Interim Results
Sportech PLC
4 September 2001
4 September 2001
Sportech PLC
Interim Results for six months ended 30th June 2001
Highlights
* Operating profits from Littlewoods Leisure of £9.3m (EBITDA £11m)
* First stage of interactive television strategy implemented with contract
signed to develop games content and promote Littlewoods games on ITV
digital platform
* Product portfolio widening with planned launch of Littlewoods On Line
Casino in October
* Continued strong growth in Sports Betting customer base to over 208,000
registered customers
* Significant benefits expected from changes to betting tax in October and
further de-regulation of gaming market, particularly for Pools and
Lotteries.
Colin McGill, Managing Director, Sportech said:
'During the six month period, we have delivered an excellent profit
performance from the Littlewoods football pools business, providing a
sustainable platform for investment in innovative gaming products and new
distribution capabilities.
Littlewoods Leisure has a great brand, access to a customer base of over 1.6
million households and the widest range of gaming products available in the
UK.
'The markets in which we operate currently offer unparalleled growth potential
and we are uniquely placed to take advantage of these opportunities, both on
our own and in conjunction with the right partners.
Enquiries
Sportech
Colin McGill, Managing Director
Gary Speakman, Finance Director
020 7353 9203 on 4th September
0151 525 3677 thereafter
Bell Pottinger Financial
Jonathon Brill/Rebecca Fox/Oliver Jones
020 7353 9203
SPORTECH PLC
Unaudited Interim Results for 6 months ended 30th June 2001
Chairman's Statement
I am pleased to report to shareholders that during the six months ended 30th
June we have made real progress in the development of our business whilst
delivering a very satisfactory financial performance.
Sportech, through the acquisition of Littlewoods Leisure, is now firmly
focused on gaming. In July of this year, the Company signed an agreement with
Scipher Plc to exploit the portfolio of 20 US and European patents managed by
our Rodime Technology subsidiary. The agreement will allow us to reduce the
day to day running costs of managing the portfolio, whilst extending our
expertise in seeking commercial opportunities for our intellectual property.
This agreement with Scipher Plc allows the Board to concentrate on the
significant opportunities within the gaming market as we pursue our aim to be
the pre-eminent supplier of gaming products to the home.
Operating profit from Littlewoods Leisure was £9.3m for the six months ended
30th June 2001 (EBITDA £11m), largely due to a strong profit performance from
our football pools business.
During the period, and subsequently, we have also increased our investment in
new products and new distribution channels with a number of major initiatives
designed to take the business forward:
* In August we announced that Littlewoods Leisure will become the
exclusive sponsor of ITV's interactive football coverage.
Littlewoods Leisure will offer ITV Digital's 1.2 million
households the opportunity to predict match statistics during live
football games. ITV will also promote Littlewoods own gaming
products focused around our football pools game which now offers a
£2m prize each week, but also including Littlewoods Bet Direct's
sports betting and Prizebuster Lotteries. This unique interactive
package will bring an enhanced viewing experience to ITV Digital's
customers. At the same time, we will be able to generate revenues
from Littlewoods products and expand our established customer base
of over 1.6 million households through this new channel.
* We have continued to recruit customers to our Littlewoods Bet Direct
sports betting business. With over 208,000 registered customers (165,000 at
December 2000) this business is poised to derive significant benefit from
the impending changes in general betting duty.
* The development of a Littlewoods on-line casino is well advanced with an
expected launch in late October. A further update on progress towards the
launch of the casino will be given before the end of September.
* Our new channel developments are not restricted to e-gaming. In July we
announced that we would launch a new Sports Magazine concept to promote
betting opportunities and our games. This magazine will be launched at the
end of September and distributed to at least 100,000 carefully targeted
homes, thereby achieving immediately the largest circulation for any
sports magazine in the UK.
We also welcome the findings of the Government Gambling Review Body.
Essentially this provides significant opportunities for our Pools and Lottery
businesses. Many of the restrictions that have limited the diversity of
products and access to them will be removed if the Review Body's proposals are
implemented.
