Interim results

RNS Number : 5383Y
Sportech PLC
10 September 2020
 

 

 

10 September 2020

Sportech PLC

("Sportech" or the "Group")

 

Interim results

 

Sportech, an international betting technology business, announces its interim results for the six months ended 30 June 2020 ('H1 2020' or the 'period').

 

Summary

 

The Group made a good start to H1 2020, however, as previously announced, COVID-19 had a material impact on performance due to the Group's reliance on sporting events to generate revenue. Owing to the focus on operational efficiency and cash generation, and online growth across all business units during the period, the Group's net cash position reduced by a relatively modest £1.4 million from the end of February 2020, ending the period with a net cash position of £9.6 million.

 

As the Group moves through the rest of the financial year, profitability and cash generation will continue to be our key metrics. It is difficult to provide meaningful guidance on the future outlook given uncertainty around the timing of when sporting events will return in full and the potential impact of further lockdowns. However, we remain confident in the quality of the Group's products, our services, our strategy, and in the strength of our balance sheet to help us deliver on these in the medium term.

 

During the period the Group delivered the following notable achievements:

 

Delivered significant business contract growth during the period

Reduced Group capex by 44%

Reduced exceptional costs materially

Delivered 48% growth in online retail

Delivered 23% growth in significant International Tote business and

Delivered positive cash contribution from operating business

 

Despite the current global challenges we face, the business transformation continues with the following objectives:

 

Build on recent achievements to deliver a less capital intensive business;

Maximise the returns from the Tote business;

Develop growth business units - Bump, Lottery, Tote International, and Solutions;

Drive digital development initiatives, with associated cost efficiencies, across all divisions;

Continue professional pursuit of a Sports Betting licence in Connecticut; and

Evaluate and execute material corporate opportunities, delivering tangible investor returns.

 

£m's

H1 2020

H1 2019

Constant

Currency5

H1 2019

Reported

Currency5

Revenue

20.2

33.0

32.6

Gross Profit

14.4

23.0

22.8

Contribution1

13.9

22.4

22.1

Adjusted EBITDA pre-Sports Betting Investment2

(1.1)

4.4

4.3

Adjusted EBITDA3

(1.2)

3.4

3.4

Loss before tax

(10.7)

(2.5)

(2.5)

Adjusted loss before tax4

(5.6)

(0.5)

(0.5)

 

1.  Contribution is defined as gross profit, less marketing and distribution costs.

2.  Excludes Sports Betting Investment during the period, amounting to £0.2 million (2019: £0.9 million), see note 4.

3.  Adjusted EBITDA is earnings before interest, taxation, depreciation and amortisation, share option charges, impairments and exceptional items as reported in note 7 of the Interim Financial Statements.

4.  Adjusted loss is the aggregate of Adjusted EBITDA, normalised share option charges, depreciation, amortisation (excluding amortisation of acquired intangibles) and certain finance charges.

5.  H1 2019 numbers have been corrected for an accounting error found and corrected in the 2019 full year financial statements in respect of the under accrual of interest payable on the uncertain tax positions, resulting in an increase in finance costs and accruals of £74k.

 

Richard McGuire, Chief Executive Officer of Sportech PLC, said : "2019 marked a year of operational improvement and a serious motivation to strengthen digital capabilities. 2020 began well, however, as a business primarily dependent on sporting events taking place, the impact of COVID-19 clearly affected performance. The Group enhanced and diversified its client base further through record new and extended client agreements during the period, providing a realistic prospect for incremental growth in 2021. The Board's focus remains absolute in creating tangible long-term value for shareholders". 

 

 

For further information, please contact:

 

Sportech PLC   Tel: + 44 (0) 117 902 9000

Giles Vardey, Chairman

Richard McGuire, Chief Executive Officer

Thomas Hearne, Chief Financial Officer

 

Peel Hunt   Tel: +44 (0) 20 7418 8900

(Corporate Broker to Sportech)

George Sellar / Andrew Clark

 

Buchanan   Tel: +44 (0) 20 7466 5000

(Financial PR adviser to Sportech)

Henry Harrison-Topham / Mark Court / Jamie Hooper

 

 

 

 

Sportech PLC

("Sportech" or the "Group")

 

Interim results for the six months ended 30 June 2020

 

Group Overview

 

Sportech PLC is an international betting technology business providing and operating betting technology solutions for some of the world's best-known gaming companies, sports teams, racetracks, casinos and lottery clients, as well as owning and operating its own gaming venues in Connecticut under exclusive licences.

 

The Group focuses on highly regulated markets worldwide. It has 29,000 betting terminals deployed to over 400 clients in 38 countries. Its global systems process US$12.3 billion in betting handle annually. In the US, it operates under 35 licences across 36 states. The Group has invested over US$60 million in the last five years in the successful expansion of its Venues business, in the diversification into raffle and lottery gaming platforms, and in developing its technology services, resulting in its proprietary Quantum™ System being the most widely deployed pari-mutuel betting system globally.

 

Group Overview

 

 

Revenue

 

EBITDA

£'000

H1 2020

H1 20191

 

H1 2020

H1 20191

Racing and Digital

13,086

18,028

 

1,395

3,732

Venues

7,231

15,222

 

(1,266)

1,444

Intercompany eliminations and corporate costs

(146)

(294)

 

(1,194)

(816)

 

20,171

32,956

 

(1,065)

4,360

Sports Betting Investment

-

-

 

(157)

(917)

Total at constant currency

20,171

32,956

 

(1,222)

3,443

Exchange rate impact

-

(323)

 

-

(42)

Total reported

20,171

32,633

 

(1,222)

3,401

 

1. 2019 numbers are at constant currency.

 

Sportech Racing and Digital

 

Sportech Racing and Digital provides betting technologies and services to 287 racetrack, off-track betting network, casino, lottery, and online pari-mutuel operator customers, plus an additional 147 commingling customers, in 38 countries and 36 US states. It has an estimated 29,000 betting terminals, 30 white-label betting websites, and 19 white-label mobile apps deployed worldwide and systems that annually process US$12.3 billion in betting handle.

 

Sportech Racing and Digital revenues reduced by 27% as most sporting events ceased during the majority of the period.  A few international racetracks continued to provide some content, resulting in an opportune shift to online wagering, creating further margin growth opportunities as the division navigated through the current challenging environment. Decisive cost management was initiated in March 2020, however the division continued to develop and invest in progressing its technology.  Enhancing international commingling of Tote pools remains a core focus for the Group, supporting client ambitions. Sportech's Quantum™ System software and its global service network delivered a seamless and successful Tote Superpool launch with UK Tote, Ascot Racecourse and The Hong Kong Jockey Club.


During the period the Group also extended and expanded its contracts with a number of key partners including UK Tote Group, Penn National Gaming, Emerald Downs, Macau Jockey Club and Monmouth Park in New Jersey. 

 

The division also progressed its terminal software project, completing development of a flexible new terminal software platform, and identifying and demonstrating an impressive new terminal hardware line that will streamline capex, improve efficiency, and provide an innovative and engaging end user experience.

 

Bump 50:50

 

Sportech's Bump 50:50 raffle business provides the technologies and services that allow sports team foundations and non-profit organisations to provide 50:50 and progressive raffles, generating significant funds for their charitable missions.

 

Despite a sharp fall in revenue due to COVID-19, in H1 2020 Bump 50:50 successfully added clients at an unprecedented rate. An additional 35 new clients have signed to-date in 2020, an increase of 35% this year, including the NFL® Tennessee Titans and Florida Panthers, and the MLB® Texas Rangers. Of the new clients, 28 are non-profit organisations seeking stable online fundraising opportunities for their worthwhile foundations.

 

An additional 15 Bump 50:50 clients renewed or expanded their contracts during the period, including the NFL® Tampa Bay Buccaneers, MLB® Chicago Cubs, and NBA® Portland Trailblazers. Others, including the NASCAR Foundation and the NHL® Chicago Blackhawks, added online raffle and progressive jackpot platforms to their existing raffle contracts.

 

As highlighted in 2019, Bump 50:50's expansion into non-sports markets, with new raffle variations and the introduction of online potential across several states, continues to deliver growth opportunities and future revenue diversification as we navigate through the current COVID-19 challenge. Senior management restructuring took place, with long term expertise maintained and promoted, resulting in strategic improvements and focus on broader growth initiatives.

 

Lottery

 

The acquisition of the technology platforms and talent of Lot.to Systems and the integration of these assets into Sportech's organisation was completed in 2019, resulting in further expansion of the Group's B2B lottery capabilities with a key mobile component and robust administrative, CRM and marketing tools. Sportech's international lottery business, however, did not escape the impact of COVID-19, with existing clients closing operations for the majority of H1 2020.

