Interim Results
Sportech PLC
27 September 2005
Sportech PLC ('Sportech' or 'the Company')
Unaudited Interim Results for the six months ended 30th June 2005
Group Highlights
* Turnover of £254.3m in line with last year (2004: £254.5m) with 3% revenue
growth in the Betting business offset by the15% Football Pools revenue
decline.
* Operating profit, pre-restructuring costs, 3% lower at £9.1m (2004: £9.4m).
Operating profit of £6.6m (2004: £9.1m).
* Profit before tax and restructuring costs of £5.2m (2004: £6.0m). Profit
before tax, £2.7m (2004: £5.7m).
* Executive team significantly strengthened with appointment of Ian Penrose as
Chief Executive.
* Business strategy focused on two core profit generating Divisions: Betting and
Football Pools.
* Cost base significantly reduced across Divisions, delivering annualised
employment cost savings of £2.7m.
* Good progress in development and integration of Betting products:
* Launch of betdirectcasino.com and betdirectpoker.com
* Introduction of mobile sports book
* Further strengthening of content on ITV
* Littlewoodspoker.com successfully linked to first mainstream television
poker programme (ITV Celebrity Poker)
* Commercial negotiations with ITV are underway, aimed at improving the ITVi
service and establishing a mutually beneficial financial framework.
* Earnings per share of 0.34p (2004: 0.67p).
Roger Withers, Acting Managing Director, said:
'Sportech has undertaken a review of its business units in the first half of the
year which has resulted in a restructuring to the Group delivering significant
costs savings.
Financial results have been impacted by poor sports results, as experienced by
the industry, and a higher rate of attrition in the Football Pools. The benefit
of the cost savings have started to take effect and we have developed further
our New Media betting offering.
We look forward to the future with renewed optimism as we today announce the
appointment of Ian Penrose as our new Chief Executive. Sportech has a strong
platform on which to build.'
- ends -
Enquiries
Sportech PLC
Roger Withers, Acting Managing Director
Gary Speakman, Finance Director 0151 288 3561
Bell Pottinger Corporate & Financial
David Rydell / Charlotte Kirkham 020 7861 3232
The Company will hold a briefing for analysts at 9.30am today at the offices of
Kirkpatrick & Lockhart Nicholson Graham, 110 Cannon Street, London, EC4N 6AR.
All interested parties are duly invited.
CHAIRMAN'S STATEMENT
Business Update
During the first six months of 2005, Sportech completed a thorough review of its
business. The company is now clearly focused on its core profit generating
Divisions of Football Pools and Betting, and is well positioned to capitalise on
future growth opportunities in the online Betting market and around the
exclusive interactive deal with ITV.
We are very pleased to announce the appointment of Ian Penrose. He will commence
full time duties with effect from 1 October 2005. Ian joins from Arena Leisure
Plc ('Arena') where he led the company since May 2001, initially as Group
Managing Director and then as Chief Executive. Ian, a chartered accountant, has
extensive commercial experience of the leisure and media industry which will be
invaluable to Sportech as it drives its growth strategy forward.
The Senior Management team has been further strengthened with the appointment of
Chris Brown as New Media Gaming Director in August 2005. Chris is focused on
developing and integrating Sportech's Betting Division, whilst increasing
customer activity levels across our Betting channels and continuing to revise
and improve content.
Basis of Reporting
These are the first financial results that the Group has published subsequent to
the adoption of International Financial Reporting Standards (IFRS). The major
impact for the Group is that goodwill is no longer being amortised. The impact
of all other IFRS adjustments is small and the adoption of IFRS has no impact
upon the Groups cash flows. Details of the restatement of prior year information
was published on the London Stock Exchange on 26th September 2005 and is
available from the Groups website.
The Football Pools Division comprises the core Littlewoods and Zetters Pools
competitions along with 'shoulder games' such as Spot the Ball and Lotto.
The Betting Division comprises Telephone Betting and Interactive Betting. The
development of our ITV interactive gaming service is reported within Interactive
Betting. We remain firmly committed to offering our wide range of Betting
products across the direct, new media channels of internet, television, mobile
and telephone.
Financial Overview
Revenue for the Group was broadly unchanged at £254.3m (2004: £254.5m) with 3%
revenue growth in the Betting business offset by the 15% revenue decline in
Football Pools business.
Profit before tax was £2.7m (2004: £5.7m) with the reduction partly due to
higher underlying interest rates, which increased the charge to £3.9m (2004:
£3.4m), and a restructuring charge of £2.5m (2004: £0.3m). The £2.5m
restructuring charge in H1 2005 reflects the final cost of terminating the
outsourced call handling contract and the redundancies arising from the closure
of the scratchcard business and the strategic review. Annualised employment cost
savings are estimated at £2.7m.