Financial Review
These are the first interim results since the acquisition of Littlewoods
Leisure in September 2000 and therefore prior year results are not directly
comparable. Reported operating profits for the entire business of £8.6m
comprised £9.3m from Littlewoods Leisure and technology / corporate costs of £
0.7m. After amortisation of goodwill of £4.3m and net interest payable of £
4.7m, the group loss before tax was £0.4m
The Littlewoods Leisure operating profits reflect three main business streams;
football pools, sports betting and games and lotteries.
£m Football Sports Games On Total
Pools Betting and line Littlewoods
Lotteries Development Leisure
Turnover 60.7 23.6 7.0 - 91.3
Operating
Profit
before
amortisation
of goodwill 11.7 (1.9) 0.1 (0.6) 9.3
Note: Lotteries turnover within the Games & Lotteries business stream
represents the fee earned by Littlewoods as the Lottery Manager. The actual
customer spend generated by the Games and Lotteries business stream was £13m.
Net cash flow from operating activities, including redundancy payments of £
1.6m provided in the 2000 accounts, was £5.1m. This cash was used principally
to service our loan obligations. Net debt at the end of the period was £128.2m
with loan facilities reduced by an early repayment of £6m.
Business Review
Football Pools
The main 'treble chance' football pools game, offering a weekly prize of £2m,
remains one of the most popular competitions in the UK with around 1.2 million
regular weekly customers. With over 65% of game entries now gathered either by
telephone or electronically, we are experiencing improved stabilisation of
revenues. In particular our telephone based revenues at £17m were just 14%
down on the comparable period last year, which is a much lower rate of decline
than that experienced in previous years.
Customers are also clearly enjoying the convenience of playing by our portable
'poolscard' terminals. Over 12,000 of these terminals are in service with
total revenues of £22.2m over the six month period. During May and June, 'like
for like' revenues via this electronic channel were 2% up on last year. This
deliberate re-positioning of our distribution will enable us to integrate our
existing and new football games with interactive digital television and other
e-gaming channels.
Notwithstanding the continued decline in the traditional paper coupon entries,
the annualised rate of revenue decline had reduced to 18% by June and this
improving trend is expected to continue. Further operational efficiencies
enabled this business stream to maintain profitability and cashflow.
We are very pleased with the specific recommendations of the Government's
Gambling Review Body, which addressed all of the key points contained in our
submission. In particular Pools Competitions relating to any sport and on any
number of fixtures should be permitted to operate through retail premises,
whilst winnings could be paid out by retailers to a similar level as the
National Lottery.
Given the overall size of the existing market place, both in the UK and
overseas, for high jackpot games and the positive impacts arising from
de-regulation and new distribution channels, we are progressing the
development of a new pools offering which will enable us to compete more
effectively for new customers.
Sports Betting
The very strong turnover growth experienced since the launch of Littlewoods
Bet Direct in 1998 was impacted adversely in the first half of 2001 by the
cancellation of sporting events caused by movement restrictions resulting from
foot and mouth disease. This impact was particularly pronounced on the
telephone and on line channels, where the stimulation of live and televised
sporting events is important. Despite this, overall sports betting revenues
were 4% up on the comparable period for last year with average weekly stakes
in June at £1.2m . Gross margin, measured as bets placed less full UK duty,
levies and winnings returned to customers, was 11% for the period.
In preparation for the new betting tax regime from 6th October 2001, we have
continued to invest in recruitment and ended the period with 208,000
registered customers of whom 77,500 were active (Note: active customers are
defined as those that have bet with us in the previous three months).
The lower volumes than expected, the cost of customer recruitment and the
burden of bearing UK betting duty (£0.5m in first half 2001) resulted in an
operating loss of £1.9m.
In the second half of the year, the Company will clearly benefit from the
abolition of General Betting Duty and the shift to a gross profits based tax.
The legislative change will now take effect from 6th October 2001. The
Directors firmly believe that Littlewoods Bet Direct, has the right value
proposition, customer base and call handling capability to take advantage of
this new tax environment.
Games and Lotteries
During the period under review we continued our investment in new product
concepts, particularly for electronic channels. A number of new products are
currently under test with our on-line casino on track for launch in late
October. The performance of the new PrizeBuster lottery games offering
customers the chance to win an average prize of £7,000 by selecting 4 numbers
from the UK National Lottery, has been particularly encouraging. We have also
continued to develop our strategy to become the gaming partner of choice, with
Glasgow Rangers and Celtic football clubs choosing Littlewoods Leisure to
operate separate branded lotteries on their behalf. We are in discussions with
other leading football clubs to develop this concept further.
