Final Results
Sportech PLC
18 March 2008
Sportech PLC ('Sportech' or 'The Company')
Preliminary Results for the year ended 31 December 2007
Financial Highlights
• Profit before tax from continuing operations increased by 27% to £11.6m
(2006: £9.1m)
• Earnings per share from continuing operations of 12.8p (2006: 12.8p,
adjusted following share consolidation)
• Net debt (excluding deferred consideration for Vernons pools business
('Vernons')) reduced to £86.5m (2006: £89.9m). Including the fair value of
deferred consideration payable to Ladbrokes in December 2008 and December
2009, net debt amounts to £92m
• Successful Placing and Open Offer raising over £41.4m to part fund
acquisition of Vernons and provide additional working capital for
investment in enlarged Group
• Re-negotiated banking facilities with improved interest rate margins,
covenants and repayment terms, providing a more appropriate platform for
growth
• Reduction in gearing ratio by over a third, from 77% to 49% over the
last two years
Operational Highlights
• Acquisition of Vernons - which is trading well and being successfully
integrated, delivering operational and financial synergies
• Enhanced new products launched including Premier 10, Fantasy Football,
predictor games, fixed odds games and relaunch of Spot the Ball
• Significant progress in the upgrade of technology and distribution
channels following partnerships with Scientific Games and Orbis
• Signing of a data and marketing agreement to become official licensees
of the Premier League and Football Leagues and official partners of
Scottish equivalents
• Launch of The New Football Pools brand with full-scale relaunch of the
football pools business on target for August 2008
Ian Penrose, Chief Executive of Sportech, said today:
'This has been another year of significant progress for the Company, not least
the realisation of our primary acquisition target, Vernons, acquired at the end
of 2007. The Vernons business is being successfully integrated and has given
further impetus to the ongoing transformation of the business. We are focusing
on our core football pools business as the platform to develop into a market
leading sport, leisure and gaming business with international reach and have
made significant progress, through investment in products, technology and
distribution, to achieve this objective.
'The rebranding of the football pools, as The New Football Pools has already
been introduced online and remains on target for a full launch across the entire
football gaming business in August 2008. We look forward with confidence to the
future.'
-ends-
Enquiries:
Sportech PLC
Ian Penrose, Chief Executive 0151 288 3561
Bell Pottinger Corporate & Financial
David Rydell/Emma Kent/Rosanne Perry 0207 861 3232
Chairman's Statement
Overview
The Board completed its strategic review of the Company in 2007 and the process
of implementing the changes required to deliver a growth-orientated business is
now well underway. The strategically important acquisition of Vernons was
completed in December 2007, together with a very successful fundraising; a
significant achievement given the turmoil in the financial markets during the
period. We have made considerable progress in our objectives to position the
unique, market leading and integrity driven product, the football pools, at the
heart of our business. We are in the process of relaunching the football pools
business, having invested in new products, technology and modern distribution
routes which will enable us to target a new and younger customer base. The
Company is well positioned to deliver on its strategic objectives.
Acquisition of Vernons and Associated Fundraising
We were delighted to complete the acquisition of Vernons on 3 December 2007. The
acquisition process was extremely arduous. The Company announced on 7 March 2007
that it had entered into exclusive negotiations with Ladbrokes for the
acquisition of the business. On 3 May 2007, the Office of Fair Trading announced
that it had decided to refer the proposed acquisition to the Competition
Commission under the provisions of the Enterprise Act 2002. The Competition
Commission issued its preliminary findings on 31 August 2007, concluding that
the acquisition was not expected to result in a substantial lessening of
competition, and this conclusion was confirmed in the final Competition
Commission report issued on 11 October 2007.
In order to fund the acquisition, the Company raised £41.4m through the issue of
new ordinary shares by means of a Placing and Open Offer. A share consolidation
was carried out at the same time which resulted in the share capital of the
Company being consolidated with one new share being issued for every ten
previously held.
The Vernons business is trading well and is being successfully integrated into
the existing football pools business and is already delivering cost savings and
operational synergies.
Financial Performance
Whilst stakes placed and gross win revenues of £356.3m and £59.6m are broadly in
line with last year, the continuing improvements in performance are reflected in
the improvement in operating profit to £18.3m, a £2.8m (18%) increase from that
of 2006. Net interest payable rose by £0.3m to £6.7m as a consequence of the
adverse movements in the credit markets. Profit before tax on continuing
operations for the year amounts to £11.6m, a £2.5m (27%) improvement on 2006.
Earnings per share from continuing operations amounted to 12.8p.
Even following the acquisition of Vernons, net debt, excluding deferred
consideration for Vernons, has reduced to £86.5m (2006: £89.9m) reflecting
strong cash management and the associated fundraising. Over the last two years
we have reduced the gearing ratio by over a third, from 77% to 49%. Further
reductions in borrowings remain one of the primary objectives for the Company.
The Company has also taken the opportunity to re-negotiate its banking
facilities and terms. As part of the fund raising process undertaken for the
acquisition of Vernons, we entered into new arrangements with the Bank of
Scotland ('HBOS') in December 2007. These new arrangements significantly improve
the financial standing of the Company. The re-negotiated interest rate margins,
covenants and repayment terms are now more tailored to the Company's
requirements and will enable better progress of the growth strategy.
Following the year end the Company has implemented its strategy on interest rate
hedging and has entered into swap agreements for three to eight years on a total
of £60m at an average rate (before the lending margin of HBOS) of 4.82%. This
will significantly reduce the Company's exposure to any volatility in the credit
markets.
No dividend is proposed as the Board believes that it must continue to invest in
growth opportunities as well as further reducing debt.
