Preliminary Results
Sportech PLC
28 February 2001
Sportech PLC
Sportech PLC
Preliminary Results to 15 months ended
31 December 2000
Highlights
* Successful outcome of long running patent dispute and
acquisition of Littlewoods Leisure
* Profit before taxation £26.7 million
* Littlewoods Leisure contributes operating cash flow of £7m in
16 weeks
* Littlewoods Leisure uniquely positioned, delivering products
to 1.6 million households every week
* Continued strong growth of Sports Betting with registered
customer base of c165,000
* Continuing to extend Littlewoods Leisure product range and
routes to market, with planned introduction of on-line casino
and further development of interactive television.
Colin McGill, Managing Director, Sportech said:
'Our approach has been to identify the enormous opportunities in
the gaming market and build on the well respected Littlewoods
Leisure brand name. Since acquiring the business we have
undertaken a thorough strategic review, that has resulted in the
strengthening of our management team and the restructuring of
all of our divisions, enabling us to operate at the cutting edge
of the modern gaming market.'
'We believe that our point of difference is the diverse and
innovative range of gaming products that we offer and supply
through a unique variety of distribution channels. Sportech
aims to be the pre-eminent supplier of gaming products to the
home.'
Enquiries
Sportech 020 7353 9203 on 28 February
Colin McGill, Managing Director 0151 288 3244 thereafter
Gary Speakman, Finance Director
Bell Pottinger Financial 020 7353 9203
Jonathan Brill/Rebecca Fox/Oliver Jones
SPORTECH PLC
Unaudited Preliminary Results for 15 months
ended 31st December 2000
CHAIRMAN'S STATEMENT
The period since the last Annual Report has heralded an
unprecedented number of changes for the Group. Following the
successful settlement of the company's legal action against
Seagate and the redemption of outstanding loan stock, the
Company embarked on a search for potential added value
acquisition opportunities. This search culminated in the
purchase on 4th September of Littlewoods Leisure and the
renaming of the company from Rodime PLC to Sportech PLC. Now
comprising the core business of Sportech, Littlewoods Leisure is
already the foremost provider of gaming products direct to
customers in their homes, has a brand which is synonymous with
football and is well placed to take advantage of high growth
opportunities, particularly through new media channels. Sportech
also retains a portfolio of disk drive related patents from
which it will seek to derive further value. The changes seen
over the fifteen month period, have therefore left Sportech in a
position of financial stability and with tangible trading
prospects that it has not enjoyed for many years. By driving
further growth and innovation in the gaming market, the Board
are confident of significant progress for the company.
RESULTS
The Group has recorded an extremely satisfactory performance,
reflecting management's commitment to derive value from the
patents rights business and the successful integration of
Littlewoods Leisure.
The profit before taxation for the period was £26.7 million.
Following the change of accounting reference date, this profit
comprises the results of Sportech PLC for the fifteen month
period ended 31 December 2000, and includes the results of
Littlewoods Leisure for the 16 week period since acquisition.
The operating profit of £25.7 million reflects the £27.8 million
settlement from Seagate, less administrative and legal costs and
£5.2 million from the acquired business of Littlewoods Leisure
before amortisation of goodwill and restructuring. Profit
before taxation is further enhanced by the £3.9 million discount
on redemption of loan stock.
The Littlewoods Leisure profits reflect three main business
streams; football pools, sports betting and games and lotteries.
Analysis of Littlewoods Leisure Profits (£m) for the 16 week
period ended 31st December 2000.
Football Sports Games and Product Total
Pools Betting Lotteries Development Littlewoods
Leisure
Turnover 43.8 14.6 4.6 63.0
Operating Profit
Before
Amortisation
of
Goodwill and 6.8 (1.3) (0.1) (0.2) 5.2
Restructuring
BALANCE SHEET & CASH FLOW
The consideration for the acquisition of Littlewoods Leisure,
£162.5 million, was funded through new loan facilities totalling
£140 million together with a Rights Issue and Subscription
raising £27.9 million, net of expenses. Net debt at the end of
the financial year was £124.2 million.
The operating cash flow generated by Littlewoods Leisure in the
16 weeks since acquisition has been in line with expectations at
£7.0 million and this rate of cash flow should prove more than
adequate to service our loan obligations and ongoing investment
in new product and channel development.