 

£'000

H1 2020

 

H1 2019

Constant Currency

 

H1 2019

Reported

Currency

Sales revenue

440

 

1,010

 

1,007

Service revenue

12,646

 

17,018

 

16,930

Total revenue

13,086

 

18,028

 

17,937

 

 

 

 

 

 

Contribution

10,673

 

14,931

 

14,834

Contribution margin

82%

 

83%

 

83%

 

 

 

 

 

 

Adjusted operating expenses

(9,278)

 

(11,199)

 

(11,108)

Adjusted EBITDA

1,395

 

3,732

 

3,726

 

 

 

 

 

 

Intangible assets capex

797

 

1,406

 

1,389

Tangible assets capex

496

 

815

 

810

Total capex

1,293

 

2,221

 

2,199

 

 

Sportech Venues

 

Sportech Venues operates all betting on horse racing, greyhound racing and jai alai in the State of Connecticut under an exclusive and in-perpetuity licence for retail, online, and telephone betting.

 

This division's retail operations were severely challenged during the period. All retail outlets closed in March 2020 due to COVID-19. Some remain closed today, in line with precautionary safety measures. Gross handle declined 50% during the period year over year, however H1 2019 included all major Triple Crown races and the important Kentucky Derby and Preakness events have been postponed to September and October 2020, respectively. Food and Beverage sales were devastated during the period, obviously, following the bar and restaurant closures and loss of special event bookings.

 

The Board addressed this in part with immediate cost control actions, the advanced execution of our estate planning, and a variety of strategic initiatives. The business leases twelve properties across the State of Connecticut and meaningful negotiations with all landlords resulted in a variety of updated agreements. The progressed sale of one of our freehold premises and relocation to a more viable unit faded in late March 2020 as the commercial real estate market stagnated.

 

The Group continues to develop its online pari-mutuel betting presence with a rebranded MyWinners.com to support new customer acquisition campaigns in Connecticut, delivering growth opportunities. Online handle from the Group's retail platforms increased 48% during H1 2020, versus 2019.

 

The Group continues to engage in a comprehensive and sustained campaign regarding Sports Betting licensing within Connecticut and made significant progress elevating Sportech's profile as a key participant in any State Sports Betting solution. Sportech continues to be a proactive supporter of legislation to grant Sports Betting licensing to current in-state gaming operators. In March 2020, the Governor announced support for a bill providing Sports Betting licensing to each existing gaming operator, including Sportech, however challenges from the two Tribal casinos, and a core focus on tackling COVID-19 challenges, understandably, has shifted new gaming legislation from officials' immediate focus.

 

 

£'000

H1 2020

 

H1 2019

Constant Currency

 

H1 2019

Reported

Currency

F&B - Stamford

299

 

973

 

961

F&B - Other

508

 

1,315

 

1,294

F&B - Total

807

 

2,288

 

2,255

Wagering revenue

6,424

 

12,934

 

12,735

Total revenue

7,231

 

15,222

 

14,990

 

 

 

 

 

 

Contribution

3,244

 

7,387

 

7,275

Contribution margin

45%

 

49%

 

49%

 

 

 

 

 

 

Adjusted operating expenses

(4,510)

 

(5,943)

 

(5,866)

Adjusted EBITDA

(1,266)

 

1,444

 

1,409

 

 

 

 

 

 

Total capex

29

 

156

 

153

 

 

Corporate Costs

 

Overall, corporate costs and Sports Betting investment expenditure, together, reduced by £0.4 million. Non-exceptional corporate costs increased by £0.4 million to £1.2 million as a result of the redirection of employees to managing the COVID-19 response from working on the Sports Betting project, as the legislative process ended part way through the period without a conclusion on Sports Betting licence issuance.

 

Depreciation and Amortisation

 

The Group's normal depreciation and amortisation charge increased from £3.5 million (constant currency) to £4.1 million following capitalisation at the end of 2019 of projects under construction from prior periods.

 

Impairments and Reassessment of Lease Assumptions

 

Prior to 30 June 2020, the Board took the decision to reassess the assumption in relation to the Stamford venue lease. Previously, the Board's assumption was that the Group would continue to operate in the Stamford location through the full term of the lease (to May 2035). The Board now believes it appropriate to model a scenario that the break clause may be exercised in June 2025 and as such the lease liability has been reassessed and reduced by £2.23 million during the period to 30 June 2020, the right-of-use asset in relation to the lease also being reduced by this amount.

 

In addition, having reflected lower cash flow forecasts for Stamford at the year end, and the further heightened impact of the pandemic on this venue, the Board has considered the carrying value of the property, plant and equipment within the Stamford venue (being the leasehold improvements and fixtures and fittings), as well as the balance of the right-of-use asset in relation to the lease, and has concluded that the assets should be impaired in full as the forecast cashflow generation from the venue does not support the carrying value, giving rise to an impairment charge of £2.52 million to property plant and equipment and of £1.83 million to the of right-of-use asset.

 

The Group will continue to operate the venue in order to evaluate the ultimate use or value extraction from the legacy investment.

 

 

Exceptional Costs

 

The Group had exceptional administration costs of £0.2 million (2019: £0.7 million). H1 2020 items include redundancy payments and staff exits, dilapidation reserves against leased properties and the closure of certain non-core and expensive businesses.

 

Exceptional cash outflows reduced from £1.5 million to £0.3 million, H1 2020 payments being mainly a legal settlement on a leased property in Connecticut, accrued for in 2019.

 

As noted below, management are totally focussed on extricating the Group from historical expensive strategies and therefore anticipate further reductions in exceptional costs in 2021.

 

Net Finance Costs

 

The Group has no debt. The Group has net finance costs of £0.5 million (H1 2019: £0.4 million), being £0.2 million interest accrued on potential tax liabilities payable, £0.2 million interest on lease liabilities and £0.1 million foreign exchange loss on financial assets and liabilities denominated in foreign currency.

 

Taxation

 

Taxation is provided based on management's best estimate of the expected weighted average annual taxation rate for the full year. The estimated weighted average annual tax rate for the year ended 31 December 2020 is 0% (2019: 19.7%). The movement is a result of a change in mix of profits/(losses) in jurisdictions with varying tax rates and the non-recognition of deferred tax on losses in certain jurisdictions due to expectation of non-recovery.

 

The Group continues to hold a tax provision of £5.05 million (30 June 2019: £4.90 million - restated, 31 December 2019: £4.97 million) for tax potentially due on the 2016 Spot the Ball refund (including interest). Further provisions are held totalling £0.47 million (30 June 2019: £0.45 million - restated, 31 December 2019: £0.46 million) for other uncertain tax positions.

 

Net Cash/Net Current Assets

 

The Group held cash balances of £9.6 million, excluding customer balances (31 December 2019: £13.0 million). The Group managed to maintain marginally positive cash generation from operations in the half year, despite economy shutdowns, although a decrease from prior year of £2.7 million. Capex spend was reduced by £1.1 million, exceptional cash outflows were reduced by £1.2 million and lease payments were reduced by £0.1 million.

 

Capital Expenditure

 

Capital expenditure in the period was £1.3 million (H1 2019: £2.4 million). The £1.1 million reduction comprises £0.6 million on intangible assets and £0.5 million on property plant and equipment.

 

Shareholders' Funds

 

Shareholders fund decreased by £8.2 million from 31 December 2019 to £29.8 million as a result of the loss in the period offset by foreign exchange gains.

 

Going Concern

 

After making reasonable enquiries and forecasting the Group's cash flows with reasonable downside assumptions applied, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The Directors have not included in the downside model any assumption of a further local or more widespread "lockdown" as a result of a second wave of COVID-19 cases or a new pandemic arising. Under this scenario the Directors will take all actions necessary (as evidenced in H1 2020) and make use of all government support available to ensure the Company and the Group continues in operational existence.

 

Outlook

 

Effective cost management, and driving online growth opportunities during this challenging period, remain priorities for management. Developing online capabilities across existing and new business lines forms the operational roadmap for the second half and management remain determined to extricate the Group from historical expensive strategies. Profitability and cash remain the Group's key focus and the Group is trading within the Board's expectations with regards to these measures. However, with no clarity around the timing of spectator sporting events anticipated in the near future, financial forecasting remains fluid. The Board are focused on creating shareholder value from these levels.

 

Venues

 

The relentless professional pursuit of a Sports Betting licence in Connecticut remains core, to support investment and jobs. The Group will update the market with developments of its real estate portfolio and will confirm at the year-end progress made in monetising the Group's exclusive pari-mutuel licence. 

 

Racing and Digital

 

Enhancing the Group's core Quantum™ System Tote will continue in H2 2020, leading to an expansion of Sportech's global footprint and elevation of service to its clients, as the Board simultaneously explores new avenues for digital growth and streamlined capex. Acquired CRM, administrative, and reporting tools are being integrated with the Group's Tote and digital platforms to deliver enhanced capabilities to clients.

