of £8.6m comprised £9.3m from Littlewoods Leisure and technology / corporate costs of £ 0.7m. After amortisation of goodwill of £4.3m and net interest payable of £ 4.7m, the group loss before tax was £0.4m The Littlewoods Leisure operating profits reflect three main business streams; football pools, sports betting and games and lotteries. £m Football Sports Games On Total Pools Betting and line Littlewoods Lotteries Development Leisure Turnover 60.7 23.6 7.0 - 91.3 Operating Profit before amortisation of goodwill 11.7 (1.9) 0.1 (0.6) 9.3 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 £13m. Net cash flow from operating activities, including redundancy payments of £ 1.6m provided in the 2000 accounts, was £5.1m. This cash was used principally to service our loan obligations. Net debt at the end of the period was £128.2m with loan facilities reduced by an early repayment of £6m. Business Review Football Pools The main 'treble chance' football pools game, offering a weekly prize of £2m, remains one of the most popular competitions in the UK with around 1.2 million regular weekly customers. With over 65% of game entries now gathered either by telephone or electronically, we are experiencing improved stabilisation of revenues. In particular our telephone based revenues at £17m were just 14% down on the comparable period last year, which is a much lower rate of decline than that experienced in previous years. Customers are also clearly enjoying the convenience of playing by our portable 'poolscard' terminals. Over 12,000 of these terminals are in service with total revenues of £22.2m over the six month period. During May and June, 'like for like' revenues via this electronic channel were 2% up on last year. This deliberate re-positioning of our distribution will enable us to integrate our existing and new football games with interactive digital television and other e-gaming channels. Notwithstanding the continued decline in the traditional paper coupon entries, the annualised rate of revenue decline had reduced to 18% by June and this improving trend is expected to continue. Further operational efficiencies enabled this business stream to maintain profitability and cashflow. We are very pleased with the specific recommendations of the Government's Gambling Review Body, which addressed all of the key points contained in our submission. In particular Pools Competitions relating to any sport and on any number of fixtures should be permitted to operate through retail premises, whilst winnings could be paid out by retailers to a similar level as the National Lottery. Given the overall size of the existing market place, both in the UK and overseas, for high jackpot games and the positive impacts arising from de-regulation and new distribution channels, we are progressing the development of a new pools offering which will enable us to compete more effectively for new customers. Sports Betting The very strong turnover growth experienced since the launch of Littlewoods Bet Direct in 1998 was impacted adversely in the first half of 2001 by the cancellation of sporting events caused by movement restrictions resulting from foot and mouth disease. This impact was particularly pronounced on the telephone and on line channels, where the stimulation of live and televised sporting events is important. Despite this, overall sports betting revenues were 4% up on the comparable period for last year with average weekly stakes in June at £1.2m . Gross margin, measured as bets placed less full UK duty, levies and winnings returned to customers, was 11% for the period. In preparation for the new betting tax regime from 6th October 2001, we have continued to invest in recruitment and ended the period with 208,000 registered customers of whom 77,500 were active (Note: active customers are defined as those that have bet with us in the previous three months). The lower volumes than expected, the cost of customer recruitment and the burden of bearing UK betting duty (£0.5m in first half 2001) resulted in an operating loss of £1.9m. In the second half of the year, the Company will clearly benefit from the abolition of General Betting Duty and the shift to a gross profits based tax. The legislative change will now take effect