Interim Results
Sportech PLC
30 September 2003
30 September 2003
Sportech PLC
Interim Results for six months ended 30 June 2003
Highlights
•Profit before tax* up 30% to £6.1m (2002: £4.7m).
•Turnover up 10% to £106.3m (2002: £96.7m) with a 34% increase in Betting
turnover.
•Soft Gaming operating profit* up 9% to £10.7m (2002: £9.8m) after
increased revenue expenditure of £2.4m (2002: £1.1m) on Interactive and
Retail Developments to drive future growth.
•Betting operating loss* of £1.8m (2002: £1.0m) due to poor horse racing
results, as experienced by the industry generally, and increased marketing.
•Earnings per share* up 16% at 0.73p (2002: 0.63p).
•Net debt reduced by £6.3m to £119.0m (2002: £125.3m).
•Continued progress in delivery of television gaming strategy:
•Successful trial of programme-linked 'I'm a Celebrity Get Me Out of
Here' interactive game on ITV, May 2003.
•Launch of interactive betting on Attheraces TV channel, August 2003.
•Launch of ITVi brand on ITV (24:7 interactive service) expected
shortly, with gaming and betting products to be progressively introduced
on the ITVi 24:7service over the coming months.
*Before amortisation of goodwill.
Colin McGill, Managing Director, Sportech said:
'I am pleased to report further improvement in the financial performance of the
business. These first half results demonstrate a growing demand for our existing
portfolio of products, whilst continued investment in television and retail
distribution has created a unique capability for future growth.
We look forward to the launch of the ITVi brand and its 24:7 interactive
service. We will be providing a number of interactive gaming and betting
offerings on this service over the coming months, with a view to triggering
official commencement of our long term contract with ITV in the first quarter of
2004.
Our brand remains unparalleled in the Soft Gaming market. The second half of the
year marks the 80th Anniversary of Littlewoods Pools, and we look forward to
further success as we capitalise on the new opportunities we have established.'
Enquiries:
Sportech PLC
Suzanne Judge 0151 288 3059
Bell Pottinger Financial
Jonathon Brill / Charles Reynolds 020 7861 3232
Financial Review
I am pleased to report continued improvement in Sportech's overall financial
performance in the first six months of the year. Turnover increased by 10%,
reflecting further strong growth in Betting revenues which increased by 34%, and
the introduction of new Soft Gaming products. We have maintained our policy of
substantial investment in our television gaming and retail strategy, and
successfully reduced net debt during the period.
•Profit before tax* up 30% at £6.1m (2002: £4.7m); £1.5m after goodwill
amortisation (2002: £0.4m).
•Earnings per share* up 16% higher at 0.73p (2002: £0.63p); (0.04)p after
goodwill amortisation (2002:(0.10)p).
•Net debt is £6.3m lower than at the end of June 2002.
•Operating profit* ahead of last year at £8.9m (2002: £8.8m).
Turnover Operating Profit*
H1 Change H1 Change
2003 2003
£m % £m £m
-------- -------- -------- --------
Football Pools - pre-restructuring 13.0 +1.3
- restructuring (0.4) +0.5
-------- -------- -------- --------
45.7 (10) 12.6 +1.8
Games & Lotteries 7.3 +28 0.5 +0.4
Retail Development (0.5) (0.5)
Interactive Development (1.9) (0.8)
-------- -------- -------- --------
Soft Gaming 53.0 (6) 10.7 +0.9
Betting 53.3 +34 (1.8) (0.8)
-------- -------- -------- --------
Total 106.3 +10 8.9 +0.1
-------- -------- -------- --------
*Before goodwill amortisation of £4.6m (2002: £4.3m).
Operating profit before goodwill amortisation from Soft Gaming is 9% higher at
£10.7m (2002: £9.8m), after restructuring costs of £0.4m (2002: £0.9m) mainly
relating to the integration of Zetters Football Pools into the existing
Littlewoods Football Pools operational infrastructure and £2.4m (2002: £1.1m) of
development expenditure. Poor horse racing results at major festivals such as
Cheltenham and Ascot, as experienced within the industry, and increased
expenditure on marketing contributed to higher losses from Betting of £1.8m
(2002: £1.0m). Excluding Interactive and Retail Development costs, profit from
the core business is 14% higher than 2002 at £11.3m (2002: £9.9m).