Board and Employees
We were delighted to welcome Jon Holmes onto the Board in July 2007. Jon brings
a wealth of experience of the sports business, in particular the football
industry, and his knowledge and understanding of sports marketing and branding
will be invaluable. In line with the growing opportunities overseas, we have
strengthened the executive team in October 2007 by appointing Christian Heap as
Head of International Development.
A combination of the rapid changes to the business that are being introduced and
the enormous challenge that the acquisition process and associated fundraising
for Vernons placed on time and resources, put significant pressures on the Board
and employees. I should like to express my thanks to those who contributed
during this challenging year.
International expansion and potential acquisitions
The Board has stated previously that it believes its unique business model has
significant international appeal and the Company continues to explore
opportunities in appropriate overseas markets. Substantial progress has been
made regarding the opportunity to expand into Asia and the Company is hopeful
that it can reach a conclusion in the short term.
The Government announced on 5 March 2008 that it intended to sell the UK Tote
(The Horserace Totalisator Board) on the open market. The Board can confirm that
it has lodged its interest in this potential transaction with the Government
since we believe that this could represent an opportunity to combine the pool
betting activities on the two biggest sports in the world, British football and
horseracing. We shall await developments with interest.
Outlook
The business of Sportech is being transformed, a process which began two years
ago. We achieved a great deal in 2007 to address the three key operational areas
of product, technology and distribution but there remains more to do. The
acquisition of Vernons is a significant step towards reinvigorating the football
pools business. We anticipate that the rebrand and relaunch of the football
pools, alongside the launch of new products and expansion into new markets, will
deliver continued shareholder value. The Board looks forward to the ongoing
transition of the business and is confident for the future of the Company.
Piers Pottinger
Chairman
18 March 2008
Corporate Strategy Statement
Ian Penrose
Strategic Direction
The strategic direction of the Company in the short term is to regenerate the
football pools business through a major rebrand and relaunch, which will provide
the platform for the medium to longer term objective of becoming a broad based,
market leading sport, leisure and gaming business with international reach.
Distinct Global Advantages
As the operator of the oldest independent football gaming business in the world,
we have a history and heritage associated with our three football pools
businesses which is unparalleled across the world. Since the football pools was
first established in 1923 we have created lasting benefits for all of our key
stakeholders.
We have consistently delivered quality and valued products to customers and have
paid billions of pounds in prizes to millions of winning customers. In addition
to our customers, the larger stakeholder community has also benefited
substantially over the years. The economy has benefited with significant tax and
duty revenue generated over this period. Furthermore, the football pools
companies have provided a lasting legacy to local communities and the British
public through the contribution of £1.1 billion to football, other sports, the
arts and good causes.,. At its peak, the weekly involvement of one in three of
the adult population of the UK playing our games provided unique promotion of
football to the general public.
International Marketplace
We operate in a global and growing marketplace. Football and particularly
British football is experiencing an unprecedented boom in global popularity.
Pool (pari-mutuel) gaming and games of skill continue to be the popular forms of
gaming around the world, contrary to the position in the UK which is dominated
by fixed odds, betting exchanges and spread betting. Against an international
backdrop of stringent legislation and the prevalence of pool betting and games
of skill, we will endeavour to work with commercial operators, the sports
community and governments to take the world's oldest football gaming business,
operating the largest football pool on British football, to the international
community.
Focus on Core Activities
The overriding strategic objective for the Company has been to refocus on its
core business, the football pools. The aim is to regenerate the football pools
business and widen the franchise of the pools and associated gaming products.
The number one strategic acquisition for the Company, therefore, was Vernons.
The acquisition of Vernons enables us to merge the three independent football
pools into one enlarged pool, thereby creating bigger prizes and enhanced
profile. Importantly, as the existing licence to use the 'Littlewoods' name
expires in 2010, the acquisition also provides a timely opportunity to relaunch
the business as 'The New Football Pools', strengthening the marketing message of
one business in a very competitive betting and gaming landscape.
Our focus on customer retention continues. For the second year running,
excluding the one-off impact of product pricing initiatives, customer attrition
levels are at 9%, maintaining the improvement on historic years where customer
attrition rates were running in the mid to late teens.
Re-establish Links with Football
The Football Pools has been synonymous with football since its formation in
1923. For years this relationship has extended beyond a financial one, playing a
central role in British family culture, as families huddled around the radio,
and more recently the television and internet, in anticipation of winning a
large sum of money at 5 o'clock on a Saturday afternoon. We are pleased that in
December 2007 we have re-established strong links with football through a data
and marketing agreement to become one of a select number of official licensees
of the Premier League and Football Leagues and official partners of their
Scottish equivalents until June 2011. Throughout this period we have also
established formal links with the Football Foundation and football related
charities to support grass roots and club related initiatives.
Strengthened Financial Position
The strategic review of the Company completed in 2007 highlighted the need to
re-negotiate the banking facilities, improve the balance sheet position and
significantly reduce the gearing ratio.
In December 2007, we entered into new banking arrangements which significantly
improve the financial standing of the Company with interest rate margins,
covenants and repayment terms appropriate to the Company going forward, rather
than the unsuitable and challenging arrangements previously in place.
In addition, the Company further strengthened its balance sheet by the raising
of £41.4m in December 2007 from new and existing shareholders to part fund the
acquisition of Vernons.
As a result of the acquisition of Vernons, the associated fundraising,
elimination of loss making activities and strict management of cash, the gearing
ratio over the last two years has been reduced by over a third, from 77% to 49%.
Investing in Products, Technology and Distribution
The strategic review highlighted that there had been significant underinvestment
over many years in the three key operational areas of the business: products,
technology and distribution.