from 6th October 2001. The Directors firmly believe that Littlewoods Bet Direct, has the right value proposition, customer base and call handling capability to take advantage of this new tax environment. Games and Lotteries During the period under review we continued our investment in new product concepts, particularly for electronic channels. A number of new products are currently under test with our on-line casino on track for launch in late October. The performance of the new PrizeBuster lottery games offering customers the chance to win an average prize of £7,000 by selecting 4 numbers from the UK National Lottery, has been particularly encouraging. We have also continued to develop our strategy to become the gaming partner of choice, with Glasgow Rangers and Celtic football clubs choosing Littlewoods Leisure to operate separate branded lotteries on their behalf. We are in discussions with other leading football clubs to develop this concept further. The partnerships with Charities also remain important to us. During the last six months we have strengthened our relationships with high profile charities such as Mencap, Comic Relief, Blue Cross and Royal British Legion, whilst establishing a new lottery on behalf of the Princess Royal Trust for Carers. We have received the Review Body's support on all the major points contained in our submission. In particular: * The limits on the size of prizes and the maximum annual proceeds of a Society Lottery should be removed. * The limit on price of tickets, currently £1, should be removed. * Roll-overs should be permitted. * Society Lotteries should be allowed to sell tickets in all territories permitted for the National Lottery - Northern Ireland, I.O.M. and the Channel Islands are currently excluded. * Selling lottery tickets by machine, without human intervention should be allowed. As the dominant Charity Lottery Manager in the UK, the implementation of these recommendations will provide us with unrivalled opportunities to recruit customers who enjoy playing lotteries. Outlook Gaming and gambling have been one of the few interactive television services to have generated significant revenues to date. Market analysts forecast that the interactive television gaming market in the UK will be worth around £2.8 billion by 2006. To take advantage of this opportunity, there has been an increased emphasis for gaming operators to secure access to strong TV programming content and we are therefore delighted to have signed an initial contract with ITV. In strategic terms the Littlewoods Leisure brand remains a key strength. To exploit this further and to build on our existing customer base, we have initiated intensive marketing and advertising from the beginning of the new football season. A variety of media agreement has been reached with iTV Sport, Talk Sport Radio, Express Newspapers and selected terrestrial and cable television companies. These deals will promote the Littlewoods Leisure brand as offering the widest range of gaming products in the UK. With the significant potential offered by new on-line channels such as interactive digital television, the benefits of a new tax regime and further de-regulation, the outlook for our business is very positive. Malcolm McIver Chairman 4th September 2001 Consolidated Profit & Loss Account 6 months to 6 months to 15 months to 31 30 June 30 June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) Notes £m £m £m Group turnover 3 91.3 - 63.0 Cost of sales (64.1) - (46.9) ----------- ----------- --------- Gross profit 27.2 - 16.1 Net operating 4 (22.9) 26.8 9.6 income/(expenses) ----------- ----------- --------- Operating profit 4.3 26.8 25.7 Operating profit/(loss) before restructuring costs, amortisation of goodwill and other 8.6 (1.0) 2.5 operating income. Exceptional restructuring - - (1.8) costs Amortisation of goodwill (4.3) - (2.8) Other operating income 6 - 27.8 27.8 Operating profit 4.3 26.8 25.7 Discount on redemption of - 3.9 3.9 loan stock Net interest (4.7) 0.3 (2.9) (payable)/receivable Interest and similar 5 (4.7) 4.2 1.0 items ----------- ----------- --------- Profit/(loss) on ordinary activities before 3 (0.4) 31.0 26.7 taxation Tax on profit on ordinary 7 (1.1) (5.3) (4.6) activities ----------- ----------- --------- Profit/(loss) on ordinary (1.5) 25.7 22.1 activities after taxation Dividends - - - ----------- ----------- --------- Retained profit/(loss) (1.5) 25.7 22.1 for the financial period =========== =========== ========= Earnings per share 8 Basic (0.26)p 5.56p 4.79p =========== =========== ========= Pre amortisation of goodwill 0.46p 5.56p 5.40p =========== =========== ========= All results are from continuing businesses The group has no recognised gains or losses other than its loss for the financial period. The 15 months to 31 December 2000 only include 16 weeks of trading of Littlewoods Leisure. Reconciliation of movement in group shareholders' funds 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m (Loss)/profit for (1.5) 25.7 22.1 the financial period Proceeds of ordinary - - 28.7 shares issued for cash Issue expenses charged to share premium account - - (0.8) ---------- ---------- ---------- Net change in (1.5) 25.7 50.0 shareholders' funds Shareholders' funds 29.6 (21.1) (20.4) at start of period ---------- ---------- ---------- Shareholders' funds 28.1 4.6 29.6 at end of period ========== ========== ========== Consolidated Balance Sheet as at 30 June 2001 30 June 30 June 31 December Notes 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m FIXED ASSETS Intangible assets - 164.9 - 169.8 goodwill Tangible assets 7.8 - 8.7 ---------- ---------- ---------- 172.7 - 178.5 CURRENT ASSETS Stocks 0.2 - 0.2 Debtors 7.6 - 8.5 Cash at bank and in 9 6.9 10.1 17.9 hand 14.7 10.1 26.6 CREDITORS Amounts falling due (31.3) (5.5) (34.0) within one year ---------- ---------- ---------- NET CURRENT (LIABILITIES) (16.6) 4.6 (7.4) /ASSETS ---------- ---------- ---------- TOTAL ASSETS LESS CURRENT 156.1 4.6 171.1 LIABILITIES CREDITORS Amounts falling due after more than (127.8) - (139.7) one year PROVISIONS FOR LIABILITIES AND CHARGES (0.2) - (1.8) ---------- ---------- ---------- NET ASSETS 28.1 4.6 29.6 ========== ========== ========== CAPITAL AND RESERVES Called up share 30.5 13.6 30.5 capital Share premium 47.1 33.3 47.1 account Profit & loss (49.5) (42.3) (48.0) account ---------- ---------- ---------- TOTAL SHAREHOLDERS FUNDS (including non-equity interests) 28.1 4.6 29.6 ========== ========== ========== The interim accounts on pages 5 to 11 were approved by the board of directors on 3 September 2001. Consolidated Cash Flow Statement 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) Notes £m £m £m Net cash inflow from 10 5.1 26.4 32.4 operating activities Returns on investments and servicing of finance: Interest received 0.3 0.3 0.6 Interest paid (5.0) - (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 (5.6) 0.3 (2.6) servicing of finance Taxation (3.0) (0.4) (2.2) Capital expenditure and financial investment Purchase of tangible (0.8) - (0.3) fixed assets Net cash outflow from capital expenditure and financial (0.8) - (0.3) investment Acquisition of subsidiary undertakings: Acquisition of - - (162.5) Littlewoods Leisure Acquisition expenses - - (1.6) Net cash acquired - - 2.3 with subsidiary ---------- ---------- ---------- Net cash outflow from acquisitions and - - (161.8) disposals Equity dividends paid - - - ---------- ---------- ---------- Cash inflow/(outflow) before managing of liquid resources and (4.3) 26.3 (134.5) finance Financing: Issue of ordinary - - 28.7 share capital Expenses of share - - (0.8) issue Net loans (6.0) (16.4) 123.6 (repaid)/taken Net cash (outflow)/ inflow from financing (6.0) (16.4) 151.5 (Decrease)/increase 11 (10.3) 9.9 17.0 in net cash Notes to the interim report 1.Accounting Policies The results for the half year ended 30 June 2001 have been prepared on the basis of the accounting policies set out in the Report and accounts for the 15 months ended 31 December 2001 2.Non-statutory accounts The results for the half-year to 30 June are neither audited nor reviewed by the auditors. The financial information on pages 5 to 11 does not amount to full accounts within the meaning of Section 240 of the Companies Act 1985 (as amended) The comparative figures for the 15 months ended 31 December 2000 do not constitute statutory accounts. These figures have been extracted from the audited accounts for that period which have been delivered to the registrar of companies and on which the auditors issued an unqualified report which did not contain a statement under either section 237 (2) or (3) of the Companies act 1985. 