 

The investment in Bump 50:50 has provided success in extending the unit's range of products, including a new progressive jackpot raffle, to a broader client base. Under new management, the team continue to expand the client base with a clear focus on delivering secure, stable digital platform opportunities.

 

Lottery

 

A critical part of the Group going forward, the Board will continue to invest in partnership opportunities, build on our core foundations, and further enhance our product suite through partnerships and digital innovation.

 

The Board acknowledge with gratitude the hard work and dedication of our team members worldwide as we all continue to deal with the challenges of COVID-19.

 

 

Interim consolidated income statement
For the six months ended 30 June 2020

 

 

 

Six months ended
30 June
2020
(Unaudited)

Restated

Six months ended
30 June
2019
(Unaudited)

 

Year

ended

31 December 2019
(Audited)

 

 

Note

£000

£000

£000

 

Revenue

 

20,171

32,633

64,783

 

Cost of sales

6

(5,742)

(9,798)

(17,896)

 

Gross profit

 

14,429

22,835

46,887

 

Marketing and distribution costs

6

(512)

(726)

(1,472)

 

Contribution

 

13,917

22,109

45,415

 

Operating costs

4, 6

(24,167)

(24,186)

(53,240)

 

Other income

 

-

-

90

 

Operating loss

 

(10,250)

(2,077)

(7,735)

 

Finance costs

8

(479)

(472)

(758)

 

Finance income

8

13

34

63

 

Loss before taxation

 

(10,716)

(2,515)

(8,430)

 

Taxation

9

(4)

482

(6,034)

 

Loss for the period

 

(10,720)

(2,033)

(14,464)

 

 

 

 

 

 

 

Attributable to:

 

 

Attributable to:

Owners of the Company

 

(10,720)

(2,033)

(14,464)

 

 

 

 

 

 

 

Loss per share attributable to owners of the Company:

 

 

 

 

 

Basic

10

(5.7)p

(1.1)p

(7.7)p

 

Diluted

10

(5.7)p

(1.1)p

(7.7)p

 

 

 

 

 

 

 

Adjusted loss per share attributable to owners of the Company:

 

 

 

 

 

Basic

10

(3.1)p

(0.2)p

(0.3)p

 

Diluted

10

(3.1)p

(0.2)p

(0.3)p

 


See note 4 for a reconciliation of the above statutory income statement to the adjusted performance measures used by the Board of Directors to assess divisional performance.

Interim consolidated statement of comprehensive income
For the six months ended 30 June 2020

 

 

Six months ended
30 June
2020
(Unaudited)

Restated

Six months ended
30 June
2019
(Unaudited)

Year ended 31 December 2019
(Audited)

 

£000

£000

£000

Loss for the period

(10,720)

(2,033)

(14,464)

Other comprehensive expense:

 

 

 

Items that will not be reclassified to profit and loss

 

 

 

Actuarial loss on retirement benefit liability

-

-

(399)

UK defined benefit pension scheme "buy-in" insurance contract purchased

-

(234)

-

Deferred tax on movement on retirement benefit liability

-

-

117

 

-

(234)

(282)

Items that may be subsequently reclassified to profit and loss

 

 

 

Currency translation differences

2,444

(211)

(1,682)

Total other comprehensive income/(expense) for the period, net of tax

2,444

(445)

(1,964)

Total comprehensive expense for the period

(8,276)

(2,478)

(16,428)

 

 

 

 

Attributable to:

 

 

 

Owners of the Company

(8,276)

(2,478)

(16,428)

 

 

Interim consolidated statement of changes in equity
For the six months ended 30 June 2020

 

Other reserves

 

 

 


 

Ordinary shares

 

Capital

redemption reserve


 

Other reserve

 

Foreign exchange reserve


 

Retained earnings



 

Total

Six months ended 30 June 2020

£000

£000

£000

£000

£000

£000

At 1 January 2020 (audited)

37,750

10,312

(382)

6,942

(16,645)

37,977

Comprehensive income/(expense)

 

 

 

 

 

 

Loss for the period

-

-

-

-

(10,720)

(10,720)

Other comprehensive items

 

 

 

 

 

 

Currency translation differences

-

-

-

2,444

-

2,444

Total comprehensive items

-

-

-

2,444

(10,720)

(8,276)

Transactions with owners

 

 

 

 

 

 

Share option charge

-

-

-

-

112

112

Total transactions with owners

-

-

-

-

112

112

Total changes in equity

-

-

-

2,444

(10,608)

(8,164)

At 30 June 2020 (unaudited)

37,750

10,312

(382)

9,386

(27,253)

29,813

 

 

 

 

Other reserves

 

 

Restated

 


Ordinary shares

 

Capital

redemption reserve


 

Other reserve

 

Foreign exchange reserve


 

Retained earnings



 

Total

Six months ended 30 June 2019

£000

£000

£000

£000

£000

£000

At 1 January 2019 (audited)

37,350

10,312

(414)

8,537

(3,636)

52,149

Adjustment for adoption of IFRIC 23

-

-

-

-

1,562

1,562

Adjustment for adoption of IFRS 16*

-

-

-

-

(1,442)

(1,442)

Restated at 1 January 2019

37,350

10,312

(414)

8,537

(3,516)

52,269

Comprehensive expense

 

 

 

 

 

 

Loss for the period

-

-

-

-

(2,033)

(2,033)

Other comprehensive items

 

 

 

 

 

 

Currency translation differences

-

-

-

(211)

-

(211)

UK defined benefit pension scheme "buy-in" insurance contract purchased

-

-

(234)

-

-

(234)

Total comprehensive items

-

-

(234)

(211)

(2,033)

(2,478)

Transactions with owners

 

 

 

 

 

 

Share option charge

-

-

-

-

1,073

1,073

Shares issued in relation to the acquisition of Lot.to Systems Limited

400

-

314

-

-

714

Total transactions with owners

400

-

314

-

1,073

1,787

Total changes in equity

400

-

80

(211)

(960)

(691)

At 30 June 2019 (unaudited)

37,750

10,312

(334)

8,326

(4,476)

51,578

 

* Net of deferred tax.

 

In 2019, in the full year results, the share option charge was included within retained earnings; this has been reflected in the above tables also. The reserves at 1 January 2019 were restated within the year end results due to an accounting error in respect of the under accrual of interest payable on the uncertain tax positions. The impact on prior year retained earnings was a decrease of £223k. In addition, a transition adjustment to IFRIC 23 was also identified in the year end results (increase to opening reserves of £1,562k) and a further lease was identified for IFRS 16 accounting as well as a correction to deferred tax on transition to IFRS 16 (net decrease in adjustment for adoption of IFRS 16 to opening reserves of £457k from £985k debit to £1,442k debit). These adjustments are presented in the above table.

The premium on the shares issued in Sportech PLC of £314k is recorded as a merger reserve in the Other reserve.

 

 

Other reserves

 

 

 


 

Ordinary shares

 

Capital

redemption Reserve


 

Other reserve

 

Foreign exchange reserve


 

Retained earnings

 


 

Total

Year ended 31 December 2019

£000

£000

£000

£000

£000

£000

At 1 January 2019 (audited)

37,350

10,312

(414)

8,537

(3,636)

52,149

Adjustment for adoption of IFRIC 23

-

-

-

-

1,562

1,562

Adjustment for adoption of IFRS 16 Leases net of tax

-

-

-

-

(1,442)

(1,442)

Restated at 1 January 2019

37,350

10,312

(414)

8,537

(3,516)

52,269

Comprehensive (expense)/income

 

 

 

 

 

 

Loss for the year

-

-

-

-

(14,464)

(14,464)

Other comprehensive items

 

 

 

 

 

 

Actuarial loss on defined benefit pension liability *

-

-

(282)

-

-

(282)

Reserve transfer

-

-

-

87

(87)

-

Currency translation differences

-

-

-

(1,682)

-

(1,682)

Total other comprehensive items

-

-

(282)

(1,595)

(87)

(1,964)

Total comprehensive items

-

-

(282)

(1,595)

(14,551)

(16,428)

Transactions with owners

 

 

 

 

 

 

Share option charge

-

-

-

-

1,422

1,422

Shares issued in relation to the acquisition of Lot.to Systems Limited 

400

-

314

-

-

714

Total transactions with owners

400

-

314

-

1,422

2,136

Total changes in equity

400

-

32

(1,595)

(13,129)

(14,292)

At 31 December 2019 (audited)

37,750

10,312

(382)

6,942

(16,645)

37,977

 

* Net of deferred tax

 

Interim consolidated balance sheet
As at 30 June 2020

 

 

 

As at 30

June
2020 (Unaudited)

Restated

As at 30 June
2019
(Unaudited)

 

As at 31 December
2019
(Audited)

 

Note

£000

£000

£000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

 