We were delighted to sign a strategic technology and distribution partnership
with Scientific Games, the New York-based operator of pari-mutuel (pool)
systems, lotteries and betting terminals early in 2007. At the same time, we
also signed a contract with a second technology partner, Orbis, a leading
provider of interactive betting and gaming solutions.
Technology is the facilitator of change which will enable us to attract a new
and younger customer base. By investing in new technology we will enable our
current and enhanced range of products to be delivered down new distribution
channels, making them easier to access and easy to play.
Brand
The 'Littlewoods' name is used under a licence agreement which expires in 2010
and therefore the Board, as part of its strategic review, has committed to
ensuring a smooth transition away from the Littlewoods name over the next two
and a half years. The first milestone in this process is the launch of the new
brand, The New Football Pools, for our football gaming business. This is now
well underway and the new branding is already present on our online football
pools and gaming suite.
Relaunch of the Football Pools
Alongside the rebranding exercise the Company will be relaunching the football
pools business in August 2008, as The New Football Pools, to coincide with the
start of the 2008/09 football season. Currently we deliver our products down
predominantly traditional routes to market (collector and direct mail). However,
following completion of the next phase of our technology overhaul, due to be
delivered ahead of August 2008, we will develop this business into one that
offers a broader, more engaging range of football pools, media, football content
and football games, distributed to new and existing customers via online,
retail, licensed betting offices, mobile and international outlets, as well as
our existing traditional routes to market.
A full marketing and advertising campaign is planned to support this next phase
in the development of the football pools business.
E-gaming
Our strategy for the e-gaming business has been to refocus and refine this
business through better customer relationship management and more sophisticated
marketing activity. As a result we are already seeing a substantial increase in
profitability. We have also successfully relocated our Casino and Poker business
to Malta, providing a more stable framework within which to operate, including
the ability to continue advertising in the UK.
Outlook
The Board has established a clear strategy for the Company, one that is expected
to deliver increases in shareholder value in the medium term. Trading for the
current period has started well. We remain focused on the major business
initiatives to be put into place prior to the relaunch of the football pools in
August 2008 and we are making significant progress with our international
expansion plans. We anticipate being able to update the market of latest
developments in the potentially lucrative Asian markets in the near future.
Ian R Penrose
Chief Executive
18 March 2007
Business Review
Overview
During the year we have made good progress implementing changes that our
strategic review highlighted as necessary, both operationally and also to
improve our customer experience. The acquisition of Vernons absorbed a
significant amount of management time which distracted but did not deter us from
our strategic and operational objectives. Operations have been consolidated from
three sites into one (which will become four sites into one following the entire
relocation of Vernons), which has significantly improved communication and
operational efficiency.
We are extremely focused on all aspects of our turnaround strategy. We have put
the football pools at the heart of our business, and we are focusing on getting
our basics right to ensure we can deliver profitable growth.
Financial Overview
Total operating profit amounted to £18.3m (2006: £15.5m), an improvement of 18%.
Operating profit, before exceptional costs and amortisation of acquired
intangibles, increased by £0.4m to £18.8m, a significant turnaround on the £3.8m
reduction suffered in 2006. Net interest payable increased by £0.3m to £6.7m
(2006: £6.4m) following adverse credit market conditions. Profit before tax from
continuing operations increased to £11.6m (2006: £9.1m). The tax charge on
continuing operations is £3.5m (2006: £1.5m) reflecting normalised tax rates in
2007 whereas 2006 benefited from unutilised tax losses brought forward.
In 2006 the Company disposed of Bet Direct for £12.5m generating a profit on
disposal of £10.6m. The tax charge associated with the profit on disposal and
the trading losses incurred prior to disposal amounting to £4.1m in total
reduced the profit from discontinued operations to £6.5m in 2006. There was no
such gain from disposals in 2007.
On a continuing operations basis, earnings per share have remained constant at
12.8p (2006: 12.8p).Total earnings per share are 12.8p (2006: 23.8p reflecting
the profit on the sale of Bet Direct in 2006, amounting to 11.0p).
No dividend is proposed as the Board continues to focus on investing in
continuing activities and reducing debt.
The Group reports under two distinct divisions: the football gaming division,
comprising the traditional football pools products run under the Littlewoods,
Vernons and Zetters brand names and associated games such as Spot the Ball,
Premier 10, Lucky Clover and Lotto; and the e-gaming division comprising the
online activities of Littlewoods Poker, Littlewoods Casino, Littlewoods Bingo
and Game On.
2007 2006
Football E- Total Football E- Total
Gaming Gaming
Gaming Gaming
£m £m £m £m £m £m
Gross win
revenue 47.2 12.4 59.6 49.6 11.2 60.8
------------------------------------------------------------
Operating
profit pre
exceptional
costs and
amortisation
of acquired
intangibles 16.2 2.6 18.8 17.4 1.0 18.4
Exceptional
costs (0.3) - (0.3) (2.9) - (2.9)
Amortisation
of acquired
intangibles (0.2) - (0.2) - - -
-----------------------------------------------------------
Operating
profit 15.7 2.6 18.3 14.5 1.0 15.5
-----------------------------------------------------------
Products
The Company's aim is to achieve growth by offering customers new and improved
products. We are enhancing and refining existing products, to make them more
engaging and accessible. Alongside these existing products we are creating new
games that will be attractive to a wider audience. The delivery of this enhanced
suite of products has already begun with the recently launched Premier 10,
Fantasy Football, several football predictor games and a portfolio of fixed odds
games. We will be launching additional predictor games and a remodelled Spot the
Ball in 2008.