The continuing deficit in revenue reserves precludes the payment
of any dividend for the period to December 2000 and it is the
Directors' intention to eliminate this deficit at the
appropriate time through a reduction of capital.
BUSINESS REVIEW - LITTLEWOODS LEISURE
When Sportech acquired Littlewoods Leisure, the Board recognised
that this business enjoys a unique position within the leisure
industry and offers a powerful platform from which to take
advantage of the significant growth opportunities in the market.
In particular there is an existing customer base covering 1.6
million households, who buy a wide range of Littlewoods Leisure
products every week. Since September, considerable progress has
been made in refocusing the business, streamlining its structure
and reshaping the management team, to create a focused Group,
intent on maximising shareholder value.
FOOTBALL POOLS
In the period since acquisition, the Pools business has remained
robustly profitable and cash generative, despite a continuing
decline in turnover of around 20% year on year. The way in
which the game is played and the distribution efficiency have
changed dramatically, with over 63% of pools entries now
gathered by telephone and electronically, including portable
'poolscard' terminals. Not only do these methods make the
Pools quick and easy to play, but they completely eliminate all
paper processing. This changing collection profile, together
with increased automation in the processing and marking systems,
has helped reduce costs and maintain operating profitability.
It is encouraging to note that the rate of decline in turnover
for the period since acquisition is lower than that experienced
in the previous two years and we are hopeful that this trend
towards stabilisation will continue into the current year.
On the product front, we believe that there is significant
potential to improve image and appeal to the large number of
younger football enthusiasts who do not currently play, and
there is obviously a huge overseas interest in UK football,
which at present is largely untapped. For example, despite the
relatively recent availability of the Pools on our Bet 247
Internet service, we have already attracted players from over 55
countries.
Our efforts over the current year will focus on three main areas
- further cost reductions to sustain profitability of the
traditional product; repackaging the game and the way it is
played to increase its appeal to different market segments; and
extending our distribution capabilities through the use of new
media channels and affinity relationships. The Board expect
these actions to maintain the Pools operating profits and cash
flow.
The Board remains excited by the opportunities provided by the
Pools business for which there is a regular playing customer
base of 1.2m a week. No other gaming product has this brand
loyalty, the significance of which should not be underestimated.
SPORTS BETTING
The Bet Direct sports betting business continues to show strong
growth with year on year turnover increased by 80% and a
registered player base now around 165,000 over both telephone
and Internet channels. This business incurred a trading loss of
£1.3 million for the 16 weeks under review largely due to the
costs of developing our internet operation including customer
recruitment and the high level of race cancellations due to bad
weather. Gross margin, measured as bets placed less full UK
duty, levies and winnings returned to customers, was 11% for the
sixteen week period. This is satisfactory for our customer and
product mix and we believe that the business generally has
performed well in relation to the competition.
Growth should be sustained in the current year through credit
betting, the introduction in late 2000 of extended product
offerings, such as US horseracing and tote betting, and of
course the impact of any changes to betting duty.
After the costs of new product introductions and further channel
developments, it is expected that this business should achieve
breakeven in the current year.
GAMES AND LOTTERIES
During the period under review, we continued our investment in
new product concepts and delivery platforms. Sales of older
traditional products, such as Spot the Ball, continued to
decline, but this was more than offset by the growth in new
product lines including the Prizebuster Lottery.
One of the major new projects under way when we acquired
Littlewoods Leisure was the introduction of video lottery
terminals (VLT) into the club market. While the concept of
centrally distributed electronic lotteries for the club and pub
market remains an exciting opportunity, we have not adequately
resolved all of the operational issues concerning game design
and platform reliability, and have, accordingly, curtailed our
rollout programme. The operating loss of £0.1 million for our
games and competitions business, for the 16 week period, is due
principally to the costs incurred by the VLT programme prior to
curtailment. In the current year, we expect games and
competitions to make an improved contribution to profits.
Our reputation and expertise in games management creates a
distinct advantage in a marketplace which is particularly
demanding in terms of regulatory and licensing requirements.
It also makes us an ideal content provider and partner of choice
for those with their own distribution capabilities and we are
currently developing relationships with a number of channel
operators.