604

-

604

Intangible fixed assets

11

14,665

15,846

14,935

Property, plant and equipment

12

15,184

25,533

17,676

Right-of-use assets

13

2,187

7,179

6,312

Trade and other receivables

14

465

601

499

Deferred tax assets

 

1,198

6,124

990

 

 

34,303

55,283

41,016

Current assets

 

 

 

 

Trade and other receivables

14

5,699

10,637

7,603

Inventories

 

2,694

2,864

2,616

Cash and cash equivalents

15

12,977

14,888

15,565

 

 

21,370

28,389

25,784

TOTAL ASSETS

 

55,673

83,672

66,800

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

16

(12,352)

(14,944)

(12,853)

Provisions

17

(466)

(737)

(579)

Lease liabilities

19

(1,132)

(1,269)

(843)

Financial liabilities

20

-

(500)

(500)

Current tax liabilities

 

(4,895)

(4,954)

(4,880)

Deferred tax liabilities

 

(89)

-

(89)

 

 

(18,934)

(22,404)

(19,744)

Net current assets

 

2,436

5,985

6,040

Non-current liabilities

 

 

 

 

Retirement benefit liability

 

(1,151)

(898)

(1,079)

Lease liabilities

19

(4,495)

(7,511)

(6,881)

Deferred tax liabilities

 

(48)

-

(93)

Provisions

17

(1,232)

(1,281)

(1,026)

 

 

(6,926)

(9,690)

(9,079)

TOTAL LIABILITIES

 

(25,860)

(32,094)

(28,823)

NET ASSETS

 

29,813

51,578

37,977

 

 

 

 

 

EQUITY

 

 

 

 

Ordinary shares

 

37,750

37,750

37,750

Other reserves

 

19,316

18,304

16,872

Accumulated losses

 

(27,253)

(4,476)

(16,645)

TOTAL EQUITY

 

29,813

51,578

37,977

 

 

 

 

 

Company registration number: SC069140
 

Interim consolidated statement of cash flows
For the six months ended 30 June 2020

 

 


Six months

ended
30 June
2020
(Unaudited)

 

Six months ended
30 June
2019
(Unaudited)


Year

ended 31 December 2019
(Audited)

 

Note

£000

£000

£000

Cash flows from operating activities

 

 

 

 

Cash generated from operations, before exceptional items

18

102

2,819

7,478

Interest received

 

13

34

62

Interest paid

 

(83)

-

(24)

Tax paid

 

(263)

(393)

(1,356)

Net cash (used in)/generated from operating activities before exceptional items

 

(231)

2,460

6,160

Exceptional cash inflows

7

-

-

90

Exceptional cash outflows

7

(283)

(1,469)

(1,821)

Net cash flows from operating activities

 

(514)

991

4,429

Cash flows from investing activities

 

 

 

 

Investment in joint ventures and associates

21

-

(230)

(184)

Disposal of Sportech Racing BV (net of transaction costs)

 

-

235

236

Purchase of Lot.to Systems Limited, net of cash acquired

 

(500)

(729)

(729)

Proceeds from sale of property, plant and equipment

 

-

-

1

Investment in intangible fixed assets

11

(798)

(1,401)

(2,648)

Purchase of property, plant and equipment

12

(525)

(963)

(1,169)

Net cash used in investing activities

 

(1,823)

(3,088)

(4,493)

Cash flows from financing activities

 

 

 

 

Payment of lease liabilities

19

(759)

(889)

(1,879)

Net cash used in financing activities

 

(759)

(889)

(1,879)

Net decrease in cash and cash equivalents

 

(3,096)

(2,986)

(1,943)

Effect of foreign exchange on cash and cash equivalents

 

508

(41)

(407)

Net cash and cash equivalents at the beginning of the period

15

15,565

17,915

17,915

Group cash and cash equivalents at the end of the period

15

12,977

14,888

15,565

 

 

 

 

 

Represented by:

 

 

 

 

Cash and cash equivalents

15

12,977

14,888

15,565

Less customer funds

15

(3,399)

(3,093)

(2,580)

Adjusted net cash at the end of the period

15

9,578

11,795

12,985

 

 

 

 

 

Notes to the consolidated interim financial statements
For the six months ended 30 June 2020

 

1.  General information
 

Sportech PLC (the "Company") is a company domiciled in the UK and listed on the London Stock Exchange. The Company's registered office is Collins House, Rutland Square, Edinburgh, Midlothian, Scotland EH1 2AA. The condensed consolidated interim financial statements of the Company as at and for the period ended 30 June 2020 comprise the Company, its subsidiaries, joint ventures and associates (together referred to as the "Group"). The Company's accounting interim reference date is 30 June 2020. The principal activities of the Group are the provision of pari-mutuel betting (B2C) and the supply of wagering technology solutions (B2B). 

 

The condensed consolidated interim financial statements were approved for issue on 9 September 2020.

 

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 were approved by the Board of Directors on 20 March 2020 and delivered to the Registrar of Companies. The Report of the Auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

 

2.  Basis of preparation
 

a.  These condensed consolidated interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union. They do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2019 which have been prepared in accordance with IFRSs as adopted by the European Union.

 

b.  After making reasonable enquiries and forecasting the Group's cash flows with reasonable downside assumptions applied, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The Directors have not included in the downside model any assumption of a further local or more widespread "lockdown" as a result of a second wave of COVID-19 cases or a new pandemic arising. Under this scenario the Directors will take all actions necessary (as evidenced in H1 2020) and make use of all government support available to ensure the Company and the Group continues in operational existence.

 

c.  The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, significant judgements have been made by management with respect to the assumptions underpinning the Group's tax liabilities and the carrying value of intangible fixed assets.

d.  The principal risks and uncertainties for the Group remain the same as those detailed on pages 24 and 25 of the 2019 Sportech PLC Annual Report and Accounts, where descriptions of mitigating activities carried out by the Group are also outlined. Those risks are regulation, product popularity, technological changes, client concentration and industry competition, foreign exchange, and failure to implement Sports Betting strategy.

 

The Directors have identified a further risk since the publication of the 2019 financial statements: The COVID-19 pandemic.

 

The COVID-19 pandemic has had a global impact on our customers and our business.

 

For our service and sales revenue, we rely on our customers' racetracks and our Venues locations to be open. Most of our customers shut down their operations and suspended horse racing for some period of time during the pandemic, with a few notable exceptions. All North American sporting leagues also suspended operations and games from mid-March through the end of June.

 

The result was reduced tote fees and racing revenues in our Racing and Digital business, the closure of all of our venues in Connecticut (our online offering continued to trade), and the suspension of raffles almost entirely in our Bump 50:50 business.

 

Some of our customers started resuming operations in June 2020, and more were reopening in July and August. We began opening Venues locations in late July and early August, and sporting events are taking place, but generally without audiences.

 

Mitigation

The Board took decisive early action to manage the Group's cost base, cutting costs and effectively managing cash where possible. This included the furloughing of approximately 550 staff, mostly in field operations and at our Venues locations. We suspended all travel and closed all of our offices. We also suspended all rent payments on our office and Venues locations. Where available, the Group availed themselves of government programs to supplement employee wages and salaries. The Group remained in constant dialogue with customers and maintained digital operations. The remaining staff worked from home, mainly in field operations and our Quantum™ data centre, research and development, and finance and administrative functions.

 

A pandemic response team was put in place, comprising executive and senior management, who met regularly via online tools available to coordinate the Group response to the pandemic.

 

Our operations and human resource teams created employee portals for employee wellness and support during the pandemic and implemented "COVID-safe" reopening plans. Our online, mobile and phone betting platforms remained available throughout the crisis and saw significant growth.

 

The Group delivered a significant reduction in operational costs in H1 2020 to partially offset severe revenue declines, and we sought support from governments globally where available. Determined vigilance of the cost base will continue whilst operating efficiently and effectively during staggered reopening.

 

The Bump team had launched a new online progressive jackpot in early 2020, before the pandemic started, and has focused on sales initiatives and targeted growth from within the 'not for profit' charitable sector outside of sport.

 

Despite core divisions reopening, there remains uncertainty to when all businesses will return to full operational capacity. Management will continue to focus on delivering a compelling international product to our clients, resulting in additional long-term contracts, and ultimately providing core long term growth beyond the prevailing global situation.

 

The risk of a second wave which results in local or more widespread "lockdowns", or a new pandemic, remains and management have the tools in place to react proportionately once again.

 

Mitigated rating: 8

 

 

3.  Accounting policies

 

There are no new standards or amendments to standards or interpretations that are mandatory for the first time for the financial year beginning 1 January 2020 that would impact the Group financial statements. Therefore, all accounting policies applied in these condensed consolidated interim financial statements are consistent with those of the annual financial statements for the year ended 31 December 2019, as described in those annual financial statements.