To augment our football prediction games, we are building a content-rich website
aimed directly at the football fan. In addition to the current streaming of
breaking football headlines, we will introduce a community-focused fans' forum,
quizzes, bespoke player league tables and other football related content. We
will continue to generate our own unique content, having launched the Football
Fever report in January 2007 which examined each of the 92 football clubs and
identified by ranking the most stressful to support. This award-winning report
(National CIPR Excellence Award) was followed up in September 2007 by the launch
of Football Fever 2, looking at which clubs have the most and least optimistic
supporters and in February 2008 by Football Fever 3, looking at fierce football
rivalries across the country. All three reports can be viewed at
www.footballpools.com.
Technology
Making our games easy to access and play is fundamental to restoring growth.
Investing in new technology is a vital step in order to achieve this, enabling
new distribution channels and delivering operational benefits. We were delighted
to sign a strategic technology and distribution partnership with Scientific
Games, the New York-based operator of pari-mutuel (pool) systems lotteries and
betting terminals, earlier this year. At the same time, we also signed a
contract with a second technology partner, Orbis, a leading provider of
interactive betting and gaming solutions.
These two partnerships will enable the Company to overhaul its technology
backbone completely at a cost of £3.5m, thereby delivering significant customer
benefits, distribution enhancements and operational synergies. The first phase
of the technology roll out plan was delivered for the start of the 2007/08
football season and we have a series of upgrades and launches scheduled
throughout 2008 as we transform our technical capabilities.
Distribution
We are currently modernising our distribution channels to enable the Company to
offer its new and existing products in an easy-to-play format for the mass
football market. The investment in technology will help facilitate this
expansion of the distribution network and will augment the historic methods of
distribution of primarily door to door collectors and direct mail.
Online
As stated previously, we have extended the distribution of our products online,
with the first phase launch of the website in August 2007. This will be subject
to a number of major enhancements over the next few months.
The strategic technology and distribution partnership signed early in 2007 with
Scientific Games will offer the Company the potential to develop enhanced
distribution of its games to customers within Scientific Games' global customer
network, once the new technology is fully implemented and operational. This
initiative offers significant potential for 2009 and beyond.
Retail
Extending our reach into retail venues remains a key goal for the business. The
Football Pools can be played on many of the Paypoint terminals across their
network of 17,500 retailers and we continue to work with Paypoint to increase
the potential for retailing the football pools via this network.
As part of the Vernons acquisition we have secured a marketing and distribution
agreement with Ladbrokes to offer certain of our products in a minimum of 1,750
of their licensed betting offices. We continue to work with Ladbrokes to
integrate into their EPOS system, and to design the appropriate marketing and
promotional inventory. We expect this route to market to become fully
operational in August 2008. We continue to evaluate other opportunities in this
field and will update the market accordingly.
International
We consider that the international marketplace offers great potential for our
pari-mutuel games of skill, and we have held discussions with a number of
partners for distribution into a selection of overseas territories. Whilst the
introduction of a strong technological backbone is paramount for international
development, we have made significant progress in our plans for expanding our
reach into Asian markets and the Company is hopeful that it can reach a
conclusion in the short term. Following our acquisition of Vernons, we are now
the largest gaming operator in Mauritius and as a consequence will look to build
upon the potential on the island.
The Board considers that there is significant potential for developing our
international operations by using pool betting and games of skill, in
conjunction with football content, for commercial, governmental, sporting and
good cause benefits as has been witnessed over the last 85 years here in the UK.
Pari-mutuel betting requires the utmost level of integrity and we have a history
second to none.
Product Enhancement and Spend Per Head
Following a period of extensive customer research and internal business
analysis, we took the decision in 2007 to enhance our product offering and
increase the associated price points in an attempt to increase the average
weekly spend per head in our Littlewoods Football Pools business. This was the
first time in eight years that such an initiative had been undertaken and we
have been very pleased with the results. Average stakes increased by 20% to
£2.21 per customer per week, partially offset by a one off customer loss of 6%.
The initiative began in September 2007 and we anticipate seeing the full
financial benefit in 2008. In addition, we have managed to enhance the customer
experience and improve our internal customer focus.
Football Gaming Financials
Following several years of severe decline in the performance of the football
gaming business, the Company has focused on managing the core football pools
business more effectively, and we are pleased to report that major progress has
been made in this area. After exceptional costs, and excluding Vernons,
operating profit has increased by 3% to £14.9m (2006: £14.5m), with the rate of
decline of operating profit before exceptionals (excluding Vernons) being slowed
by over two thirds to £2.2m the year, from £7m in 2006.
Our focus on customer retention continues and we are pleased to report that for
the second year running, excluding the expected one-off impact of product
enhancement and pricing initiatives, customer attrition levels are at 9%,
maintaining the improvement on historic years where customer attrition rates
were running in the mid to late teens. Having strengthened our customer base
with the acquisition of Vernons we now have more than 700,000 customers playing
the football pools each week.
Acquisition of Vernons
Vernons began offering football pools in 1925. Today it provides football pools
and lottery and other games to its customers via post, telephone and the
internet. Vernons has approximately 230,000 weekly customers and is the second
largest football pools business in the UK behind Littlewoods Pools. The
customers are predominantly UK-based and are served from Vernons' head office in
Liverpool.
Following the completion of the Company's strategic review and turnaround
strategy, the Company has focused its activities on regenerating the football
pools business and developing related products. The acquisition of Vernons has
enabled the Company to own all three major football pools operations in the UK,
representing approximately 99% of the total football pools market. Upon full
integration of the Vernons business into our existing operations, there will be
a bigger pool of customers, larger jackpots and more winners. Significant
operational synergies are expected to be realised in the areas of shared
overheads and direct costs. The Board also believes that the enlarged Group will
have opportunities to increase revenue through focused marketing and cross
selling.
