Preliminary Results

Sportech PLC 28 February 2001 Sportech PLC Sportech PLC Preliminary Results to 15 months ended 31 December 2000 Highlights * Successful outcome of long running patent dispute and acquisition of Littlewoods Leisure * Profit before taxation £26.7 million * Littlewoods Leisure contributes operating cash flow of £7m in 16 weeks * Littlewoods Leisure uniquely positioned, delivering products to 1.6 million households every week * Continued strong growth of Sports Betting with registered customer base of c165,000 * Continuing to extend Littlewoods Leisure product range and routes to market, with planned introduction of on-line casino and further development of interactive television. Colin McGill, Managing Director, Sportech said: 'Our approach has been to identify the enormous opportunities in the gaming market and build on the well respected Littlewoods Leisure brand name. Since acquiring the business we have undertaken a thorough strategic review, that has resulted in the strengthening of our management team and the restructuring of all of our divisions, enabling us to operate at the cutting edge of the modern gaming market.' 'We believe that our point of difference is the diverse and innovative range of gaming products that we offer and supply through a unique variety of distribution channels. Sportech aims to be the pre-eminent supplier of gaming products to the home.' Enquiries Sportech 020 7353 9203 on 28 February Colin McGill, Managing Director 0151 288 3244 thereafter Gary Speakman, Finance Director Bell Pottinger Financial 020 7353 9203 Jonathan Brill/Rebecca Fox/Oliver Jones SPORTECH PLC Unaudited Preliminary Results for 15 months ended 31st December 2000 CHAIRMAN'S STATEMENT The period since the last Annual Report has heralded an unprecedented number of changes for the Group. Following the successful settlement of the company's legal action against Seagate and the redemption of outstanding loan stock, the Company embarked on a search for potential added value acquisition opportunities. This search culminated in the purchase on 4th September of Littlewoods Leisure and the renaming of the company from Rodime PLC to Sportech PLC. Now comprising the core business of Sportech, Littlewoods Leisure is already the foremost provider of gaming products direct to customers in their homes, has a brand which is synonymous with football and is well placed to take advantage of high growth opportunities, particularly through new media channels. Sportech also retains a portfolio of disk drive related patents from which it will seek to derive further value. The changes seen over the fifteen month period, have therefore left Sportech in a position of financial stability and with tangible trading prospects that it has not enjoyed for many years. By driving further growth and innovation in the gaming market, the Board are confident of significant progress for the company. RESULTS The Group has recorded an extremely satisfactory performance, reflecting management's commitment to derive value from the patents rights business and the successful integration of Littlewoods Leisure. The profit before taxation for the period was £26.7 million. Following the change of accounting reference date, this profit comprises the results of Sportech PLC for the fifteen month period ended 31 December 2000, and includes the results of Littlewoods Leisure for the 16 week period since acquisition. The operating profit of £25.7 million reflects the £27.8 million settlement from Seagate, less administrative and legal costs and £5.2 million from the acquired business of Littlewoods Leisure before amortisation of goodwill and restructuring. Profit before taxation is further enhanced by the £3.9 million discount on redemption of loan stock. The Littlewoods Leisure profits reflect three main business streams; football pools, sports betting and games and lotteries. Analysis of Littlewoods Leisure Profits (£m) for the 16 week period ended 31st December 2000. Football Sports Games and Product Total Pools Betting Lotteries Development Littlewoods Leisure Turnover 43.8 14.6 4.6 63.0 Operating Profit Before Amortisation of Goodwill and 6.8 (1.3) (0.1) (0.2) 5.2 Restructuring BALANCE SHEET & CASH FLOW The consideration for the acquisition of Littlewoods Leisure, £162.5 million, was funded through new loan facilities totalling £140 million together with a Rights Issue and Subscription raising £27.9 million, net of expenses. Net debt at the end of the financial year was £124.2 million. The operating cash flow generated by Littlewoods Leisure in the 16 weeks since acquisition has been in line with expectations at £7.0 million and this rate of cash flow should prove more than adequate to service our loan obligations and ongoing investment in new product and channel development. The continuing deficit in revenue reserves precludes the payment of any dividend for the period to December 2000 and