Net cashflow from operating activities was significantly stronger than last year
at £9.5m (2002: £6m), whilst capital investment was marginally higher than 2002
at £1.9m, reflecting further investment to support interactive developments.
Completion of the sale of the Technology Patents Portfolio for $1.5m (£0.9m
sterling) within the six month accounting period resulted in an exceptional
profit of £0.6m. The disposal proceeds from the Technology Patents were received
after the half year.
Operating Review
Soft Gaming
Our Soft Gaming portfolio comprises products that have mass market appeal and
are entertainment led, and includes Littlewoods Football Pools and football
games, scratchcards, lottery and instant win games and on-line casino games.
Operating profits from the Soft Gaming portfolio are 9% higher than last year,
reflecting improved margins from existing products and the introduction of games
on new interactive channels.
The rate of decline in Football Pools turnover eased to 10% reflecting
continuing improvements in the direct distribution channels and the benefits of
the Zetters acquisition. Other Soft Gaming product revenues increased by 26%,
reflecting the continued extension of our internet offering,
Littlewoodsgameon.com and Littlewoodscasino.com.
Development expenditure across Soft Gaming totalled £2.4m (2002: £1.1m) and was
aimed principally at retail and television distribution opportunities.
•Retail Distribution Developments
Scratchcard trials with Sainsbury's and Safeway continue, with the
majority of associated costs already expensed within the first half.
These trials are likely to continue through to the year end, with a
number of different initiatives being tested, such as the range of
scratchcards benefiting The Children's Society launched by Sainsbury's
on 1st September.
•Television Distribution Developments
In May we successfully tested our first ITV programme-linked TV game.
The game was made available to ITV's interactive viewing audience,
alongside the popular second series of 'I'm a Celebrity Get Me Out of
Here'. The game, 'Celebrity Temper Tantrums' strongly reflected the
programme's branding and style.
An initial number of interactive services were launched on ITV1 and ITV2
in August and a full 24:7 Interactive service will shortly be available.
We expect to provide a number of interactive gaming and betting offers
on this service over the coming months, with a view to triggering
official commencement of our contract with ITV in the first quarter of
2004. These 'pre-commencement' offers are likely to include a full 24:7
Sports Betting offering, and games linked to the Pop Idol reality show
and to various football programmes, all of which will start to build
revenues and customers.
In addition to these themed interactive games, we are developing
programmes with ITV which incorporate gaming opportunities as part of
the programme content and enable both analogue and digital viewers to
participate in a variety of ways. We expect to progress this concept in
an innovative interactive series to be launched on ITV in the first
quarter of 2004.
•Product Development
We continue to strengthen the wide portfolio of Soft Gaming
opportunities which we offer. During the period innovative new lottery
and instant win games were launched across our interactive channels and
we now boast a portfolio of over 70 games available on-line. The recent
transfer of Littlewoodscasino.com to the Netherlands Antilles
jurisdiction enables us to offer new poker and integrated jackpot games
to customers, and we expect to launch these shortly.
Betting
Interactive television provides an exciting additional distribution channel for
Littlewoods Bet Direct, our fast growing betting business. During the period we
increased marketing investment, building customer awareness and recognition,
ahead of the planned interactive television launches on Attheraces and ITV. The
Littlewoods Bet Direct interactive betting service launched on the Attheraces
channel late August 2003.
During the period we continued to achieve strong revenue growth (+34%), with the
total registered base now 302,000 (260,000 at June 2002). Average stakes per
telephone call have increased 12% to £36, with the average internet bet
increased 70% to £22. As part of our drive to increase operating efficiency and
improve customer service during exceptionally busy periods, we successfully
launched the 'NoQ', voice recognition system, in April 2003. The system provides
intelligent automated telephone betting and is currently being promoted to
selected customers.