The Company completed the acquisition on 3 December 2007 for a total
consideration of £51m, £45m payable on completion, £3m on the first anniversary
of acquisition and £3m on the second anniversary. Costs of £4.9m were incurred
reflecting the high level of regulatory clearance work that was undertaken, the
fundraising associated with the transaction and all other legal, accounting and
investment banking advice sought.
In line with IFRS3, the Company undertook a valuation of the intangible assets
acquired with the business and attributed a value of £35m to these intangibles.
These intangibles are required to be amortised over their estimated useful life
and in the one month of ownership in the 2007 financial year this amounted to
£0.2m. The remainder of the acquisition cost is recognised in the balance sheet
as goodwill and amounts to £20.3m and is subject to an annual impairment review.
In the period since acquisition, Vernons has contributed gross win revenue of
£2.1m and an operating profit pre amortisation of acquired intangibles of £1.0m.
We are pleased that the integration of Vernons is running ahead of schedule, as
we relocate the business and staff of Vernons to our offices in Walton House,
Liverpool. We expect this process to be completed in all material respects by
July 2008, ahead of the initial timetable. The level of synergies to be derived
in 2008 are anticipated to be ahead of the £1m expected, whilst the one off
costs of delivering these synergies are anticipated to be lower than the £1.5m
expected. The Board remains confident that savings could amount to approximately
£2.5m per annum and that the full benefit of these savings will be available in
2009.
Customer numbers
Registered Active
2007 2006 2007 2006
('000) ('000) ('000) ('000)
Football Gaming 989 699 701 547
Casino and
Poker 135 107 23 23
Bingo 123 45 13 6
Game On 27 12 11 8
-----------------------------------------------------
Total 1,274 863 748 584
-----------------------------------------------------
E-gaming
Following the significant strides made in 2006 in refocusing our E-gaming
operations, we are pleased to report a substantial increase in the profitability
of this division as we build upon the stronger foundations laid.
Performance by channel is illustrated in the table below:
2007 2007 2006 2006
Gross win Operating Gross win Operating
revenue profit revenue profit
£m £m £m £m
Casino
and Poker 11.5 3.0 10.7 1.8
Bingo 0.7 0.2 0.3 (0.3)
Game On 0.2 (0.6) 0.2 (0.5)
-------------------------------------------------------
Total 12.4 2.6 11.2 1.0
-------------------------------------------------------
Casino and Poker
Our casino and poker business has delivered a profit of £3m, a 67% (£1.2m)
increase on last year. Gross win increased by 7% (£0.8m) to £11.5m.
LittlewoodsCasino.com has enjoyed considerable success through refining the
marketing activity, a better CRM process and improved high roller management.
This strategy, rewarding loyal customers and reducing the acquisition of 'bonus
abusers' has continued to grow the gross win and increase revenue per player.
This focused strategy has led to the total number of active customers decreasing
slightly to 22,600 (2006: 23,000). In addition, the introduction of a number of
branded games based on the Marvel characters has improved the customer
experience and appeal of our casino product. LittlewoodsPoker.com, like many in
the industry, had a more challenging year. We continue to work with our software
supplier Cryptologic to address certain of the network and industry-wide issues
that affect the poker room performance.
We were pleased to receive the Gambling Online Readers Choice Awards with Bronze
for Top Casino and Silver for Top Poker Software Provider.
Following the changes introduced by the Gambling Act 2005 we successfully
relocated our Casino and Poker business to Malta from Curacao in the Dutch
Antilles. This has provided the two operations (LittlewoodsCasino.com and
LittlewoodsPoker.com) with a more stable framework in which to operate,
including the ability to continue to advertise in the UK.
The software agreement with Cryptologic to power our Casino and Poker businesses
expires in September 2008. We have commenced the process of reviewing
competitive suppliers to take account of the quality of software, network
liquidity, product offerings and administrative software and support. We intend
to improve both the quality of our customer offering and the financial terms
through this process.
Bingo
LittlewoodsBingo.com, which was launched in 2006, has had a strong year,
reporting a profit of £0.2m for 2007, a £0.5m improvement on the loss of £0.3m
in 2006. Registered customers grew by 175% to 122,700, and active players grew
by 131% to 13,000.
Growth is continuing as a result of focused marketing activity, and we will be
stepping up this activity further with a high-profile television campaign in
April 2008, leveraging the household name of Littlewoods and its reputation as
the trusted name in gaming.
Following this early success, we have managed to renegotiate the financial terms
of our contract with our technology and network partner St Minver, the benefits
of which we expect to see in the coming year.
Game On
Game On, our fixed odds games business, has been refreshed in the latter part of
2007 with the launch of a suite of new games. The establishment of a focused
team will deliver improved performance in 2008. For 2007, gross win revenue
remained constant at £0.2m (2006: £0.2m) with operating losses of £0.6m (2006:
£0.5m) being incurred reflecting certain costs associated with the website
upgrade.
Exceptional Costs
Exceptional costs of £0.3m have been incurred in the year (2006: £2.9m) relating
to redundancy costs in respect of the continuing rationalisation of the business
and initial seeding costs for new games, offset by the release of amounts
accrued in previous years in respect of building costs following the surrender
of a lease in the current year for an amount lower than that accrued.
Exceptional costs in the prior year relate to asset impairments, rationalisation
of building infrastructure and related staff redundancy costs resulting from the
strategic review of the business.
Debt
Debt reduction remains a priority for the Group and we are pleased to report,
that even following the acquisition of Vernons, net bank debt has reduced by
£3.4m to £86.5m at the year end (2006: £89.9m). Including the fair value of
deferred consideration payable to Ladbrokes in December 2008 and December 2009,
net debt amounts to £92m.