3. Segmental reporting 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m Turnover Littlewoods Leisure 91.3 - 63.0 Technology - - - 91.3 - 63.0 Profit/(loss) before tax Littlewoods Leisure 0.3 - 0.7 Technology/ Corporate (0.7) 31.0 25.0 --------- -------- ------- (0.4) 31.0 25.7 ======== ======== ======= 4. Operating expenses 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m Distribution costs (0.4) - (0.1) ---------- ---------- --------- Other administrative (18.2) (1.0) (13.5) expenses Exceptional - - (1.8) restructuring costs Amortisation of (4.3) - (2.8) goodwill ---------- ---------- --------- Administration (22.5) (1.0) (18.1) expenses ---------- ---------- --------- Other operating income - 27.8 27.8 ---------- ---------- --------- (22.9) 26.8 9.6 ========== ========== ========= 5. Interest and Similar Items 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m Discount on redemption - 3.9 3.9 of loan stock --------- --------- --------- Interest payable on (5.0) - (3.5) bank loans and overdrafts Interest receivable 0.3 0.3 0.6 ---------- --------- --------- Net interest payable (4.7) 0.3 (2.9) ---------- --------- --------- (4.7) 4.2 1.0 ========== ========= ========= 6. Other operating income 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m Proceeds from - 27.8 27.8 settlement of Seagate litigation ========== ========= ========= 7.Taxation Taxation is provided on taxable profits at 25.9% being the anticipated rate of taxation for the group's current financial year. 8. Earnings per share The calculation of earnings per share is based on the net loss attributable to ordinary shareholders of £1.5 million divided by the weighted average number of shares in issue during the period - 592.1 million (6 months to 30 June 2000 - 462.5 million; 15 months to 31 December 2000 - 462.5 million). 9. Cash £4.3 million of the cash and bank balances are committed security against deferred payments due under a contractual obligation of a subsidiary company. 10. Reconciliation of operating profit to operating cash flows 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m Operating profit 4.3 26.8 25.7 Exchange movement on - (0.7) - loans (Decrease)/increase in (1.6) - 1.8 provisions Depreciation on tangible 1.7 - 1.2 fixed assets Amortisation of goodwill 4.3 - 2.8 Amortisation of loan - - 0.1 arrangement fee Decrease in stocks - - 0.1 (Increase)/decrease in (0.2) - 1.9 trade debtors (Increase)/decrease in other 0.1 - (0.1) debtors Decrease in prepayments 2.5 - 0.5 Increase/(decrease) in (1.0) 0.3 (2.1) trade creditors Increase/(decrease) in 3.3 - - other creditors (Decrease) in other taxes (1.6) - (0.6) Increase/(decrease) in accruals and deferred (6.7) - 1.1 income ---------- ---------- ---------- Net cash inflow from 5.1 26.4 32.4 operating activities ========== ========== ========== 11. Analysis and reconciliation of net debt At 31 December Cash Non-cash At 30 June 2000 flow changes 2001 £m £m £m £m Cash at bank and in hand excluding charity cash 16.3 (10.7) - 5.6 balances Bank overdrafts (0.8) 0.7 - (0.1) ------- ------- ------- ------ 15.5 (10.0) - 5.5 ------- ------- ------- ------ Debt due within one - - (5.9) (5.9) year Debt due after one (139.7) 6.0 5.9 (127.8) year ------- ------- ------- ------- (139.7) 6.0 - (133.7) ------- ------- ------- ------- (124.2) (4.0) - (128.2) ======= ======= ======= ======= 6 months to 30 6 months to 30 15 months to 31 June June December 2001 2000 2000 (Unaudited) (Unaudited) (Audited) £m £m £m (Decrease)/increase in (10.3) 10.0 17.0 cash in period Less decrease/ 0.3 - (1.6) (increase) in charity cash ---------- ---------- ---------- Change in net debt resulting from cash (10.0) 10.0 15.4 flows Cash outflow from 6.0 16.4 16.4 reduction in loans Cash inflow from - - (139.7) increase in loans Loan forgiven - 3.9 3.9 ---------- ---------- --------- Movement in net debt (4.0) 30.3 (104.0) for the period At start of period (124.2) (20.2) (20.2) ---------- ---------- --------- At end of period (128.2) 10.1 (124.2) ========== ========== =========

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