The operating loss of £1.8m was higher than the previous year due to increased
marketing expenditure and a poor run of results from major horse racing
festivals, such as Cheltenham, as experienced by the industry generally. As a
direct result of this, gross win margins for the first half were 7.1%, some 3.5%
lower than the previous year.
Betting products remain a key element in our product portfolio and growth
strategy. With Littlewoods Bet Direct we have established a respected brand and
a differentiated consumer proposition. Going forward we expect continuing
organic growth to deliver the scale required for betting to make a positive
contribution to profits. We look forward to taking advantage of the
opportunities that may emerge through industry consolidation.
Brand
Littlewoods Football Pools celebrates its 80th Anniversary this season. Since
the launch of the Football Pools in 1923, the Littlewoods Gaming brand has been
successfully applied to a wide range of gaming and betting products, and
continues to be extended, as with the successful launch of Littlewoods GameOn
across our internet and interactive Soft Gaming portfolio. The Football Pools
heritage ensures that customers continue to trust and welcome Littlewoods Gaming
products into their lives and their homes, positioning us as the ideal Soft
Gaming partner for household names such as ITV and Sainsbury's.
Outlook
Sportech has made steady progress in the first half of 2003 and we expect this
trend to continue in the second half of the year.
We anticipate further improvement in performance from our Soft Gaming portfolio
in the second half of the year, as our new revenue streams gather momentum.
Assuming a return to more normal margins, with the scale of business that we now
attract, our betting business should also deliver an improved performance.
Development expenditure on our television strategy will continue at similar
levels in the second half, as we position ourselves for significant revenue
growth through this channel in 2004.
David Mathewson
Chairman
30 September 2003
Consolidated Profit & Loss Account
6 months to 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
Notes £m £m £m
Group turnover 4 106.3 96.7 195.3
Cost of sales (77.7) (68.5) (139.4)
--------- --------- ---------
Gross profit 28.6 28.2 55.9
Net operating
expenses 5 (24.3) (23.7) (44.5)
--------- --------- ---------
Operating profit
before restructuring
costs and
amortisation of
goodwill 4 9.3 9.7 22.2
Restructuring costs (0.4) (0.9) (2.0)
--------- --------- ---------
Operating profit
before
amortisation of
goodwill 8.9 8.8 20.2
Amortisation of
goodwill (4.6) (4.3) (8.8)
--------- --------- ---------
Operating profit 4 4.3 4.5 11.4
Profit on sale of
tangible fixed
assets - - 1.4
Profit on sale of
Technology
Patents 3 0.6 - -
Net interest payable 6 (3.4) (4.1) (8.2)
--------- --------- ---------
Profit on ordinary
activities
before taxation 1.5 0.4 4.6
Tax on profit on
ordinary
activities 7 (1.7) (1.0) (1.7)
--------- --------- ---------
(Loss)/profit for
the financial
period (0.2) (0.6) 2.9
========= ========= =========
Earnings per share 8
Basic and
diluted (0.04)p (0.10)p 0.49p
========= ========= =========
Pre amortisation
of goodwill 0.73p 0.63p 1.97p
========= ========= =========
The Group has no recognised gains or losses other than the loss for the period
stated above.