Our gearing ratio has improved substantially during the last two years with a
reduction of over a third from 77% to 49% due to the continued focus on cash
management, the fundraising associated with the Vernons acquisition and the
elimination of loss making activities.
Cash generated from operations has increased to £19.3m (2006: £15.0m). With net
interest payments increasing to £6.7m (2006: £6.4m), tax payments also
increasing to £2.9m (2006: £2.0m) and charity cash balances remaining constant
(2006: reduction of £1.2m), net operating cash flow has increased by 24% to
£9.7m (2006: £7.8m).
Capex for the year amounted to £2.0m (2006: £0.4m) predominantly comprising of
amounts spent on new technology. In the previous year, £10.8m of cash was
generated from the sale of Bet Direct being the cash consideration of £12.5m
offset by £1.7m of disposal and associated restructuring costs.
Finally, a net £45.7m was spent in relation to the acquisition of Vernons, being
initial consideration of £45m, total fees of £4.9m offset by £4.2m of working
capital cash acquired with the business. The majority of this cash outflow was
met by the proceeds from the new share issue of £41.4m.
The Company has also during the year re-negotiated its banking facilities and
terms. As part of the fund raising process undertaken for the acquisition of
Vernons, we entered into new arrangements with HBOS in December 2007. In total,
£124m of facilities were agreed with the Bank of Scotland comprising of, up to
£110m of long term debt facilities, £8m annually approved working capital
facilities and £6m guarantee facilities in respect of the deferred consideration
payable on the acquisition of Vernons. These new arrangements significantly
improve the financial standing of the Company. The re-negotiated interest rate
margins, covenants and repayment terms are now significantly more suited for the
Company and will enable better progress of the growth strategy.
Following the year end the Company has also implemented its strategy on interest
rate hedging, and has entered into a number of swap agreements for periods
ranging between three and eight years on a total of £60m of term debt at average
rates (before the lending margin of HBOS) of 4.82%. The swap agreements are
structured in line with the Company's intentions to repay long term debt. This
will significantly reduce the Company's exposure to the continued volatility in
the credit markets.
Equity
In order to fund the acquisition and help strengthen the balance sheet, the
Company raised £41.4m through the issue of new ordinary shares by means of a
Placing and Open Offer. A share consolidation was carried out at the same time,
which resulted in the share capital of the Company being consolidated with one
new share being issued for every ten previously held.
Regulatory
2007 was a busy year on the regulatory front. Following the changes introduced
by the Gambling Act 2005, the Company applied for and received six licenses
under this Act, which encompass our UK-based pool betting, gaming and lottery
businesses. In addition, to enable the Company to continue to advertise to its
UK player base, we transferred our Casino and Poker business from Curacao in the
Dutch Antilles to Malta. To ensure that the obligations placed on the Company by
the new Act are adhered to and in furtherance of our policy of maintaining the
highest standards of compliance and integrity, the Company has appointed a
Security and Compliance Manager to work alongside the Executive Board.
Ian R Penrose
Steve Cunliffe
18 March 2008
Consolidated Income Statement
For the year ended 31 December 2007
Group
2007 2006
Continuing operations Note £m £m
Stakes placed* 356.3 352.7
Gross win revenue 2 59.6 60.8
Cost of sales (15.9) (17.1)
----------------
Gross profit 43.7 43.7
Distribution costs (0.9) (0.8)
Administrative expenses (24.5) (27.4)
----------------
Operating profit before amortisation of
acquired intangibles and exceptional costs 18.8 18.4
Amortisation of acquired intangibles (0.2) -
Exceptional costs 4 (0.3) (2.9)
----------------
Operating profit 2 18.3 15.5
----------------
Finance costs (6.8) (6.4)
Finance income 0.1 -
----------------
Profit before taxation 11.6 9.1
Taxation 5 (3.5) (1.5)
----------------
Profit for the financial year from continuing
operations
attributable to equity shareholders 8.1 7.6
----------------
Discontinued operations
Profit for the financial year from 3
discontinued operations - 6.5
----------------
Profit for the financial year attributable to
equity shareholders 8.1 14.1
----------------
Earnings per share
Basic and diluted 6 12.8p 23.8p
----------------
Earnings per share from continuing operations
Basic and diluted 6 12.8p 12.8p
----------------
Adjusted earnings per share
Basic and diluted 6 13.4p 14.1p
----------------
* Stakes placed does not represent a statutory number and is given for
information purposes only.