it is the Directors' intention to eliminate this deficit at the appropriate time through a reduction of capital. BUSINESS REVIEW - LITTLEWOODS LEISURE When Sportech acquired Littlewoods Leisure, the Board recognised that this business enjoys a unique position within the leisure industry and offers a powerful platform from which to take advantage of the significant growth opportunities in the market. In particular there is an existing customer base covering 1.6 million households, who buy a wide range of Littlewoods Leisure products every week. Since September, considerable progress has been made in refocusing the business, streamlining its structure and reshaping the management team, to create a focused Group, intent on maximising shareholder value. FOOTBALL POOLS In the period since acquisition, the Pools business has remained robustly profitable and cash generative, despite a continuing decline in turnover of around 20% year on year. The way in which the game is played and the distribution efficiency have changed dramatically, with over 63% of pools entries now gathered by telephone and electronically, including portable 'poolscard' terminals. Not only do these methods make the Pools quick and easy to play, but they completely eliminate all paper processing. This changing collection profile, together with increased automation in the processing and marking systems, has helped reduce costs and maintain operating profitability. It is encouraging to note that the rate of decline in turnover for the period since acquisition is lower than that experienced in the previous two years and we are hopeful that this trend towards stabilisation will continue into the current year. On the product front, we believe that there is significant potential to improve image and appeal to the large number of younger football enthusiasts who do not currently play, and there is obviously a huge overseas interest in UK football, which at present is largely untapped. For example, despite the relatively recent availability of the Pools on our Bet 247 Internet service, we have already attracted players from over 55 countries. Our efforts over the current year will focus on three main areas - further cost reductions to sustain profitability of the traditional product; repackaging the game and the way it is played to increase its appeal to different market segments; and extending our distribution capabilities through the use of new media channels and affinity relationships. The Board expect these actions to maintain the Pools operating profits and cash flow. The Board remains excited by the opportunities provided by the Pools business for which there is a regular playing customer base of 1.2m a week. No other gaming product has this brand loyalty, the significance of which should not be underestimated. SPORTS BETTING The Bet Direct sports betting business continues to show strong growth with year on year turnover increased by 80% and a registered player base now around 165,000 over both telephone and Internet channels. This business incurred a trading loss of £1.3 million for the 16 weeks under review largely due to the costs of developing our internet operation including customer recruitment and the high level of race cancellations due to bad weather. Gross margin, measured as bets placed less full UK duty, levies and winnings returned to customers, was 11% for the sixteen week period. This is satisfactory for our customer and product mix and we believe that the business generally has performed well in relation to the competition. Growth should be sustained in the current year through credit betting, the introduction in late 2000 of extended product offerings, such as US horseracing and tote betting, and of course the impact of any changes to betting duty. After the costs of new product introductions and further channel developments, it is expected that this business should achieve breakeven in the current year. GAMES AND LOTTERIES During the period under review, we continued our investment in new product concepts and delivery platforms. Sales of older traditional products, such as Spot the Ball, continued to decline, but this was more than offset by the growth in new product lines including the Prizebuster Lottery. One of the major new projects under way when we acquired Littlewoods Leisure was the introduction of video lottery terminals (VLT) into the club market. While the concept of centrally distributed electronic lotteries for the club and pub market remains an exciting opportunity, we have not adequately resolved all of the operational issues concerning game design and platform reliability, and have, accordingly, curtailed our rollout programme. The operating loss of £0.1 million for our games and competitions business, for the 16 week period, is due principally to the costs incurred by the VLT programme prior to curtailment. In the current year, we expect games and competitions to