Reconciliation of Movement in Group Shareholders' Funds
6 months to 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
Shareholders' funds at start
of period 31.5 28.6 28.6
(Loss)/profit for the
financial period (0.2) (0.6) 2.9
--------- --------- ---------
Shareholders' funds at end of
period 31.3 28.0 31.5
========= ========= =========
Consolidated Balance Sheet
30 June 30 June 31 December
Note 2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
FIXED ASSETS
Intangible assets -
goodwill 149.7 157.5 154.3
Intangible assets -
other 1.0 - 0.8
Tangible assets 8.8 7.7 8.5
--------- --------- ---------
159.5 165.2 163.6
CURRENT ASSETS
Stocks - 0.2 0.1
Debtors
- due within one year 7.5 8.4 8.3
- due after more than
one year 1.0 1.3 1.0
Cash at bank and in
hand 9 5.9 7.4 6.0
--------- --------- ---------
14.4 17.3 15.4
CREDITORS
Amounts falling due
within one year (42.4) (46.6) (43.5)
--------- --------- ---------
--------- --------- ---------
NET CURRENT
LIABILITIES (28.0) (29.3) (28.1)
--------- --------- ---------
TOTAL ASSETS LESS
CURRENT
LIABILITIES 131.5 135.9 135.5
CREDITORS
Amounts falling due
after more than
one year (100.2) (107.9) (104.0)
--------- --------- ---------
NET ASSETS 31.3 28.0 31.5
========= ========= =========
CAPITAL AND
RESERVES
Called up share
capital 29.6 30.5 29.6
Share premium account - 47.1 -
Profit and loss
account 1.7 (49.6) 1.9
--------- --------- ---------
TOTAL SHAREHOLDERS
FUNDS
(including non-equity
interests) 31.3 28.0 31.5
========= ========= =========
The interim accounts on pages 7 to 14 were approved by the Board of Directors on
29 September 2003 and were signed on its behalf by
Gary Speakman
Director
Consolidated Cash Flow Statement
6 months to 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
Notes £m £m £m
Net cash
inflow from
operating
activities 10 9.5 6.0 18.1
Returns on
investments and
servicing of
finance: --------- --------- ---------
Interest
received 0.1 0.2 0.2
Interest paid (3.5) (4.2) (8.3)
--------- --------- ---------
Net cash
outflow from
returns on
investments
and servicing
of finance (3.4) (4.0) (8.1)
Taxation (1.5) (0.2) (2.6)
Capital expenditure
and financial
investment --------- --------- ---------
Purchase of
tangible fixed
assets (1.7) (1.7) (4.1)
Purchase of
intangible
fixed assets (0.2) - (0.8)
Sale of
tangible fixed
assets - - 2.6
--------- --------- ---------
Net cash outflow
from capital
expenditure and
financial
investment (1.9) (1.7) (2.3)
Acquisition of
business: --------- --------- ---------
Acquisition of
Zetters pools
business - - (1.4)
Acquisition
expenses - - (0.1)
Net cash
acquired with
business - - 0.7
--------- --------- ---------
Net cash
outflow from
acquisitions
and disposals - - (0.8)
--------- --------- ---------
Cash inflow before
managing of liquid
resources
and finance 2.7 0.1 4.3
Financing:
--------- --------- ---------
Net loans
repaid (4.0) (6.0) (14.0)
New lease
agreement 0.2 - -
--------- --------- ---------
Net cash
outflow from
financing (3.8) (6.0) (14.0)
--------- --------- ---------
(Decrease) in
net cash 11 (1.1) (5.9) (9.7)
========= ========= =========
Notes to the interim report
1. Accounting policies
The results for the half year ended 30 June 2003 have been prepared on the
basis of the accounting policies set out in the Report and accounts for the
year ended 31 December 2002.
a) Basis of consolidation
The results include the accounts of the Company and its subsidiaries drawn
up for the 26 week period from 4 January 2003 to 4 July 2003 (2002: 26 week
period).
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 7 to 14 does not amount to full accounts
within the meaning of Section 240 of the Companies Act 1985 (as amended).
The comparative figures for the year ended 31 December 2002 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. Profit on sale of Technology Patents
During the period the Company sold its portfolio of Technology Patents for
$1.5m (£0.9m). Disposal costs of £0.3m resulted in a profit on sale of
£0.6m.