The summarised results for the Half Year were:
H1 05 H1 04 %
£m £m Change
Turnover Football Pools 37.5 43.9 (15)
Telephone Betting 46.3 38.6 20
Interactive Betting 170.5 172.00 (1)
------- ------- --------
Total 254.3 254.5 -
PBIT Football Pools 12.6 13.2 (5)
Telephone Betting (0.9) (1.3) 31
Interactive Betting (2.6) (2.5) (4)
------- ------- --------
PBIT (pre restructuring) 9.1 9.4 (3)
Interest (3.9) (3.4) (15)
------- ------- --------
PBT (pre restructuring) 5.2 6.0 (13)
Restructuring (2.5) (0.3)
------- -------
PBT 2.7 5.7 (53)
The net cash outflow of £1.5m (2004: £0.6m outflow) reflected the impact of the
restructuring payments. Net debt at the end of the period was £113.1m (2004:
£114.8m) which was marginally higher than the 2004 year end position of £112.8m.
Bank loans were reduced by a further £3m in the period to £109m.
Football Pools
Total Football Pools revenues from the Littlewoods and Zetters brands were
£34.3m, 15% lower than reported last year (2004: £40.2m). Excluding overseas
revenues, where we experienced a steep decline following a re-positioning of the
game, the year on year attrition was 13.4%. Pools Direct revenues now account
for 44% of UK revenues and in this channel, attrition was 7%. Further
improvements in gross margin and operating cost savings limited the impact of
the revenue decline on profits to 6%, with profits from Football Pools totalling
£12.0m (2004: £12.8m).
Football Pools remains a very popular competition played by circa 700,000
customers per week. We continue to seek extended distribution for the Football
Pools and develop game variants which are suited to new media channels.
Other games sold into the Football Pools customer base contributed revenues of
£3.2m (2004: £3.7m) and profits of £0.6m (2004: £0.4m). This included operating
losses, pre restructuring, from scratchcards of £0.1m (2004: £0.3m loss). The
plan to exit the scratchcard business has now been completed and no further
costs will be incurred.
Total profits from Football Pools and related games pre restructuring costs were
£12.6m (2004: £13.2m).
Betting
Total Betting revenues increased by 3% however gross win was 8% lower at £8.7m
(2004: £9.5m) reflecting the impact of poor sports results. Betting Division
losses, pre restructuring costs, reduced by £0.3m to £3.5m, with this improved
performance principally due to a significant reduction in the cost base for both
telephone betting and the ITV Service.
We remain on track to deliver the key developments identified at the beginning
of the year. The Bet Direct offer was extended in Q2 2005 by adding branded
casino, poker and mobile sportsbook. We have also continued to expand the sports
betting markets offered on telephone and interactive channels.
Telephone Betting
We have continued to invest in improving customer service within our telephone
betting business whilst reducing operating costs. Revenues were 20% higher at
£46.3m (2004: £38.6m) due to a combination of an increased number of calls (4%
up) and higher average stake (18% up).
The adverse sporting results impacted most significantly on telephone gross win
which reduced to £2.8m (2004: £4.2m). Telephone margins reduced to 6% compared
to the very strong margins (11%) experienced in H1 2004.
With direct costs and overheads reduced significantly, particularly call
handling, the operating loss from Telephone Betting was 31% lower than last year
at £0.9m (2004: £1.3m loss).
Interactive Betting
There was good growth in active customers (i.e. those placing a bet in the 6
month period) with sportsbook active customers up 8% and casino/poker up 30%.
Interactive gross win increased by 11% with gross win across our Casino and
Poker products up 7% to £4.7m (2004: £4.4m) driven by Poker. Other interactive
products saw gross win increase 33% to £1.2m (2004: £0.9m).
Our red button based, 24/7, content within the ITVi service has been
strengthened further during the period, including a new Keno game and a suite of
full screen games such as multi-line slots. Interactive Gaming revenues from the
ITVi service are building slowly with total revenues in H1 2005 of £0.6m (2004:
£0.1m). The cost of delivering the gaming service with ITV reduced significantly
following the planned restructuring of the development team. ITV development
costs were 21% lower at £2.2m (2004: £2.8m).
Commercial negotiations with ITV are underway, aimed at improving the
performance of the service and establishing a mutually beneficial financial
framework.