 

The following standards, amendments and interpretations that are not yet effective and have not been adopted early by the Group are as follows:


Standard or interpretation


Applicable for financial year beginning on or after

IFRS 17 Insurance Contracts

1 January 2021

 

IFRS 17 is not relevant to the Group  
 

4.  Adjusted performance measures

 

The Board of Directors assesses the performance of the operating segments based on a measure of adjusted EBITDA which excludes the effects of expenditure management believe should be added back (exceptional items). The share option expense is also excluded given it is not directly linked to the operating performance of the divisions. Interest is not allocated to segments as the Group's cash position is controlled by the central finance team. The considered measure provides the most reliable indicator as it is the closest approximation to cash generated by underlying trade, excluding the impact of one-off items of a material nature and working capital movements.

 

Adjusted EBITDA is not an IFRS measure, nevertheless although it may not be comparable to adjusted figures used elsewhere, it is widely used by both the analyst community to compare with other gaming companies and by management to assess underlying performance.

 

A reconciliation of the adjusted operating expenses used for statutory reporting and the adjusted performance measures is shown below:

 

 

 

 

Note

 

Six months ended
30 June
2020
(Unaudited)

 

Six months ended
30 June
2019
(Unaudited)

 

Year

ended

31 December 2019
(Audited)

 

 

£000

£000

£000

Operating costs per income statement

 

(24,167)

(24,186)

(53,240)

Add back:

 

 

 

 

Sports Betting investment

 

157

905

1,773

Depreciation

12,13

2,153

2,344

4,597

Amortisation, excluding acquired intangible assets

11

1,941

1,065

2,630

Amortisation of acquired intangible assets

11

254

314

467

Profit on sale of property, plant and equipment

12

-

-

(1)

Impairment of property, plant and equipment

12

2,521

-

5,020

Impairment of right-of-use asset

13

1,827

-

-

Share option charge, excluding acceleration of charge for departing management

 

112

324

676

Accelerated IFRS 2 charge for departing management

 

-

749

746

Exceptional items

7

220

682

1,230

Total adjusted net operating costs (pre Sports Betting investment)

 

(14,982)

(17,803)

(36,102)

 

Adjusted EBITDA is calculated as follows:

 

 

Six months ended
30 June
2020
(Unaudited)

 

Six months ended
30 June
2019
(Unaudited)

 

Year

ended

31 December 2019
(Audited)

 

£000

£000

£000

Revenue

20,171

32,633

64,783

Cost of sales

(5,742)

(9,798)

(17,896)

Gross profit

14,429

22,835

46,887

Marketing and distribution costs

(512)

(726)

(1,472)

Contribution

13,917

22,109

45,415

Adjusted operating income and costs (pre Sports Betting investment)

(14,982)

(17,803)

(36,102)

Adjusted EBITDA pre Sports Betting investment

(1,065)

4,306

9,313

Sports Betting investment

(157)

(905)

(1,773)

Adjusted EBITDA

(1,222)

3,401

7,540

 

Sports Betting investment represents the time and cost the Group has incurred in seeking to secure a Sports Betting licence in the State of Connecticut and also in seeking partnerships across the rest of the US in Sports Betting. It includes lobbying costs, additional staff costs, travel and consultants. Of these costs, £157k were external costs and £nil were internal (six months ended 30 June 2019: includes an allocation of senior management time, £335k were external and £570k were internal, of which £241k were Executive Director costs, year ended 31 December 2019: £699k were external costs and £1,074k were internal (£482k Executive Director costs)).

Adjusted profit is also an adjusted performance measure used by the Group. This uses adjusted EBITDA, as defined above as management's view of the closest proxy to cash generation for underlying divisional performance, and deducting share option charges, depreciation, amortisation of intangible assets (other than those which arise in the acquisition of businesses) and certain finance charges. This provides an adjusted profit before tax measure, which is then taxed by applying an estimated adjusted tax measure. The adjusted tax charge excludes the tax impact of income statement items not included in adjusted profit before tax.

 

Six months ended

30 June 2020

(Unaudited)

Six months ended

30 June 2019

(Unaudited)

Year ended

31 December 2020

(Audited)

 

Total

Total

Total

 

£000

£000

£000

Adjusted EBITDA

(1,222)

3,401

7,540

Share option charge, excluding acceleration of charge for departing management

(112)

(324)

(676)

Depreciation

(2,153)

(2,344)

(4,597)

Amortisation (excluding amortisation of acquired intangibles)

(1,941)

(1,065)

(2,630)

Net finance costs (excluding exceptional finance costs)

(205)

(213)

(442)

Adjusted loss before tax

(5,633)

(545)

(805)

Tax at (3.47)% (30 June 2019: 31.0%, 31 December 2019: 20.3%)

(195)

169

164

Adjusted loss after tax

(5,828)

(376)

(641)

 

 

 

 

5.  Segmental reporting


Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors, which makes strategic and operational decisions.

 

The Group has identified its operating segments as outlined below:

 

-  Sportech Racing and Digital - provision of pari-mutuel wagering services and systems worldwide principally to the horseracing industry;

-  Sportech Venues - off-track betting venue management; and

Corporate costs - central costs relating to the overall management of the Group.

 

The Board of Directors assesses the performance of the operating segments based on a measure of adjusted EBITDA as defined in note 4. The share option expense is also excluded. Interest is not allocated to segments as the Group's cash position is controlled by the central finance team. Sales between segments are at arm's length.

 

 

Six months ended 30 June 2020 (Unaudited)

 

 

 

 

Racing and Digital

 

 

Venues

 

Corporate costs

Inter-segment elimination



Group

 

£000

£000

£000

£000

£000

Revenue from sale of goods

440

-

-

-

440

Revenue from Bump 50:50

395

-

-

-

395

Revenue from food and beverage sales

-

807

-

-

807

Revenue from rendering of services

12,251

6,424

-

(146)

18,529

Total revenue

13,086

7,231

-

(146)

20,171

Cost of sales

(2,190)

(3,698)

-

146

(5,742)

Gross profit

10,896

3,533

-

-

14,429

Marketing and distribution costs

(223)

(289)

-

-

(512)

Contribution

10,673

3,244

-

-

13,917

Adjusted operating costs

(9,278)

(4,510)

(1,194)

-

(14,982)

Adjusted EBITDA (pre Sports Betting investment)

1,395

(1,266)

(1,194)

-

(1,065)

Sport betting investment

-

(157)

-

-

(157)

Adjusted EBITDA

1,395

(1,423)

(1,194)

-

(1,222)

Share option charge, excluding acceleration of charge for departing management

-

-

(112)

(112)

Depreciation

(1,141)

(1,005)

(7)

(2,153)

Amortisation (excluding amortisation of acquired intangibles)

(1,809)

-

(132)

 

-

(1,941)

Segment result

(1,555)

(2,428)

(1,445)

-

(5,428)

Amortisation of acquired intangibles

(254)

-

-

(254)

Impairment of property, plant and equipment

-

(2,521)

-

(2,521)

Impairment of right-of-use asset

-

(1,827)

-

(1,827)

Exceptional costs

(147)

(18)

(55)

-

(220)

Operating loss

(1,956)

(6,794)

(1,500)

-

(10,250)

Net finance costs

 

 

 

(466)

Loss before taxation

 

 

 

(10,716)

Taxation

 

 

 

(4)

Loss for the period from continuing operations 

 

 

 

 

(10,720)

Other segment items

 

 

 

 

 

Capital expenditure - intangible fixed assets

797

-

1

798

Capital expenditure - property, plant and equipment

496

29

-

-

525

 

 

 

 

 

 

 

             

 

Six months ended 30 June 2019 (Unaudited)

 

 

Restated

 

Racing and Digital

 

 

Venues

 

Corporate costs

Inter-segment elimination



Group

 

£000

£000

£000

£000

£000

Revenue from sale of goods

1,007

-

-

-

1,007

Revenue from Bump 50:50

808

-

-

-

808

Revenue from food and beverage sales

-

2,255

-

-

2,255

Revenue from rendering of services

16,122

12,735

-

(294)

28,563

Total revenue

17,937

14,990

-

(294)

32,633

Cost of sales

(2,793)

(7,299)

-

294

(9,798)

Gross profit

15,144

7,691

-

-

22,835

Marketing and distribution costs

(310)

(416)

-

-

(726)

Contribution

14,834

7,275

-

-

22,109

Adjusted operating costs

(11,108)

(5,866)

(829)

-

(17,803)

Adjusted EBITDA (pre Sports Betting investment)

3,726

1,409

(829)

-

4,306

Sport betting investment

-

(905)

-

-

(905)

Adjusted EBITDA

3,726

504

(829)

-

3,401

Share option charge, excluding acceleration of charge for departing management

-

-

(324)

(324)

Depreciation

(1,206)

(1,128)

(10)

(2,344)

Amortisation (excluding amortisation of acquired intangibles)

(1,001)

-

(64)

 

-

(1,065)

Segment result before amortisation of acquired intangibles

1,519

(624)