Statement of Recognised Income and Expense
For the year ended 31 December 2007
Group
2007 2006
£m £m
Profit for the financial year 8.1 14.1
Actuarial gain on retirement benefit
obligations - -
----------------
Total recognised income for the year
attributable to equity shareholders 8.1 14.1
----------------
Consolidated Balance Sheet
As at 31 December 2007
Group
2007 2006
£m £m
ASSETS
Non-current assets
Goodwill 165.5 145.2
Other intangible assets 36.2 0.2
Property, plant and equipment 2.0 2.1
Retirement benefit assets 0.3 0.3
Deferred tax assets 0.5 1.0
-------------------
204.5 148.8
-------------------
Current assets
Trade and other receivables 2.8 2.2
Current tax receivables 0.7 -
Cash and cash equivalents 7.9 0.4
-------------------
11.4 2.6
-------------------
LIABILITIES
Current liabilities
Financial liabilities (8.9) (21.8)
Trade and other payables (18.1) (14.0)
Current tax liabilities (2.2) (1.5)
-------------------
(29.2) (37.3)
-------------------
Net current liabilities (17.8) (34.7)
-------------------
Non-current liabilities
Financial liabilities (90.6) (68.1)
Deferred tax liabilities (0.7) (0.3)
-------------------
(91.3) (68.4)
-------------------
NET ASSETS 95.4 45.7
-------------------
SHAREHOLDERS' EQUITY
Ordinary shares 50.3 29.6
Share premium 20.7 -
Other reserves 0.6 0.4
Retained earnings 23.8 15.7
-------------------
TOTAL SHAREHOLDERS' EQUITY 95.4 45.7
-------------------
Consolidated Cash Flow Statement
For the year ended 31 December 2007
Group
2007 2006
Note £m £m
Cash flows from operating activities
Cash generated from operations 7 19.3 15.0
Interest received 0.1 -
Interest paid (6.8) (6.4)
Tax paid (2.9) (2.0)
------------------
Net cash generated from operating
activities 9.7 6.6
------------------
Net cash from operating activities before
charity cash movement 9.7 7.8
Charity cash movement - (1.2)
------------------
Net cash generated from operating
activities 9.7 6.6
------------------
Cash flows from investing activities
Proceeds from sale of Bet Direct - 10.8
Acquisition of Vernons, net of cash
acquired (45.7) -
Purchase of intangible fixed assets (1.4) (0.1)
Purchase of property, plant and equipment (0.6) (0.3)
------------------
Net cash (used in)/generated by investing
activities (47.7) 10.4
------------------
Cash flows from financing activities
Finance lease principal payments (0.1) (0.5)
Proceeds from issue of new shares 41.4 -
Proceeds from borrowings 94.0 -
Repayment of borrowings (88.0) (15.0)
------------------
Net cash generated by/(used in) financing
activities 47.3 (15.5)
------------------
Net increase in cash, cash equivalents
and bank overdrafts 9.3 1.5
Cash, cash equivalents and bank
overdrafts at 31 December 2006 (1.4) (2.9)
------------------
Cash, cash equivalents and bank
overdrafts at 31 December 2007 7.9 (1.4)
------------------
Cash, cash equivalents and bank
overdrafts consist of:
Cash and cash equivalents 7.9 0.4
Overdrafts - (1.8)
------------------
7.9 (1.4)
------------------
Reconciliation of net debt
Increase in cash in year 9.3 1.5
Movement in charity cash - 1.2
-----------------
Change in net debt resulting from cash
flows 9.3 2.7
Cash outflow from repayment in loans 88.0 15.0
Cash inflow from loans taken (94.0) -
Cash outflow from repayment of finance
lease agreements 0.1 0.5
-----------------
Movement in net debt for the year 3.4 18.2
At 1 January 2007 (89.9) (108.1)
-----------------
At 31 December 2007 (86.5) (89.9)
-----------------
Net debt comprises:
Cash, cash equivalents and bank
overdrafts including charity cash 7.9 (1.4)
Less charity cash balances (0.4) (0.4)
-----------------
Available cash, cash equivalents and bank overdrafts 7.5 (1.8)
Leases - (0.1)
Loans repayable within one year (6.0) (20.0)
Loans repayable after one year (88.0) (68.0)
-----------------
At 31 December 2007 (86.5) (89.9)
-----------------
Notes to the Preliminary Statement
For the year ended 31 December 2007
1. Basis of reporting
a) The preliminary results have been prepared on the basis of the accounting
policies set out in the Group's 2006 financial statements.
b) The financial information set out in this announcement does not constitute
the Group's statutory financial statements for the year ended 31 December 2007,
but is extracted from those financial statements. The auditors have reported on
those financial statements and have given an unqualified report which does not
contain a statement under section 237 (2) or 237 (3) of the Companies Act 1985.
2. Segmental reporting
2007
Football e-Gaming Telephone
Gaming Betting Group
Continuing operations £m £m £m £m
Gross win revenue 47.2 12.4 - 59.6
-------------------------------------
Segment result before amortisation
of acquired intangibles and
exceptional costs 16.2 2.6 - 18.8
Amortisation of acquired
intangibles (0.2) - - (0.2)
Exceptional costs (0.3) - - (0.3)
-------------------------------------
Segment result 15.7 2.6 - 18.3
-------------------------------------
Finance costs (6.7)
-------------------------------------
Profit before tax 11.6
Taxation (3.5)
-------------------------------------
Profit for the year from
continuing operations 8.1
-------------------------------------
2006
Football Telephone
Gaming e-Gaming Betting Group
Continuing operations £m £m £m £m
Gross win revenue 49.6 11.2 - 60.8
--------------------------------------
Segment result before
exceptional costs 17.4 1.0 - 18.4
Exceptional costs (2.9) - - (2.9)
--------------------------------------
Segment result 14.5 1.0 - 15.5
--------------------------------------
Finance costs (6.4)
--------------------------------------
Profit before tax 9.1
Taxation (1.5)
--------------------------------------
Profit for the year from
continuing operations 7.6
--------------------------------------
Discontinued operations
(note 3)
Gross win revenue - 1.4 2.6 4.0
--------------------------------------
Segment result - (0.4) (0.9) (1.3)
--------------------------------------
Profit on disposal of
operation 10.6
--------------------------------------
Taxation (2.8)
--------------------------------------
Profit for the year from
discontinued operations 6.5
--------------------------------------
Net profit attributable to
equity shareholders 14.1
--------------------------------------
3. Discontinued operations
2007 2006
£m £m
Trading losses - (1.3)
Tax on trading losses
current - 0.4
---------------
- (0.9)
---------------
Profit on disposal of
Bet Direct - 10.6
Tax on profit on disposal of Bet
Direct
- current - (1.1)
- deferred - (2.1)
---------------
- 7.4
---------------
Profit for the year from discontinued
operations - 6.5
---------------
On 7 June 2006 the Group disposed of its Bet Direct branded Sports Betting
business to 32Red plc for £12.5m. A summary of the net assets disposed and of
the profit and net cash generated is as follows:
2006
£m
Tangible assets 0.7
Intangible assets 0.7
Current assets 0.4
Current liabilities (1.6)
--------
Net assets disposed 0.2
Disposal costs 1.7
Net profit on disposal 10.6
--------
Sale proceeds 12.5
Less customer deposits transferred
to 32Red plc (1.5)
--------
Net cash inflow on sale 11.0
--------
Reconciliation to net cash in cash
flow statement:
Sale proceeds 12.5
Disposal costs (1.7)
--------
Net cash inflow on sale of Bet Direct per
cash flow statement 10.8
--------
The net cash flows after tax for the Bet Direct business were as follows:
2007 2006
£m £m
Operating - (2.5)
Investing - 10.8
Financing - (0.5)
----------------
Net cash inflow - 7.8
----------------
There have been no disposals or discontinuance of activities during 2007.