The partnerships with Charities also remain important to us. During the last
six months we have strengthened our relationships with high profile charities
such as Mencap, Comic Relief, Blue Cross and Royal British Legion, whilst
establishing a new lottery on behalf of the Princess Royal Trust for Carers.
We have received the Review Body's support on all the major points contained
in our submission. In particular:
* The limits on the size of prizes and the maximum annual proceeds of a
Society Lottery should be removed.
* The limit on price of tickets, currently £1, should be removed.
* Roll-overs should be permitted.
* Society Lotteries should be allowed to sell tickets in all territories
permitted for the National Lottery - Northern Ireland, I.O.M. and the
Channel Islands are currently excluded.
* Selling lottery tickets by machine, without human intervention should be
allowed.
As the dominant Charity Lottery Manager in the UK, the implementation of these
recommendations will provide us with unrivalled opportunities to recruit
customers who enjoy playing lotteries.
Outlook
Gaming and gambling have been one of the few interactive television services
to have generated significant revenues to date. Market analysts forecast that
the interactive television gaming market in the UK will be worth around £2.8
billion by 2006. To take advantage of this opportunity, there has been an
increased emphasis for gaming operators to secure access to strong TV
programming content and we are therefore delighted to have signed an initial
contract with ITV.
In strategic terms the Littlewoods Leisure brand remains a key strength. To
exploit this further and to build on our existing customer base, we have
initiated intensive marketing and advertising from the beginning of the new
football season. A variety of media agreement has been reached with iTV Sport,
Talk Sport Radio, Express Newspapers and selected terrestrial and cable
television companies. These deals will promote the Littlewoods Leisure brand
as offering the widest range of gaming products in the UK.
With the significant potential offered by new on-line channels such as
interactive digital television, the benefits of a new tax regime and further
de-regulation, the outlook for our business is very positive.
Malcolm McIver
Chairman
4th September 2001
Consolidated Profit & Loss Account
6 months to 6 months to 15 months to 31
30 June 30 June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
Notes £m £m £m
Group turnover 3 91.3 - 63.0
Cost of sales (64.1) - (46.9)
----------- ----------- ---------
Gross profit 27.2 - 16.1
Net operating 4 (22.9) 26.8 9.6
income/(expenses)
----------- ----------- ---------
Operating profit 4.3 26.8 25.7
Operating profit/(loss)
before restructuring
costs, amortisation of
goodwill and other 8.6 (1.0) 2.5
operating income.
Exceptional restructuring - - (1.8)
costs
Amortisation of goodwill (4.3) - (2.8)
Other operating income 6 - 27.8 27.8
Operating profit 4.3 26.8 25.7
Discount on redemption of - 3.9 3.9
loan stock
Net interest (4.7) 0.3 (2.9)
(payable)/receivable
Interest and similar 5 (4.7) 4.2 1.0
items
----------- ----------- ---------
Profit/(loss) on ordinary
activities before 3 (0.4) 31.0 26.7
taxation
Tax on profit on ordinary 7 (1.1) (5.3) (4.6)
activities
----------- ----------- ---------
Profit/(loss) on ordinary (1.5) 25.7 22.1
activities after taxation
Dividends - - -
----------- ----------- ---------
Retained profit/(loss) (1.5) 25.7 22.1
for the financial period
=========== =========== =========
Earnings per share 8
Basic (0.26)p 5.56p 4.79p
=========== =========== =========
Pre amortisation of
goodwill 0.46p 5.56p 5.40p
=========== =========== =========
All results are from continuing businesses
The group has no recognised gains or losses other than its loss for the
financial period.
The 15 months to 31 December 2000 only include 16 weeks of trading of
Littlewoods Leisure.