(1,227)

-

(332)

Acceleration of IFRS 2 charge for departing management

-

-

(749)

(749)

Amortisation of acquired intangibles

(314)

-

-

(314)

Exceptional costs

(352)

(52)

(278)

-

(682)

Operating profit/(loss)

853

(676)

(2,254)

-

(2,077)

Net finance costs

 

 

 

 

(438)

Loss before taxation

 

 

 

(2,515)

Taxation

 

 

 

482

Loss for the period 

 

 

 

 

(2,033)

Other segment items

 

 

 

 

 

Capital expenditure - intangible fixed assets

1,389

-

12

1,401

Capital expenditure - property, plant and equipment

810

153

-

-

963

 

 

 

 

 

 

 

                     

 

 

 

 

Year ended 31 December 2019 (Audited)

 

 

 

 

Racing and Digital

 

 

Venues

 

Corporate costs

Inter-segment elimination



Group

 

£000

£000

£000

£000

£000

Revenue from sale of goods

1,420

-

-

-

1,420

Revenue from Bump 50:50

2,002

-

-

-

2,002

Revenue from food and beverage sales

-

4,395

-

-

4,395

Revenue from rendering of services

33,103

24,431

-

(568)

56,966

Total revenue

36,525

28,826

-

(568)

64,783

Cost of sales

(4,446)

(14,018)

-

568

(17,896)

Gross profit

32,079

14,808

-

-

46,887

Marketing and distribution costs

(648)

(824)

-

-

(1,472)

Contribution

31,431

13,984

-

-

45,415

Adjusted net operating costs

(22,845)

(11,756)

(1,501)

-

(36,102)

Adjusted EBITDA (pre Sports Betting investment)

8,586

2,228

(1,501)

-

9,313

Sport betting investment

-

(1,773)

-

-

(1,773)

Adjusted EBITDA

8,586

455

(1,501)

-

7,540

Share option charge, excluding acceleration of charge for departing management

-

-

(676)

Depreciation

(2,396)

(2,169)

(32)

Profit on sale of property, plant and equipment

1

-

-

Amortisation

(2,388)

-

(242)

-

(2,630)

Segment result before amortisation of acquired intangibles

3,803

(1,714)

(2,451)

-

(362)

Acceleration of IFRS 2 charge for departing management

-

-

(746)

Amortisation of acquired intangibles

(467)

-

-

Impairment of property, plant and equipment

-

(5,020)

-

Net exceptional costs

(137)

(342)

(661)

-

(1,140)

Operating profit/(loss)

3,199

(7,076)

(3,858)

-

(7,735)

Net finance costs

 

 

 

Loss before taxation

 

 

 

(8,430)

Taxation

 

 

 

(6,034)

Loss for the period 

 

 

 

 

(14,464)

Other segment items

 

 

 

 

 

Capital expenditure - intangible fixed assets

2,602

-

46

Capital expenditure - property, plant and equipment

971

198

-

-

1,169

 

 

 

 

 

 

 

 

 

6.  Expenses by nature

 

 

 

 

Six months ended
30 June
2020
(Unaudited)

 

Six months ended
30 June
2019
(Unaudited)


Year
ended

31 December 2019
(Audited)

 

 

£000

£000

£000

Cost of sales

 

 

 

 

Tote and track fees

 

3,054

5,856

11,124

F&B consumables

 

285

665

1,326

Betting and gaming duties

 

321

400

824

Repairs and maintenance cost of sales

 

149

196

346

Ticket paper

 

251

467

871

Programs

 

69

259

498

Outsourced service costs

 

787

1,000

1,846

Cost of inventories sold, including provision for obsolete inventory

 

826

955

1,061

Total cost of sales

 

5,742

9,798

17,896

 

 

 

 

 

Marketing and distribution costs

 

 

 

 

Marketing

 

390

525

1,084

Vehicle costs

 

36

65

132

Freight

 

86

136

256

Total marketing and distribution costs

 

512

726

1,472

 

 

 

 

 

Operating costs

 

 

 

 

Staff costs - gross, excluding share option charges

 

10,586

14,155

28,052

Less amounts capitalised

 

(641)

(1,389)

(2,034)

Staff costs - net

 

9,945

12,766

26,018

Property costs

 

1,493

1,930

3,612

IT & communications

 

618

671

1,341

Professional fees

 

2,377

2,356

4,833

Travel and entertaining

 

225

624

1,242

Banking transaction costs and FX

 

151

154

264

Provision for impairment of receivables

 

227

-

32

Other costs

 

103

207

533

Adjusted operating costs

 

15,139

18,708

37,875

Share option charge, excluding exceptional accelerated charges

 

112

324

676

Acceleration of IFRS 2 charge for departing management

 

-

749

746

Depreciation

 

2,153

2,344

4,597

Profit on sale of property, plant and equipment

 

-

-

(1)

Amortisation, excluding amortisation of acquired intangibles

 

1,941

1,065

2,630

Amortisation of acquired intangibles

 

254

314

467

Impairment of property, plant and equipment

 

2,521

-

5,020

Impairment of right-of-use asset

 

1,827

-

-

Exceptional costs

 

220

682

1,230

Total operating costs

 

24,167

24,186

53,240

 

 

 

7.  Exceptional items

 

 


 

 

Six months ended
30 June
2020
(Unaudited)


 

Restated

Six months ended
30 June
2019
(Unaudited)


 

 

Year
ended 31 December 2019
(Audited)

 

Note

£000

£000

£000

Included in operating costs:

 

 

 

 

Redundancy and restructuring costs in respect of the rationalisation and

 

 

 

 

modernisation of the business

 

25

287

314

Expenses in relation to the UK defined benefit pension scheme "buy-in"

 

-

105

-

Investment in S&S JV (immediately impaired)

 

-

230

249

Release of onerous contract provisions provided in relation to exit from California operations - offsetting investment above

 

-

(179)

(184)

Corporate activity

 

7

-

81

Costs in relation to the Spot the Ball VAT refund

 

-

-

15

Costs in relation to legacy tax disputes

 

-

37

(152)

Lot.to Systems acquisition costs

 

-

52

51

One off start-up costs of new ventures, including new venue builds and joint ventures

 

-

-

266

Costs in relation to exiting the Group's interests in India

 

44

18

20

UK defined benefit pension scheme buy-out

 

-

-

570

Dilapidation costs

 

144

-

-

Legal costs in relation to intellectual property infringement lawsuit

 

-

132

-

 

 

220

682

1,230

Included in other income:

 

 

 

 

Settlement received in relation to IP infringement law suit, net of costs

 

-

-

(90)

Included in finance costs:

 

 

 

 

Interest accrued on corporate tax potentially due and unpaid at the balance sheet date

8

183

74

151

Total exceptional items (net)

 

403

756

1,291

 

Below is a summary of exceptional cash (outflows)/inflows:

 


 

Six months ended
30 June
2020
(Unaudited)


 

Six months ended
30 June
2019
(Unaudited)


 

Year
ended 31 December 2019
(Audited)

 

 

£000

£000

£000

Exceptional cash outflows:

 

 

 

 

Redundancy and restructuring costs in respect of the rationalisation and

 

 

 

 

modernisation of the business

 

(3)

(846)

(982)

Expenses in relation to the UK defined benefit pension scheme "buy-in"

 

-

(105)

(336)

UK defined benefit pension scheme "buy-in" insurance contract purchased

 

-

(234)

(234)

Acquisition costs in relation to Lot.to Systems Limited

 

-

(52)

(51)

Spot the Ball bonus paid to former Director and associated legal fees

 

-

-

-

Costs in relation to the Spot the Ball VAT refund

 

-

(45)

(60)

Costs in relation to legacy tax disputes

 

-

(37)

(68)

Costs in relation to the Group's lease in Norco, California

 

(32)

-

(70)

Costs in relation to exiting the Group's interests in India

 

(44)

(18)

(20)

Corporate activity

 

(7)

-

-

One off start-up costs of new ventures, including new venue builds and joint ventures

 

(197)

-

-

Legal costs in relation to intellectual property infringement lawsuit

 

-

(132)

-

Total exceptional cash outflows

 

(283)

(1,469)

(1,821)

Exceptional cash inflows:

 

 

 

 

Settlement received in relation to IP infringement law suit, net of costs

 

-

-

90

Total exceptional cash inflows

 

-

-

90

 

 

8.  Net finance costs

 


Six months ended
30 June
2020
(Unaudited)


Six months ended
30 June
2019
(Unaudited)


Year
ended 31 December 2019
(Audited)

 

£000

£000

£000

Finance costs:

 

 

 

Interest accrued on corporation tax liabilities

(183)

(74)

(151)

Interest on lease liabilities

(218)

(247)

(480)

Interest on defined benefit pension obligation

-

-

(25)

Foreign exchange loss on financial assets and liabilities denominated in foreign currency

(78)

(139)

(78)

Unwinding of interest on discounted provisions

-

(12)

(24)

Total finance costs

(479)

(472)

(758)

Finance income:

 

 

 

Interest received on bank deposits

13

34

63

Foreign exchange gain on financial assets and liabilities denominated in foreign currency

-

-

-

Total finance income

13

34

63

Net finance costs

(466)

(438)

(695)

 

Of the above amounts the following have been excluded for the purposes of deriving the alternative performance measures in note 4.