make an improved contribution to profits. Our reputation and expertise in games management creates a distinct advantage in a marketplace which is particularly demanding in terms of regulatory and licensing requirements. It also makes us an ideal content provider and partner of choice for those with their own distribution capabilities and we are currently developing relationships with a number of channel operators. The Board believe that electronic distribution is ideally suited to our soft gaming products and, in the current year, we will be further extending our capabilities over the Internet and interactive television. In this latter regard, we are in advanced negotiations to provide gaming offerings over the principal interactive channels and are confident that this will deliver a substantial new playing audience. Our wide portfolio of games will be further enhanced by the planned introduction of a Littlewoods branded on-line casino. We expect this new business stream to provide significant revenue growth. DISTRIBUTION CHANNELS The importance of reliable and secure distribution cannot be over-emphasised, and Littlewoods has built its world class reputation over nearly 80 years. While we now offer many choices of distribution, the cornerstone remains the 26,000 strong collector network, which provides a unique service throughout the length and breadth of the UK. This network is augmented by telephone, postal, internet, internet over mobile phone (WAP) and digital television distribution, all of which take our products currently into some 1.6 million households every week. Our future distribution strategy will have two main themes. Our own multi channel development will focus on extending our penetration into the home gaming market while becoming an important content provider for those with appropriate distribution channels into retail outlets and venues such as pubs and clubs. We believe the new media channels, particularly interactive digital TV, will open up a much wider playing audience and provide an ideal platform for many of our gaming concepts. We are already represented on Cable TV through Telewest and expect to have a presence on other major interactive channels by the middle of the current year. RODIME TECHNOLOGIES There remain around 20 patents owned by Sportech, principally relating to disk drive and storage access technologies. We are in the course of conducting a full review of this portfolio with a view to determining its potential value and the most appropriate means of realisation. OUTLOOK The Board are confident that with a clear strategy now in place, further progress in the business of Littlewoods Leisure will be achieved in the current year and that the foundations for future growth will be firmly established. Prospects for success are enhanced by the continuing support of our major shareholders. The business has already derived benefit from the knowledge and insight of Mr Trevor Hemmings, and from the Bank of Scotland which have consistently delivered innovative financial solutions for the Company over the last 15 years. The Board would like to take this opportunity to thank all our employees, both past and present, for their commitment during a period of great change. This preliminary statement was approved by the Board on Tuesday 27th February 2001. M McIver Chairman 28th February 2001 Sportech PLC Consolidated Profit & Loss Account For the fifteen months ended 31 December 2000 Unaudited Audited Restated see note 1 15 mths 12 mths ended ended 31Dec 30 Sept Notes Cont'ng Acquis'n 2000 1999 £m £m £m £m Group turnover - 63.0 63.0 - Cost of sales - (46.9) (46.9) - -------- -------- -------- -------- Gross profit - 16.1 16.1 - Net operating income/(operating expenses) 25.0 (15.4) 9.6 (1.2) Operating profit/(loss) before restructuring costs, amortisation of goodwill and other operating income (2.7) 5.2 2.5 (1.2) Exceptional-restructuring costs 2. (0.1) (1.7) (1.8) - Amortisation of goodwill on acquisition - (2.8) (2.8) - Other operating income 3. 27.8 - 27.8 - -------- -------- -------- -------- Operating profit 25.0 0.7 25.7 (1.2) -------- -------- -------- -------- Discount on redemption of loan stock 4. 3.9 - Net interest payable (2.9) - -------- -------- -------- -------- Interest and similar items 1.0 - -------- -------- Profit/(loss) on ordinary activities before taxation 26.7 (1.2) Tax on profit on ordinary activities 5. (4.6) - -------- -------- Profit/(loss) on ordinary activities after taxation 22.1 (1.2) Dividends - - -------- -------- Retained profit/(loss) for the financial period 22.1 (1.2) -------- -------- Earnings per share 6. Basic 4.79p (0.28)p ======== ======== Pre amortisation of 5.40p (0.28)p goodwill ======== ======== Acquisitions relate to the acquisition of Littlewoods Leisure with effect from 4 September 2000 and the financial results therefore reflect 16 weeks of trading. The group has no recognised gains or losses