The Board believe that electronic distribution is ideally suited
to our soft gaming products and, in the current year, we will be
further extending our capabilities over the Internet and
interactive television. In this latter regard, we are in
advanced negotiations to provide gaming offerings over the
principal interactive channels and are confident that this will
deliver a substantial new playing audience.
Our wide portfolio of games will be further enhanced by the
planned introduction of a Littlewoods branded on-line casino.
We expect this new business stream to provide significant
revenue growth.
DISTRIBUTION CHANNELS
The importance of reliable and secure distribution cannot be
over-emphasised, and Littlewoods has built its world class
reputation over nearly 80 years. While we now offer many
choices of distribution, the cornerstone remains the 26,000
strong collector network, which provides a unique service
throughout the length and breadth of the UK. This network is
augmented by telephone, postal, internet, internet over mobile
phone (WAP) and digital television distribution, all of which
take our products currently into some 1.6 million households
every week.
Our future distribution strategy will have two main themes. Our
own multi channel development will focus on extending our
penetration into the home gaming market while becoming an
important content provider for those with appropriate
distribution channels into retail outlets and venues such as
pubs and clubs.
We believe the new media channels, particularly interactive
digital TV, will open up a much wider playing audience and
provide an ideal platform for many of our gaming concepts. We
are already represented on Cable TV through Telewest and expect
to have a presence on other major interactive channels by the
middle of the current year.
RODIME TECHNOLOGIES
There remain around 20 patents owned by Sportech, principally
relating to disk drive and storage access technologies. We are
in the course of conducting a full review of this portfolio with
a view to determining its potential value and the most
appropriate means of realisation.
OUTLOOK
The Board are confident that with a clear strategy now in place,
further progress in the business of Littlewoods Leisure will be
achieved in the current year and that the foundations for future
growth will be firmly established. Prospects for success are
enhanced by the continuing support of our major shareholders.
The business has already derived benefit from the knowledge and
insight of Mr Trevor Hemmings, and from the Bank of Scotland
which have consistently delivered innovative financial solutions
for the Company over the last 15 years.
The Board would like to take this opportunity to thank all our
employees, both past and present, for their commitment during a
period of great change.
This preliminary statement was approved by the Board on Tuesday
27th February 2001.
M McIver
Chairman
28th February 2001
Sportech PLC
Consolidated Profit & Loss Account
For the fifteen months ended 31 December 2000
Unaudited Audited
Restated
see note 1
15 mths 12 mths
ended ended
31Dec 30 Sept
Notes Cont'ng Acquis'n 2000 1999
£m £m £m £m
Group turnover - 63.0 63.0 -
Cost of sales - (46.9) (46.9) -
-------- -------- -------- --------
Gross profit - 16.1 16.1 -
Net operating
income/(operating
expenses) 25.0 (15.4) 9.6 (1.2)
Operating
profit/(loss)
before restructuring
costs, amortisation
of goodwill and
other operating
income (2.7) 5.2 2.5 (1.2)
Exceptional-restructuring
costs 2. (0.1) (1.7) (1.8) -
Amortisation of
goodwill on
acquisition - (2.8) (2.8) -
Other operating income 3. 27.8 - 27.8 -
-------- -------- -------- --------
Operating profit 25.0 0.7 25.7 (1.2)
-------- -------- -------- --------
Discount on redemption
of loan stock 4. 3.9 -
Net interest payable (2.9) -
-------- -------- -------- --------
Interest and similar
items 1.0 -
-------- --------
Profit/(loss) on
ordinary activities
before taxation 26.7 (1.2)
Tax on profit on
ordinary activities 5. (4.6) -
-------- --------
Profit/(loss) on
ordinary activities
after taxation 22.1 (1.2)
Dividends - -
-------- --------
Retained profit/(loss)
for the financial
period 22.1 (1.2)
-------- --------
Earnings per share 6.
Basic 4.79p (0.28)p
======== ========
Pre amortisation of 5.40p (0.28)p
goodwill
======== ========
Acquisitions relate to the acquisition of Littlewoods Leisure
with effect from 4 September 2000 and the financial results
therefore reflect 16 weeks of trading.
The group has no recognised gains or losses other than its
profit for the financial period.