4. Exceptional costs
All exceptional costs for continuing operations are included within
administrative costs within the income statement:
2007 2006
Continuing operations £m £m
Exceptional costs
Football Gaming 0.3 2.9
-----------------
Exceptional costs in the current year relate to redundancy costs in respect of
the continuing rationalisation of the business and initial seeding costs in
respect of new games, offset by the release of amounts accrued in previous years
in respect of building costs following the surrender of a lease in the current
year for an amount lower than that accrued. Exceptional costs in the prior year
relate to asset impairments, rationalisation of building infrastructure and
related staff redundancy costs resulting from the strategic review of the
business.
5. Tax on profit on ordinary activities
2007 2006
Current tax - continuing £m £m
operations
UK corporation tax 3.4 3.2
Adjustments in respect of prior
years (0.8) 0.1
-----------------
Total current tax 2.6 3.3
-----------------
Deferred tax - continuing
operations
Current year charge/(credit) 0.4 (0.4)
Adjustments in respect of prior years 0.5 (1.4)
-----------------
Total deferred tax 0.9 (1.8)
-----------------
Total taxation charge 3.5 1.5
-----------------
The taxation charge for the period is in line with (2006: lower than) the
standard rate of corporation tax in the UK (30%). A reconciliation is shown
below:
2007 2006
£m £m
Profit on continuing operations before tax 11.6 9.1
-----------------
Profit on ordinary activities multiplied by
the standard
rate of corporation tax in the UK of 30%
(2006: 30%) 3.5 2.7
Effects of:
Permanent differences 0.3 0.2
Trading losses not previously
recognised - (1.5)
Adjustments to tax in respect of
prior years (0.3) 0.1
----------------
Total taxation charge 3.5 1.5
----------------
6. Earnings per share
The calculations of earnings per share (EPS) are based on the following profits
attributable to ordinary shareholders and the weighted average numbers of shares
adjusted following share consolidation:
2007 2006 Restated
Weighted Weighted
average Per average Per
number share number share
Profit of amount Profit of amount
shares shares
£m 000 Pence £m 000 Pence
Basic and diluted EPS 8.1 62,954 12.8 14.1 59,207 23.8
-----------------------------------------------
EPS from continuing operations
Basic and diluted EPS 8.1 62,954 12.8 14.1 59,207 23.8
Profit on sale of Bet Direct
(net of tax) - 62,954 - (7.4) 59,207 (12.5)
Pre-tax losses from
discontinued operations - 62,954 - 1.3 59,207 2.2
Tax relating to discontinued
operations - 62,954 - (0.4) 59,207 (0.7)
-----------------------------------------------
Basic and diluted EPS from
continuing operations 8.1 62,954 12.8 7.6 59,207 12.8
-----------------------------------------------
The calculations of adjusted EPS are based on the following profits attributable
to ordinary shareholders and the weighted average numbers of shares and an
estimated tax charge of 30%:
2007 2006 Restated
Weighted Weighted
average Per average Per
number share number share
Profit of shares amount Profit of shares amount
£m 000 Pence £m 000 Pence
Operating profit before
exceptional costs and
amortisation of acquired
intangibles 18.8 62,954 29.9 18.4 59,207 31.1
Net interest (6.7) 62,954 (10.8) (6.4) 59,207 (10.9)
------------------------------------------------------
Adjusted profit before tax 12.1 62,954 19.1 12.0 59,207 20.2
Tax at 30% (3.6) 62,954 (5.7) (3.6) 59,207 (6.1)
------------------------------------------------------
Adjusted EPS 8.5 62,954 13.4 8.4 59,207 14.1
------------------------------------------------------
7. Cash flow from operating activities
Reconciliation of operating profit to net cash flow from operating activities:
Group
2007 2006
Continuing operations £m £m
Net profit 8.1 7.6
Adjustments for:
Taxation 3.5 1.5
Depreciation 0.7 0.8
Impairment of property, plant and equipment - 1.2
Amortisation of intangibles acquired with Vernons 0.2 -
Amortisation of other intangibles 0.2 0.3
Impairment of intangibles - 0.1
Interest expense 6.7 6.4
Share option charge 0.2 0.2
Changes in working capital:
Decrease/(increase) in trade and other receivables 1.3 (0.2)
Decrease in trade and other payables (1.6) (1.0)
------------------
Cash generated from continuing operations 19.3 16.9
------------------
Discontinued operations
Net profit - 6.5
Adjustments for:
Taxation - 2.8
Profit on disposal of Bet Direct - (10.6)
Amortisation of intangibles - 0.1
Changes in working capital:
Decrease in trade and other payables - (0.7)
------------------
Cash used in discontinued operations - (1.9)
------------------
Cash generated from operations 19.3 15.0
------------------
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