Reconciliation of movement in group shareholders' funds
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
(Loss)/profit for (1.5) 25.7 22.1
the financial period
Proceeds of ordinary - - 28.7
shares issued for
cash
Issue expenses
charged
to share premium
account - - (0.8)
---------- ---------- ----------
Net change in (1.5) 25.7 50.0
shareholders' funds
Shareholders' funds 29.6 (21.1) (20.4)
at start of period
---------- ---------- ----------
Shareholders' funds 28.1 4.6 29.6
at end of period
========== ========== ==========
Consolidated Balance Sheet as at 30 June 2001
30 June 30 June 31 December
Notes 2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
FIXED ASSETS
Intangible assets - 164.9 - 169.8
goodwill
Tangible assets 7.8 - 8.7
---------- ---------- ----------
172.7 - 178.5
CURRENT ASSETS
Stocks 0.2 - 0.2
Debtors 7.6 - 8.5
Cash at bank and in 9 6.9 10.1 17.9
hand
14.7 10.1 26.6
CREDITORS
Amounts falling due (31.3) (5.5) (34.0)
within one year
---------- ---------- ----------
NET CURRENT
(LIABILITIES) (16.6) 4.6 (7.4)
/ASSETS
---------- ---------- ----------
TOTAL ASSETS LESS
CURRENT 156.1 4.6 171.1
LIABILITIES
CREDITORS
Amounts falling due
after more than (127.8) - (139.7)
one year
PROVISIONS FOR LIABILITIES AND
CHARGES (0.2) - (1.8)
---------- ---------- ----------
NET ASSETS 28.1 4.6 29.6
========== ========== ==========
CAPITAL AND
RESERVES
Called up share 30.5 13.6 30.5
capital
Share premium 47.1 33.3 47.1
account
Profit & loss (49.5) (42.3) (48.0)
account
---------- ---------- ----------
TOTAL SHAREHOLDERS FUNDS
(including non-equity interests) 28.1 4.6 29.6
========== ========== ==========
The interim accounts on pages 5 to 11 were approved by the board of directors
on 3 September 2001.
Consolidated Cash Flow Statement
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
Notes £m £m £m
Net cash inflow from 10 5.1 26.4 32.4
operating activities
Returns on
investments and
servicing of
finance:
Interest received 0.3 0.3 0.6
Interest paid (5.0) - (2.8)
Issue costs of new
bank loans - - (0.4)
Purchase of
interest rate cap (0.9) - -
Net cash outflow from
returns on
investments and (5.6) 0.3 (2.6)
servicing of finance
Taxation (3.0) (0.4) (2.2)
Capital expenditure
and financial
investment
Purchase of tangible (0.8) - (0.3)
fixed assets
Net cash outflow from
capital expenditure
and financial (0.8) - (0.3)
investment
Acquisition of
subsidiary
undertakings:
Acquisition of - - (162.5)
Littlewoods Leisure
Acquisition
expenses - - (1.6)
Net cash acquired - - 2.3
with subsidiary
---------- ---------- ----------
Net cash outflow from
acquisitions and - - (161.8)
disposals
Equity dividends paid - - -
---------- ---------- ----------
Cash inflow/(outflow)
before managing of
liquid resources and (4.3) 26.3 (134.5)
finance
Financing:
Issue of ordinary - - 28.7
share capital
Expenses of share - - (0.8)
issue
Net loans (6.0) (16.4) 123.6
(repaid)/taken
Net cash (outflow)/
inflow from financing (6.0) (16.4) 151.5
(Decrease)/increase 11 (10.3) 9.9 17.0
in net cash
Notes to the interim report
1.Accounting Policies
The results for the half year ended 30 June 2001 have been prepared on the
basis of the accounting policies set out in the Report and accounts for
the 15 months ended 31 December 2001
2.Non-statutory accounts
The results for the half-year to 30 June are neither audited nor reviewed
by the auditors.
The financial information on pages 5 to 11 does not amount to full
accounts within the meaning of Section 240 of the Companies Act 1985 (as
amended)
The comparative figures for the 15 months ended 31 December 2000 do not
constitute statutory accounts. These figures have been extracted from the
audited accounts for that period which have been delivered to the
registrar of companies and on which the auditors issued an unqualified
report which did not contain a statement under either section 237 (2) or
(3) of the Companies act 1985.