Sportech PLC
Reconciliation of movement in group shareholder's funds
For the fifteen months ended 31 December 2000
Unaudited Audited
Restated see note
1
15 mths to 31 12 mths to 30
Dec Sept
2000 1999
£m £m
Profit for the financial period 22.1 (1.2)
Dividends - -
-------- --------
22.1 (1.2)
Proceeds of ordinary shares issued
for cash 28.7 -
Issue expenses charged to share
premium account (0.8) -
-------- --------
Net change in shareholders funds 50.0 (1.2)
Shareholders funds at 1 October
1999 (20.4) (19.2)
-------- --------
Shareholders funds at 31 December
2000 29.6 (20.4)
======== ========
Sportech PLC
Consolidated Balance Sheet as at 31 December 2000
Group
Unaudited Audited
Restated
see note
1
Note 31 Dec 30 Sept
2000 1999
£m £m
FIXED ASSETS
Intangible assets - goodwill 9. 169.8 -
Tangible assets 8.7 -
Investments - -
-------- --------
178.5 -
CURRENT ASSETS
Stocks 0.2 -
Debtors 8.5 0.1
Cash at bank and in hand 17.9 0.1
-------- --------
26.6 0.2
CREDITORS
Amounts falling due within one year (34.0) (0.3)
-------- --------
NET CURRENT LIABILITIES (7.4) (0.1)
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 171.1 (0.1)
CREDITORS
Amounts falling due after more than one year (139.7) (20.3)
PROVISIONS FOR LIABILITIES AND CHARGES (1.8) -
======== ========
29.6 (20.4)
======== ========
CAPITAL AND RESERVES
Called up share capital 30.5 13.6
Share premium account 47.1 36.1
Profit & loss account (48.0) (70.1)
-------- --------
TOTAL SHAREHOLDERS FUNDS (including non-
equity interests) 29.6 (20.4)
======== ========
Sportech PLC
Consolidated Cash Flow Statement
For the fifteen months ended 31 December 2000
Unaudited Audited
Restated see
note 1
15 months 12 months
to Dec to Sept
Notes 2000 1999
£m £m £m £m
Net cash inflow from
operating activities 7. 32.4 (0.6)
Returns on investments and
servicing of finance:
Interest received 0.6 -
Interest paid (2.8) -
Issue costs of new bank
loans (0.4) -
------- -------
Net cash outflow from
returns on investments and
servicing of finance (2.6) -
Taxation (2.2) -
Capital expenditure and
financial investment
Purchase of tangible
assets (0.3) -
Sale of tangible fixed
assets - -
------- -------
Net cash outflow from
capital expenditure and
financial investment (0.3) -
Acquisition of subsidiary
undertakings:
Acquisition of
Littlewoods Leisure (162.5) -
Acquisition expenses (1.6) -
Net cash acquired from
subsidiaries 2.3 -
------- -------
Net cash inflow from
acquisitions and disposals (161.8) -
Equity dividends paid - -
------- -------
Cash outflow before
managing of liquid
resources and finance (134.5) (0.6)
Financing:
Issue of ordinary share
capital 28.7 -
Expenses of share issue (0.8) -
Net loans taken 123.6 0.6
------- -------
Net cash inflow from
financing 151.5 0.6
------- -------
Increase in net cash 8. 17.0 -
======= =======
Littlewoods Leisure contributed £7.0m to the group's operating
cash flows, paid £0.6m in respect of taxation and utilised £0.3m
in respect of capital expenditure.
Sportech PLC
Notes to the Preliminary Statement
For the fifteen months ended 31 December 2000
1. Basis of reporting
a) The accounts have been prepared on the basis of the
accounting policies set out in the group's 1999 financial
statements with the exception that the group has chosen to
change the reporting currency used in the preparation of the
financial statements. Previously the focus of the group was
in the United States and so reported for that reason in US
dollars. Following the acquisition of Littlewoods Leisure,
the focus of the business will now lie in the United Kingdom
and so the financial statements have been prepared in
sterling. The comparative figures have been restated from US
dollars to sterling.
Other than this there have been no changes in accounting
policy.
b) The preliminary results for the fifteen months ended 31
December 2000 are unaudited, with the full audit report on
the full financial statements yet to be signed.
With the exception noted above, the preliminary results for
the fifteen months ended 31 December 2000 have been prepared
on the basis of accounting policies set out in the report and
accounts for the year ended 30 September 1999.