The pipeline of ITVi initiatives in Q4 2005, includes interactive gaming behind
Coronation Street, Emmerdale, X Factor, which commenced in late August, and
following the resolution of rights issues, a full betting service behind
Champions League coverage. Following the first mainstream poker television
programme (ITV Celebrity Poker) in July 2005, ITV will be expanding its
programming in this area and the next ITV Poker Show 'Home Nations' is scheduled
for early 2006. We look forward to further promotion of the ITVi service by the
recently established ITV Consumer Division.
Current Trading & Outlook
Based on the trading performance since the beginning of July, we expect the
decline in Football Pools revenue to continue at levels similar to the first
half. The Company also expects a return to gross win growth in the Betting
division but not at a level to regain the profit shortfall in the first half.
As a result, the Board expects profits before tax and restructuring in H2 2005
to be similar to that of the first half.
A lot of work has been done in the first half and the Group is now well
positioned to realise the potential of our product and multi channel
capabilities around internet, television, telephone and mobile. With Ian Penrose
's appointment as Chief Executive, we look forward to the future with
confidence.
David Mathewson
Chairman
27 September 2005
CONSOLIDATED profit and loss account
For the six months ended 30 June 2005
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
Notes (Unaudited) restated) restated)
£m £m £m
Continuing operations
Revenue 3 254.3 254.5 497.0
Cost of sales (227.5) (225.5) (439.9)
--------- --------- ---------
Gross profit 26.8 29.0 57.1
Distribution costs - (0.1) (0.1)
Administrative expenses (20.2) (19.8) (41.5)
--------- --------- ---------
Operating profit before
restructuring costs 9.1 9.4 16.7
Restructuring costs 4 (2.5) (0.3) (1.2)
--------- --------- ---------
Operating profit 3 6.6 9.1 15.5
Interest payable and similar
items 5 (3.9) (3.4) (7.4)
Interest receivable - - 0.1
--------- --------- ---------
Profit before taxation 2.7 5.7 8.2
Taxation 6 (0.8) (1.7) (2.6)
--------- --------- ---------
Profit for the period from
continuing operations 1.9 4.0 5.6
--------- --------- ---------
Profit for the financial period 1.9 4.0 5.6
========= ========= =========
Profit attributable to equity
shareholders 1.9 4.0 5.6
========= ========= =========
Earnings per share 7
Basic and diluted 0.34p 0.67p 0.96p
========= ========= =========
Earnings per share from
continuing operations
Basic and diluted 0.34p 0.67p 0.96p
========= ========= =========
CONSOLIDATED Statement of recognised income and expense
For the six months ended 30 June 2005
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
(Unaudited) restated) restated)
£m £m £m
Profit for the financial period 1.9 4.0 5.6
--------- --------- ---------
Total recognised income for the period 1.9 4.0 5.6
========= ========= =========
CONSOLIDATED balance sheet
As at 30 June 2005
30 June 31 December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
Notes (Unaudited) restated) restated)
£m £m £m
ASSETS
Non-current assets
Goodwill 145.2 145.2 145.2
Other intangible assets 2.8 3.5 2.8
Property, plant and equipment 6.8 6.9 7.5
Prepayments 9.6 - 5.9
Retirement benefit assets 0.2 0.2 0.2
Deferred tax assets 0.5 0.6 0.3
--------- --------- ---------
165.1 156.4 161.9
--------- --------- ---------
Current assets
Trade and other receivables 3.8 10.8 4.4
Financial assets - derivative
financial instruments - 0.4 0.2
Cash and cash equivalents 8 1.9 2.9 2.4
--------- --------- ---------
5.7 14.1 7.0
--------- --------- ---------
LIABILITIES
Current liabilities
Financial liabilities-
borrowings (17.4) (8.5) (11.5)
Trade and other payables (18.3) (17.4) (17.4)
Current tax liabilities (0.7) (1.8) (1.3)
--------- --------- ---------
(36.4) (27.7) (30.2)
--------- --------- ---------
Net current liabilities (30.7) (13.6) (23.2)
--------- --------- ---------
Non-current liabilities
Financial liabilities-
borrowings (95.5) (107.2) (101.6)
--------- --------- ---------
NET ASSETS 38.9 35.6 37.1
========= ========= =========
SHAREHOLDERS' EQUITY
Ordinary shares 29.6 29.6 29.6
Retained earnings 9.3 6.0 7.5
--------- --------- ---------
TOTAL SHAREHOLDERS' FUNDS 38.9 35.6 37.1
========= ========= =========
The interim accounts on pages 6 - 13 were approved by the board of directors on
26 September and were signed on its behalf by
G Speakman
Director
CONSOLIDATED Cash flow statement
For the six months ended 30 June 2005
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
Notes (Unaudited) restated) restated)
£m £m £m
Cash flows from operating
activities
Cash generated from operations 9 4.4 6.3 14.3
Interest received 0.2 0.2 0.5