4. Segmental reporting
6 months to 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
Turnover
Soft Gaming 53.0 56.8 112.2
Betting 53.3 39.9 83.1
--------- --------- ---------
Total Littlewoods
Gaming 106.3 96.7 195.3
Technology
Patents - - -
--------- --------- ---------
106.3 96.7 195.3
========= ========= =========
Profit/(loss) before
tax
Soft Gaming 11.1 10.7 24.2
Betting (1.8) (1.0) (2.0)
--------- --------- ---------
Operating profit
before
restructuring
costs
and amortisation
of goodwill 9.3 9.7 22.2
Restructuring
costs
(principally Soft
Gaming) (0.4) (0.9) (2.0)
--------- --------- ---------
Operating profit
before
amortisation of
goodwill 8.9 8.8 20.2
Amortisation of
goodwill
(principally Soft
Gaming) (4.6) (4.3) (8.8)
--------- --------- ---------
Operating profit 4.3 4.5 11.4
Profit on sale of
tangible
fixed assets - - 1.4
Profit on sale of
Technology
Patents 0.6 - -
Net interest
payable (3.4) (4.1) (8.2)
--------- --------- ---------
Profit on ordinary
activities
before taxation 1.5 0.4 4.6
========= ========= =========
All turnover and profits arise in the United Kingdom
5. Net operating expenses
6 months to 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
Distribution costs 0.1 0.1 0.1
--------- --------- ---------
Other administrative
expenses 19.2 18.4 33.6
Restructuring costs 0.4 0.9 2.0
Amortisation of goodwill 4.6 4.3 8.8
--------- --------- ---------
Administration expenses 24.2 23.6 44.4
--------- --------- ---------
--------- --------- ---------
Net operating expenses 24.3 23.7 44.5
========= ========= =========
6. Net interest payable and similar items
6 months to 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
Interest receivable 0.1 0.2 0.2
Interest payable on bank
loans and
overdrafts (3.5) (4.3) (8.3)
Amortisation of loan
arrangement
fee - - (0.1)
--------- --------- ---------
Net interest payable and
similar items (3.4) (4.1) (8.2)
========= ========= =========
7. Taxation
Taxation is provided on taxable profits at 30.0% 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 £0.2 million (2002; £0.6 million) divided by the
weighted average number of shares in issue during the period - 592.1 million
(6 months to 30 June 2002 - 592.1 million; year to 31 December 2002 - 592.1
million). Basic and diluted EPS are identical as no options are currently
exercisable.
9. Cash
£1.7 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 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
Operating profit 4.3 4.5 11.4
Depreciation on tangible
fixed
assets 1.4 1.2 2.4
Amortisation of goodwill 4.6 4.3 8.8
Profit on disposal of
tangible
fixed assets - - (0.1)
Profit on disposal of
business - - (0.5)
Decrease in stocks 0.1 - 0.1
Decrease/(increase) in
trade
debtors 0.8 (0.3) (0.3)
Decrease in other debtors 0.4 - 0.4
Decrease/(increase) in
prepayments 0.3 (2.2) (2.5)
(Decrease)/increase in
trade
creditors (0.3) - 0.3
(Decrease) in other taxes (0.8) (2.1) (1.2)
(Decrease)/increase in
accruals
and deferred income (1.3) 0.6 (0.7)
--------- --------- ---------
Net cash inflow from
operating
activities 9.5 6.0 18.1
========= ========= =========
11. Analysis and reconciliation of net debt
At 31
December Cash Non-cash At 30 June
2002 flow changes 2003
£m £m £m £m
Cash at bank and in hand
excluding
charity cash balances 4.3 (0.5) - 3.8
Bank overdrafts (5.7) (1.0) - (6.7)
--------- ------- ------- ---------
(1.4) (1.5) - (2.9)
--------- ------- ------- ---------
Debt due within one year (15.9) 8.0 (8.0) (15.9)
Debt due after one year (104.0) (4.0) 8.0 (100.0)
Lease agreement - (0.2) - (0.2)
--------- ------- ------- ---------
(119.9) 3.8 - (116.1)
--------- ------- ------- ---------
(121.3) 2.3 - (119.0)
========= ======= ======= =========
6 months to 6 months to Year to 31
30 June 30 June December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
(Decrease) in cash in period (1.0) (5.9) (9.7)
Movement in charity cash (0.5) (0.4) (0.5)
--------- --------- ---------
Change in net debt resulting
from cash flows (1.5) (6.3) (10.2)
Cash inflow from new lease
agreement (0.2) - -
Cash inflow from increase in
loans (4.0) - (2.0)
Cash outflow from repayment
of loans 8.0 6.0 16.0
Amortisation of deferred loan
arrangement fee - - (0.1)
--------- --------- ---------
Movement in net debt for the
period 2.3 (0.3) 3.7
At start of period (121.3) (125.0) (125.0)
--------- --------- ---------
At end of period (119.0) (125.3) (121.3)
========= ========= =========
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