 

 


Six months ended
30 June
2020
(Unaudited)


Six months ended
30 June
2019
(Unaudited)


Year
ended 31 December 2019
(Audited)

 

£000

£000

£000

Foreign exchange loss on financial assets and liabilities denominated in foreign currency

(78)

(139)

(78)

Interest accrued on corporation tax liabilities

(183)

(74)

(151)

Unwinding of interest on discounted provisions

-

(12)

(24)

 

(261)

(225)

(253)

 

9.  Taxation

 

Taxation is provided based on management's best estimate of the expected weighted average annual taxation rate for the full year. The estimated weighted average annual tax rate for the year ended 31 December 2020 is 0% (2019: 19.7%). The movement is a result of a change in mix of profits/(losses) in jurisdictions with varying tax rates and the non-recognition of deferred tax on losses in certain jurisdictions due to expectation of non-recovery.

 

The Group continues to hold a tax provision of £5,047k (30 June 2019: £4,897k - restated, 31 December 2019: £4,972k) for tax potentially due on the 2016 Spot the Ball refund (including interest). Further provisions are held totalling £469k (30 June 2019: £454k - restated, 31 December 2019: £462k) for other uncertain tax positions.

 

 

10.  Earnings per share


 


 

 

 

Six months ended
30 June 2020
(Unaudited)

Restated
Six months ended
30 June 2019
(Unaudited

Year ended

31 December 2019
(Audited)

Basic EPS

 

 

 

Loss for the period (£000)

(10,720)

(2,033)

(14,464)

Weighted average no of shares ('000)

188,751

188,331

188,543

Basic EPS

(5.7)p

(1.1)p

(7.7)p

      

 

 

 

Six months ended
30 June 2020
(Unaudited)

Restated
Six months ended
30 June 2019
(Unaudited

Year ended

31 December 2019
(Audited)

Diluted EPS

 

 

 

Loss for the period (£000)

(10,720)

(2,033)

(14,464)

Weighted average no of shares ('000)

188,751

188,331

188,543

Dilutive potential ordinary shares ('000)

N/A

N/A

N/A

Total potential ordinary shares ('000)

188,751

188,331

188,543

Diluted EPS

(5.7)p

(1.1)p

(7.7)p

 

 

Adjusted EPS

 

Adjusted EPS is calculated by dividing the adjusted profit after tax attributable to owners of the Company, as defined in note 4, by the weighted average number of ordinary shares in issue during the year.

 

 

 

 

 

 

Note


Six months ended
30 June
2020
(Unaudited)

 

Six months ended
30 June
2019
(Unaudited)

 

Year ended
31 December

2019
(Audited)

Adjusted loss after tax (£000)

4

(5,828)

(376)

(641)

Basic Adjusted EPS (pence)

 

(3.1)p

(0.2)p

(0.3)p

Diluted Adjusted EPS (pence)

 

(3.1)p

(0.2)p

(0.3)p

      

 

11.  Intangible fixed assets

 

 


Six months ended
30 June
2020
(Unaudited)


Six months ended
30 June
2019
(Unaudited)


Year
ended 31 December 2019
(Audited)

 

 

£000

£000

£000

At 1 January

 

14,935

13,551

13,551

Additions

 

798

1,401

2,648

Additions - business combination

 

-

2,262

1,527

Transferred from property, plant and equipment

 

-

-

831

Amortisation charge for period

 

(2,195)

(1,379)

(3,097)

Movement as a result of foreign exchange

 

1,127

11

(525)

Net book amount at end of period

 

14,665

15,846

14,935

 

 

 

12.  Property, plant and equipment

 


Six months ended
30 June
2020
(Unaudited)


Six months ended
30 June
2019
(Unaudited)


Year
ended 31 December 2019
(Audited)

 

£000

£000

£000

At 1 January

17,676

26,337

26,337

Additions

525

963

1,169

Additions - business combination

-

1

1

Transfers

-

-

(297)

Depreciation charge for period

(1,495)

(1,613)

(3,205)

Impairment

(2,521)

-

(5,020)

Movement as a result of foreign exchange

999

(155)

(1,309)

Net book amount at end of period

15,184

25,533

17,676

 

Impairment

Management considered that indicators of impairment of assets at the Stamford sports bar venue in Connecticut, USA had arisen during the period, based on its trading performance, the likely recovery from forced closure during the COVID-19 pandemic and also changes to strategy in relation to closure of nearby venues. As a result, an impairment test was carried out to determine the value-in-use of the assets at the venue. The carrying value of the assets at 30 June 2020, prior to any impairment, was £2,521k. The following key assumptions were made in the value-in-use calculation:

 

The break clause will be activated to end the lease in June 2025 and the trade at the venue will terminate;

Handle is assumed to remain flat through the period at 2019 levels to June 2025; 

F&B revenues are forecasted to remain flat through to June 2025 at management's expected "post-pandemic" levels;

There will be no capital expenditure; and

a post-tax discount rate of 9.5% (2019: 9.5%) was used representing a market-based weighted average cost of capital appropriate for the Sportech Venues CGU.

 

Following the impairment review, the recoverable amount of those assets was deemed to be £nil and accordingly an impairment of £2,521k was identified and has been charged to the income statement within operating costs.

 

13.  Right-of-use assets

 

 


 

Six months ended
30 June
2020
(Unaudited)


Restated

Six months ended
30 June
2019
(Unaudited)


 

Year
ended 31 December 2019
(Audited)

 

Note

£000

£000

£000

At 1 January (2019 - on transition to IFRS 16)

 

6,312

7,935

7,935

Additions

19

148

-

40

Depreciation charge for period

 

(658)

(731)

(1,392)

Reassessment of lease assumptions - break clause

19

(2,232)

-

-

Impairment

 

(1,827)

-

-

Movement as a result of foreign exchange

 

444

(25)

(271)

Net book amount at end of period

 

2,187

7,179

6,312

 

Reassessment of lease assumption - break clause

Management had previously assumed that the break clause in the lease of the Stamford sports bar venue in Connecticut, USA would not be exercised, and that the venue would be occupied until the expiry of the lease in May 2035. On 30 June 2020, management took the decision that the most likely scenario was that the break clause would be exercised, and the lease terminated in June 2025. As a result, the lease liability has been remeasured resulting in a reduction in the liability (see note 19) and a corresponding reduction in the right-of-use asset.

 

Impairment

Management considered that indicators of impairment of the right-of-use assets of the Stamford sports bar lease in Connecticut, USA had arisen during the period, based on its trading performance, the likely recovery from forced closure during the COVID-19 pandemic and also changes to strategy in relation to closure of nearby venues. As a result, an impairment test was carried out to determine the value-in-use of the right-of-use asset in relation to the lease at the venue. The carrying value of the asset at 30 June 2020, prior to any impairment, was £1,827k. The following same key assumptions were made in the value-in-use calculation as were used in the impairment test of the property, plant and equipment at the venue (note 12).

 

Following the impairment review, the recoverable amount of those assets was deemed to be £nil and accordingly an impairment of £1,827k was identified and has been charged to the income statement within operating costs.

 

 

14.  Trade and other receivables


As at
30 June
2020
(Unaudited)


As at
30 June
2019
(Unaudited)


As at 31 December 2019
(Audited)

 

£000

£000

£000

Non-current

 

 

 

465

601

499

 

 

 

5,699

10,637

7,603

Total trade and other receivables

6,164

11,238

8,102

 

 

15.  Cash and cash equivalents

 

 

As at
30 June
2020
(Unaudited)

As at
30 June
2019
(Unaudited)

As at 31 December 2019
(Audited)

 

Note

£000

£000

£000

Cash and short-term deposits

 

9,578

11,795

12,985

Customer funds

16

3,399

3,093

2,580

Total cash and cash equivalents

 

12,977

14,888

15,565

 

Customer funds are matched by liabilities of an equal value within trade and other payables (see note 16).