Interest paid (3.3) (3.4) (7.3)
Tax paid (1.3) (1.6) (2.7)
--------- --------- ---------
Net cash from operating
activities - 1.5 4.8
--------- --------- ---------
Cash flows from investing
activities
Proceeds from sale of
property, plant and equipment 0.3 - 0.3
Purchase of intangible fixed
assets - (0.3) (0.3)
Purchase of property, plant
and equipment (0.8) (1.0) (1.9)
--------- --------- ---------
Net cash used in investing
activities (0.5) (1.3) (1.9)
--------- --------- ---------
Cash flows from financing
activities
Net proceeds from issue of new
bank loan - 3.0 3.0
Finance lease principal
payments (0.1) - -
Repayment of borrowings (3.0) (1.0) (1.0)
--------- --------- ---------
Net cash (used)/generated in
financing activities (3.1) 2.0 2.0
--------- --------- ---------
Net (decrease)/increase in
cash and cash equivalents (3.6) 2.2 4.9
Cash and cash equivalents at
start of period 2.1 (2.8) (2.8)
--------- --------- ---------
Cash and cash equivalents at
end of period (1.5) (0.6) 2.1
--------- --------- ---------
Cash and cash equivalents consists of:
Cash and cash equivalents 1.9 2.9 2.4
Overdrafts (3.4) (3.5) (0.3)
--------- --------- ---------
(1.5) (0.6) 2.1
--------- --------- ---------
Movement in Net Debt
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
Notes (Unaudited) (restated) restated)
£m £m £m
(Decrease)/increase in cash in
period (3.6) 2.2 4.9
Movement in charity cash 8 0.2 (0.3) (0.3)
--------- --------- ---------
Change in net debt resulting
from cash flows (3.4) 1.9 4.6
Cash inflow from increase in
loans - (3.0) (3.0)
Cash outflow from repayment of
loans 3.0 1.0 1.0
Cash outflow / (inflow) from
lease agreements 0.1 - (0.7)
--------- --------- ---------
(Increase)/decrease in net
debt for the period (0.3) (0.1) 1.9
At start of period (112.8) (114.7) (114.7)
--------- --------- ---------
At end of period (113.1) (114.8) (112.8)
========= ========= =========
Notes to the financial statements
For the six months ended 30 June 2005
1. Accounting Policies
The results for the half year ended 30 June 2005 have been prepared on the basis
of the accounting policies expected to be adopted in the Group's full year
financial statements and which are set out in the IFRS transition document
available from the corporate website, www.Sportech-plc.co.uk.
a) Basis of Accounting
The interim financial statements have been prepared in accordance with the
accounting policies required by those International Financial Accounting
Standards, incorporating International Accounting Standards (IAS's) and
interpretations (collectively IFRS) published by the International Accounting
Standards Board (IASB), which are expected to be endorsed by the EU and
applicable for use in the Group's annual financial statements for the year ended
31 December 2005, the Group's first annual reporting date at which it is
required to use IAS. Comparative information for the six months ended 30 June
2004 and for the year ended 31December 2004 has been restated on an IFRS basis.
The endorsed IFRS that will be effective (or available for early adoption) in
the annual financial for the year ended 31 December 2005 are still subject to
change and to additional interpretations and therefore cannot be determined with
certainty. Accordingly, the accounting policies for the period will only be
determined finally when the annual consolidated financial statements are
prepared for the year ended 31 December 2005.
On 26 September 2005 Sportech plc published financial information in accordance
with IFRS on the London Stock Exchange. This document included explanations of
the impact of the transition from UK GAAP to IFRS on the financial statements of
Sportech plc and contained reconciliations in respect of the restatement of the
2004 interim and full year accounts from UK GAAP to IFRS of the Group's net
assets at 1 January 2004, 30 June 2004 and 31 December 2004, and of the Group's
net profit or loss for the 6 months ended 30 June 2004 and year ended 31
December 2004. The document is available on the Group's website.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amount of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Although these estimates are based on management's best knowledge of the
amount, event or actions, actual results may ultimately differ from those
estimates.
b) Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries drawn up for the 26 week period from 8 January 2005 to 8 July
2005 (2004, 26 week period).
2. Non-statutory accounts
The results for the half year to 30 June 2005 and the comparative period are
neither audited or reviewed by the auditors.
The financial information on pages 6 to 13 does not amount to full accounts
within the meaning of the Companies Act 1985 (as amended).