3. Segmental reporting
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
Turnover
Littlewoods
Leisure 91.3 - 63.0
Technology - - -
91.3 - 63.0
Profit/(loss)
before tax
Littlewoods
Leisure 0.3 - 0.7
Technology/
Corporate (0.7) 31.0 25.0
--------- -------- -------
(0.4) 31.0 25.7
======== ======== =======
4. Operating expenses
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
Distribution costs (0.4) - (0.1)
---------- ---------- ---------
Other administrative (18.2) (1.0) (13.5)
expenses
Exceptional - - (1.8)
restructuring
costs
Amortisation of (4.3) - (2.8)
goodwill
---------- ---------- ---------
Administration (22.5) (1.0) (18.1)
expenses
---------- ---------- ---------
Other operating income - 27.8 27.8
---------- ---------- ---------
(22.9) 26.8 9.6
========== ========== =========
5. Interest and Similar Items
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
Discount on redemption - 3.9 3.9
of loan stock
--------- --------- ---------
Interest payable on (5.0) - (3.5)
bank loans and overdrafts
Interest receivable 0.3 0.3 0.6
---------- --------- ---------
Net interest payable (4.7) 0.3 (2.9)
---------- --------- ---------
(4.7) 4.2 1.0
========== ========= =========
6. Other operating income
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
Proceeds from - 27.8 27.8
settlement of Seagate litigation
========== ========= =========
7.Taxation
Taxation is provided on taxable profits at 25.9% being the anticipated
rate of taxation for the group's current financial year.
8. Earnings per share
The calculation of earnings per share is based on the net loss
attributable to ordinary shareholders of £1.5 million divided by the
weighted average number of shares in issue during the period - 592.1
million (6 months to 30 June 2000 - 462.5 million; 15 months to 31
December 2000 - 462.5 million).
9. Cash
£4.3 million of the cash and bank balances are committed security against
deferred payments due under a contractual obligation of a subsidiary
company.
10. Reconciliation of operating profit to operating cash flows
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
Operating profit 4.3 26.8 25.7
Exchange movement on - (0.7) -
loans
(Decrease)/increase in (1.6) - 1.8
provisions
Depreciation on tangible 1.7 - 1.2
fixed assets
Amortisation of goodwill 4.3 - 2.8
Amortisation of loan - - 0.1
arrangement fee
Decrease in stocks - - 0.1
(Increase)/decrease in (0.2) - 1.9
trade debtors
(Increase)/decrease in other 0.1 - (0.1)
debtors
Decrease in prepayments 2.5 - 0.5
Increase/(decrease) in (1.0) 0.3 (2.1)
trade creditors
Increase/(decrease) in 3.3 - -
other creditors
(Decrease) in other taxes (1.6) - (0.6)
Increase/(decrease) in
accruals and deferred (6.7) - 1.1
income
---------- ---------- ----------
Net cash inflow from 5.1 26.4 32.4
operating activities
========== ========== ==========
11. Analysis and reconciliation of net debt
At 31 December Cash Non-cash At 30 June
2000 flow changes 2001
£m £m £m £m
Cash at bank and in
hand excluding charity cash 16.3 (10.7) - 5.6
balances
Bank overdrafts (0.8) 0.7 - (0.1)
------- ------- ------- ------
15.5 (10.0) - 5.5
------- ------- ------- ------
Debt due within one - - (5.9) (5.9)
year
Debt due after one (139.7) 6.0 5.9 (127.8)
year
------- ------- ------- -------
(139.7) 6.0 - (133.7)
------- ------- ------- -------
(124.2) (4.0) - (128.2)
======= ======= ======= =======
6 months to 30 6 months to 30 15 months to 31
June June December
2001 2000 2000
(Unaudited) (Unaudited) (Audited)
£m £m £m
(Decrease)/increase in (10.3) 10.0 17.0
cash in period
Less decrease/ 0.3 - (1.6)
(increase)
in charity cash
---------- ---------- ----------
Change in net debt
resulting from cash (10.0) 10.0 15.4
flows
Cash outflow from 6.0 16.4 16.4
reduction in loans
Cash inflow from - - (139.7)
increase in loans
Loan forgiven - 3.9 3.9
---------- ---------- ---------
Movement in net debt (4.0) 30.3 (104.0)
for the period
At start of period (124.2) (20.2) (20.2)
---------- ---------- ---------
At end of period (128.2) 10.1 (124.2)
========== ========== =========
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