 

16.  Trade and other payables

 

 

 

As at
30 June
2020
(Unaudited)

Restated

As at
30 June
2019
(Unaudited)

 

As at 31 December 2019
(Audited)

 

Note

£000

£000

£000

Trade payables

 

1,948

6,115

6,083

Other taxes and social security costs

 

495

331

327

Accruals

 

5,610

5,181

3,519

Deferred income

 

900

224

344

Player liability

15

3,399

3,093

2,580

Total trade and other payables

 

12,352

14,944

12,853

 

 

17.  Provisions

 

 

 

Six months ended
30 June
2020
(Unaudited)

Restated

Six months ended
30 June
2019
(Unaudited)

 

Year
ended 31 December 2019
(Audited)

 

 

£000

£000

£000

At beginning of period

 

1,605

2,411

2,411

Derecognition on transition to IFRS 16

 

-

(214)

(214)

Utilised during the period

 

(31)

-

(247)

Release of discount interest to the income statement

 

-

12

24

Credit to income statement - share of loss of JV

 

-

(179)

(184)

Release to the income statement

 

-

-

(109)

Currency movements

 

124

(12)

(76)

Total provisions

 

1,698

2,018

1,605

Provisions are in relation to:

 

 

 

 

Current provisions

 

 

 

 

Onerous contracts

 

466

737

579

Non-current provisions

 

 

 

 

Onerous contracts

 

1,226

1,163

1,018

Other

 

6

118

8

Total non-current provisions

 

1,232

1,281

1,026

Total provisions

 

1,698

2,018

1,605

 

18.  Cash flow from operating activities


Reconciliation of loss before taxation to cash flows from operating activities for continuing operations

 

 

 


 

Six months ended
30 June
2020
(Unaudited)

 

Restated

Six months ended
30 June
2019
(Unaudited)


 

Year
ended 31 December 2019
(Audited)

 

Note

£000

£000

£000

Loss before taxation

 

(10,716)

(2,515)

(8,430)

Adjustments for:

 

 

 

 

Net exceptional items (included in operating costs/income)

7

220

682

1,140

Depreciation and amortisation

11,12,13

4,348

3,723

7,694

Profit on sale of property, plant and equipment

 

-

-

(1)

Impairment of assets

12, 13

4,348

-

5,020

Net finance charges

8

466

438

695

Share option expense

 

112

1,073

1,422

Changes in working capital:

 

 

 

 

Decrease/(increase) in trade and other receivables

 

1,938

(2,240)

734

Decrease/(increase) in inventories

 

78

(306)

(40)

(Decrease)/increase in trade and other payables, excluding player liabilities

 

(1,511)

2,058

(149)

Increase/(decrease) in customer funds

15

819

(94)

(607)

Cash generated from operating activities, before exceptional items

 

102

2,819

7,478

 

 

 

19.  Lease liabilities

 

As at

30 June
2020
(Unaudited)

As at

30 June
2019
(Unaudited)

As at

31 December
2019
(Unaudited)

Maturity analysis - contractual undiscounted cashflows

£000

£000

£000

Less than one year

1,591

1,697

1,685

Between 2 and 5 years

4,416

4,071

3,715

More than 5 years

279

5,984

5,423

Total

6,286

11,752

10,823

 

The weighted average incremental borrowing rate applied to the lease liabilities was 5.75%, lowest rate being 2.75% and the highest being 8.45%.

 

 

As at

30 June
2020
(Unaudited)

Restated

As at

30 June
2019
(Unaudited)

As at

31 December
2019
(Unaudited)

Lease liabilities included in the balance sheet

£000

£000

£000

Current

1,132

1,269

843

Non-current

4,495

7,511

6,881

Total

5,627

8,780

7,724

 

 

 

6 months ended

30 June
2020
(Unaudited)

Restated

6 months ended

30 June
2019
(Unaudited)

Year ended

31 December
2019
(Unaudited)

Movement in lease liability during the period

Note

£000

£000

£000

At 1 January

 

7,724

9,445

9,445

Interest charged to the income statement

8

218

247

480

New leases entered into

13

148

-

-

Reassessment of lease assumptions - break clause

13

(2,232)

-

-

Lease rentals paid

 

(759)

(889)

(1,879)

Movement as a result of foreign exchange

 

528

(23)

(322)

At period end

 

5,627

8,780

7,724

 

 

Reassessment of lease assumption - break clause

Management had previously assumed that the break clause in the lease of the Stamford sports bar venue in Connecticut, USA would not be exercised, and that the venue would be occupied until the expiry of the lease in May 2035. On 30 June 2020, management took the decision that the most likely scenario was that the break clause would be exercised, and the lease terminated in June 2025. As a result, the lease liability has been remeasured resulting in a reduction in the liability and a corresponding reduction in the right-of-use asset. The incremental borrowing rate was estimated at 4.00%.

 

 

20.  Financial liabilities

 


As at

30 June
2020
(Unaudited)


As at

30 June
2019
(Unaudited)


As at 31 December 2019
(Audited)

 

£000

£000

£000

Amounts payable to former shareholder of Lot.to Systems Limited

-

500

500

 

The final instalment of the original £1,300k shareholder loan to Lot.to Systems Limited which was assumed by Sportech PLC on the acquisition of the whole of the share capital of Lot.to Systems Limited was paid on 2 January 2020.

 

21.  Related party transactions

 

The extent of transactions with related parties of the Group and the nature of the relationship with them are summarised below.

 

 
a. Key management compensation is disclosed below:

 

 


Six months ended
30 June
2020
(Unaudited)


Six months ended
30 June
2019
(Unaudited)


Year
ended 31 December 2019
(Audited)

 

 

£000

£000

£000

Short-term employee benefits

 

285

623

1,067

Share-based payments

 

51

49

149

Accelerated IFRS 2 charge for departing management

 

-

755

706

Pay in lieu of notice

 

-

300

296

Post-employment benefits

 

-

2

2

Total

 

336

1,729

2,220

 

b. The Group invested the following amounts of cash into each of its joint ventures and associates during the period:

 

 


Six months ended
30 June
2020
(Unaudited)


Six months ended
30 June
2019
(Unaudited)


Year
ended 31 December 2019
(Audited)

 

 

£000

£000

£000

S&S Venues California, LLC

 

-

230

184

 

 

 


Six months ended
30 June
2020
(Unaudited)


Six months ended
30 June
2019
(Unaudited)


Year
ended 31 December 2019
(Audited)

S&S Venues California, LLC

 

£000

£000

£000

At 1 January

 

-

-

-

Additions

 

-

230

184

Income statement items:

 

 

 

 

Impairment

 

-

(121)

-

Share of loss after tax

 

-

(109)

(1,213)

Restriction of losses recognised

 

-

-

1,029

Net income statement expense

 

-

(230)

(184)

Total

 

-

-

-

 

The net income statement expense in prior year was charged to exceptional costs (see note 7), given the provision for onerous contracts in relation to this joint venture, has been released to exceptional costs, having been recorded through exceptional costs in 2017.

 

22.  Contingencies

 

Contingent items

Tax

The Group's activities in recent periods have resulted in material tax liabilities crystallising. The ultimate tax liability due, in all instances, is subject to a degree of management judgement. The judgements which are made are done so in good faith, with the aim of always paying the correct amount of tax at the appropriate time. Management work diligently with the Group's external financial advisors in quantifying the anticipated accurate and fair tax liability which arises from material one-off events such as the Spot the Ball legal case and the disposal of the Football Pools. Management have an open, transparent and constructive relationship with tax regulators, and engage positively when discussing any difference in legal interpretation between that of the Group and the regulators.

 

Certain contingent items exist at the reporting date with respect to tax liabilities as outlined below.

 

Corporation tax

Included within the Group's tax liabilities are provisions for uncertain tax positions in relation to; the treatment of the gain included in the 2016 financial statements for the Spot the Ball VAT refund and the treatment of the disposal of the trade and assets of the Football Pools division in 2017. The Group has received assessments in respect of the Football Pools disposal amounting to additional tax payable of approximately £2m and has made provisions of £0.4m as detailed in note 9. Having taken appropriate external advice we believe the basis of these assessments is incorrect and that no further tax is payable.

 

Irish subsistence claims

The Irish revenue have assessed the Group for €106k for income tax allegedly underpaid in relation to subsistence claims of Irish field crew. Management believe that this assessment is incorrect and that all subsistence claims paid were made without tax deduction in accordance with relevant regulations. An appeal is being pursued and no provision has been recorded in these financial statements.

 

Other contingent items

 

The Group is engaged in certain disputes in the ordinary course of business which could potentially lead to outflows greater than those provided for on the balance sheet. The maximum possible exposure considered to exist, in view of advice received from the Group's professional advisors, is up to £0.4m (2019: £0.6m). Management are of the view that the risk of those outflows arising is not probable and accordingly they are considered contingent items.

 

 

Statement of Directors' responsibilities

 

The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the Interim Management Report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

 

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report and Accounts.

 

A list of current Directors of Sportech PLC is maintained on the Sportech PLC website: www.sportechplc.com.

 

On behalf of the Board

 

 

Richard McGuire  Tom Hearne

Chief Executive Officer  Chief Financial Officer

9 September 2020  9 September 2020 

 

 

 

 

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Sportech (SPO)
UK 100

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