The comparative figures for the year ended 31 December 2004 do not constitute
statutory accounts. Apart from the changes resulting from the adoption of
International Financial Accounting Standards, 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
Six months ended Football Interactive Telephone
30 June 2005 pools Betting Betting Group
£m £m £m £m
Continuing operations
Revenue 37.5 170.5 46.3 254.3
------- ------- ------- -------
Operating profit/(loss) before
restructuring costs 12.6 (2.6) (0.9) 9.1
Restructuring (0.5) (1.2) (0.8) (2.5)
------- ------- ------- -------
Operating profit/(loss) 12.1 (3.8) (1.7) 6.6
------- ------- ------- -------
Six months ended Football Interactive Telephone
30 June 2004 pools Betting Betting Group
£m £m £m £m
Continuing operations
Revenue 43.9 172.0 38.6 254.5
------- ------- ------- -------
Operating profit/(loss) before
restructuring costs 13.2 (2.5) (1.3) 9.4
Restructuring (0.2) (0.1) - (0.3)
------- ------- ------- -------
Operating profit/(loss) 13.0 (2.6) (1.3) 9.1
------- ------- ------- -------
Football Interactive Telephone
pools Betting Betting Group
£m £m £m £m
Year ended
31 December 2004
Revenue 87.1 323.6 86.3 497.0
------- ------- ------- -------
Operating profit/(loss) before
restructuring costs 24.3 (4.8) (2.8) 16.7
Restructuring (0.6) (0.3) (0.3) (1.2)
------- ------- ------- -------
Operating profit/(loss) 23.7 (5.1) (3.1) 15.5
------- ------- ------- -------
4. Exceptional restructuring costs
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
(Unaudited) restated) restated)
£m £m £m
Football Pools 0.5 0.2 0.6
Interactive betting 1.2 0.1 0.3
Telephone betting 0.8 - 0.3
--------- --------- ---------
Restructuring costs - operating 2.5 0.3 1.2
========= ========= =========
Exceptional restructuring costs in the current year relate to further costs in
respect of the establishment of an in house call centre and further
rationalisation of the interactive cost base together with associated head
office support costs within the interactive and telephone betting segments as
well as further rationalisation of the operating cost base within the football
pools segment.
Exceptional restructuring costs in the prior year relate to the establishment of
an in house call centre operation within the telephone betting segment, further
rationalisation of the football pools operating cost base, and rationalisation
of interactive development teams consequent upon the transition from development
to trading stage
5. Interest payable and similar items
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
(Unaudited) restated) restated)
£m £m £m
Interest payable on bank loans and
overdrafts 3.9 3.4 7.4
========= ========= =========
6. Taxation note
Taxation is provided on taxable profits at 30.0% being the anticipated rate of
taxation for the Group's current financial year
7. Earnings per Share
The calculation of earnings per share is based on the net profit attributable to
ordinary shareholders of £1.9m (6 months to 30 June 2004; £4.0m: year to 31
December 2004; £5.6m) divided by the weighted average number of shares in issue
during the period - 592.1m (6 months to 30 June 2004; 592.1m; year to 31
December 2004; 592.1m). Basic and diluted earnings per share are identical.
8. Cash
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
Notes (Unaudited) restated) restated)
£m £m £m
Cash balances held on behalf
of registered charities (a) 1.9 2.1 2.1
Cash balance constituting
committed security (b) - 0.8 0.3
--------- --------- ---------
1.9 2.9 2.4
========= ========= =========
(a) Cash balances held on behalf of registered charities relate to the sale of
Charity Scratchcards in respect of charity lotteries which have not reached
their final sale date and for which proceeds have not been passed to the
charities concerned.
(b) The cash balance constituting committed security related to deferred
payments that were required to be made under a contractual obligation of a
subsidiary company. The contract was with Rehab Charity Lotteries, and related
to the running of charity lotteries. This contract has now terminated and the
associated cash balance fully released.
9. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities
6 months to Year to 31
6 months to 30 June December
30 June 2004 2004
2005 (Unaudited, (Unaudited,
(Unaudited) restated) restated)
£m £m £m
Continuing operations
Net profit 1.7 4.0 5.6
Adjustments for:
Taxation 0.8 1.7 2.6
Depreciation 1.4 1.2 2.4
Profit on disposal of property, plant
and equipment (0.3) - -
Interest income - - (0.1)
Interest expense 3.9 3.4 7.4
Changes in working capital:
(Increase) in trade and other
receivables (3.5) (1.7) (1.2)
Increase/(decrease) in trade and other
payables 0.4 (2.3) (2.4)
--------- --------- ---------
Cash generated from continuing
operations 4.4 6.3 14.3
--------- --------- ---------
Cash generated from operations 4.4 6.3 14.3
--------- --------- ---------
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