The comparative figures for the year ended 30 September 1999
do not constitute statutory accounts. These figures have been
extracted from the audited financial statements for that year
which have been delivered to the Registrar of Companies and
on which the auditors issued an unqualified audit report
which did not contain a statement under either section 237
(2) or (3) of the Companies Act 1985.
The financial information on pages 1 to 8 does not amount to
full financial statements within the meaning of Section 240
of the Companies act 1985 (as amended).
2. Exceptional Item - Restructuring costs
The restructuring costs comprise largely 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
2000 1999
£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 £3.9m by
the utilisation of brought forward trading losses.
6. Earnings per Share
The calculations of earnings per share are based on the following
profits and numbers of shares.
2000 1999
Weighted Weighted
average Per average Per
number share number share
Earn- of amount Earn- of amount
ings shares pence ings shares pence
£m '000 £m '000
Basic EPS
excluding
goodwill
amortisation 24.9 462,532 5.40p (1.2) 428,442 (0.29)p
Effect of
goodwill
amortisation 2.8 462,532 0.61p - - -
------ ------ ------ ------ ------ ------
Basic EPS 22.1 462,532 4.79p (1.2) 428,442 (0.29)p
====== ====== ====== ====== ====== ======
7. Reconciliation of operating profit to operating cash flows
2000 1999
£m £m
Operating profit/(loss) 25.7 (1.2)
Exchange movement on loans - 0.6
Increase in provisions 1.8 -
Depreciation on tangible
fixed assets 1.2 -
Amortisation of goodwill 2.8 -
Amortisation of loan
arrangement fee 0.1 -
Decrease in stocks 0.1 -
Decrease in trade debtors 1.9 -
(Increase) in other debtors (0.1) -
Decrease in prepayments 0.5 -
(Decrease) in trade
creditors (2.1) -
(Decrease) in other taxes (0.6) -
Increase in accruals and
deferred income 1.1 -
-------- --------
Net cash inflow/(outflow) from
operating activities 32.4 (0.6)
======== ========
8. Analysis and reconciliation of net debt
At 31
At 1 October Cash Loan December
1999 flow discharged 2000
£m £m £m £m
Cash at bank and in
hand excluding
increase in charity
cash balances 0.1 16.2 - 16.3
Bank overdrafts - (0.8) - (0.8)
-------- ------- -------- --------
0.1 15.4 - 15.5
-------- ------- -------- --------
Debt due within one
year - (5.9) - (5.9)
Debt due after one
year (20.3) (117.4) 3.9 (133.8)
-------- ------- -------- --------
(20.3) (123.3) 3.9 (139.7)
-------- ------- -------- --------
(20.2) (107.9) 3.9 (124.2)
======== ======= ======== ========
2000 1999
£m £m
Increase in cash in period 17.0 -
Less increase in charity cash (1.6) -
-------- --------
Change in net debt resulting from cash flows 15.4 -
Cash inflow from increase in loans (123.3) 0.6
Discount on redemption of loan 3.9 -
-------- --------
Movement in net debt for the period (104.0) (0.6)
At 1 October 1999 (20.2) (19.6)
-------- --------
At 31 December 2000 (124.2) (20.2)
======== ========
9. Acquisition of Littlewoods Leisure
On 4 September 2000 Sportech PLC acquired the whole of theshare
capital of Littlewoods Promotions Limited, Littlewoods Leisure
Marketing Services Limited, Littlewoods Competitions Company
Limited and Littlewoods Lotteries Limited, which companies
together with their subsidiaries collectively comprised the
Leisure division of The Littlewoods Organisation PLC. The
purchase consideration was £162.5m satisfied by cash.
Acquisition accounting has been used to account for this
acquisition. Goodwill arising on the acquisition of these
companies has been capitalised and included within fixed assets
and will be amortised over a 20 year period. An analysis of the
acquisition of Littlewoods Leisure is as follows;
Book value on Fair Value
Acquisition Impairment Other to Group
£m £m £m £m
Net (liabilities)
acquired
(0.9) (5.9) (1.7) (8.5)
======== ======== ========
Acquisition (1.6)
costs
Goodwill 172.6
--------
Discharged by 162.5
cash
========
Goodwill 172.6
Amortisation of
goodwill (2.8)
--------
Goodwill carried in the balance
sheet 169.8
========
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