other than its profit for the financial period. Sportech PLC Reconciliation of movement in group shareholder's funds For the fifteen months ended 31 December 2000 Unaudited Audited Restated see note 1 15 mths to 31 12 mths to 30 Dec Sept 2000 1999 £m £m Profit for the financial period 22.1 (1.2) Dividends - - -------- -------- 22.1 (1.2) Proceeds of ordinary shares issued for cash 28.7 - Issue expenses charged to share premium account (0.8) - -------- -------- Net change in shareholders funds 50.0 (1.2) Shareholders funds at 1 October 1999 (20.4) (19.2) -------- -------- Shareholders funds at 31 December 2000 29.6 (20.4) ======== ======== Sportech PLC Consolidated Balance Sheet as at 31 December 2000 Group Unaudited Audited Restated see note 1 Note 31 Dec 30 Sept 2000 1999 £m £m FIXED ASSETS Intangible assets - goodwill 9. 169.8 - Tangible assets 8.7 - Investments - - -------- -------- 178.5 - CURRENT ASSETS Stocks 0.2 - Debtors 8.5 0.1 Cash at bank and in hand 17.9 0.1 -------- -------- 26.6 0.2 CREDITORS Amounts falling due within one year (34.0) (0.3) -------- -------- NET CURRENT LIABILITIES (7.4) (0.1) -------- -------- TOTAL ASSETS LESS CURRENT LIABILITIES 171.1 (0.1) CREDITORS Amounts falling due after more than one year (139.7) (20.3) PROVISIONS FOR LIABILITIES AND CHARGES (1.8) - ======== ======== 29.6 (20.4) ======== ======== CAPITAL AND RESERVES Called up share capital 30.5 13.6 Share premium account 47.1 36.1 Profit & loss account (48.0) (70.1) -------- -------- TOTAL SHAREHOLDERS FUNDS (including non- equity interests) 29.6 (20.4) ======== ======== Sportech PLC Consolidated Cash Flow Statement For the fifteen months ended 31 December 2000 Unaudited Audited Restated see note 1 15 months 12 months to Dec to Sept Notes 2000 1999 £m £m £m £m Net cash inflow from operating activities 7. 32.4 (0.6) Returns on investments and servicing of finance: Interest received 0.6 - Interest paid (2.8) - Issue costs of new bank loans (0.4) - ------- ------- Net cash outflow from returns on investments and servicing of finance (2.6) - Taxation (2.2) - Capital expenditure and financial investment Purchase of tangible assets (0.3) - Sale of tangible fixed assets - - ------- ------- Net cash outflow from capital expenditure and financial investment (0.3) - Acquisition of subsidiary undertakings: Acquisition of Littlewoods Leisure (162.5) - Acquisition expenses (1.6) - Net cash acquired from subsidiaries 2.3 - ------- ------- Net cash inflow from acquisitions and disposals (161.8) - Equity dividends paid - - ------- ------- Cash outflow before managing of liquid resources and finance (134.5) (0.6) Financing: Issue of ordinary share capital 28.7 - Expenses of share issue (0.8) - Net loans taken 123.6 0.6 ------- ------- Net cash inflow from financing 151.5 0.6 ------- ------- Increase in net cash 8. 17.0 - ======= ======= Littlewoods Leisure contributed £7.0m to the group's operating cash flows, paid £0.6m in respect of taxation and utilised £0.3m in respect of capital expenditure. Sportech PLC Notes to the Preliminary Statement For the fifteen months ended 31 December 2000 1. Basis of reporting a) The accounts have been prepared on the basis of the accounting policies set out in the group's 1999 financial statements with the exception that the group has chosen to change the reporting currency used in the preparation of the financial statements. Previously the focus of the group was in the United States and so reported for that reason in US dollars. Following the acquisition of Littlewoods Leisure, the focus of the business will now lie in the United Kingdom and so the financial statements have been prepared in sterling. The comparative figures have been restated from US dollars to sterling. Other than this there have been no changes in accounting policy. b) The preliminary results for the fifteen months ended 31 December 2000 are unaudited, with the full audit report on the full financial statements yet to be signed. With the exception noted above, the preliminary results for the fifteen months ended 31 December 2000 have been prepared on the basis of accounting policies set out in the report and accounts for the year ended 30 September 1999. The comparative figures for the year ended 30 September 1999 do not constitute statutory accounts. These figures have been extracted from the audited financial statements for that year which have been delivered to the Registrar of Companies and on which the auditors issued an unqualified audit report which did not contain a statement under either section 237 (2) or (3) of the Companies Act 1985. The financial information on pages 1 to 8 does not amount to full financial statements within the meaning of Section 240 of the Companies act 1985 (as amended). 2. Exceptional Item - Restructuring costs The restructuring costs comprise largely redundancy costs in respect of the integration of Littlewoods Leisure and the closure of the Edinburgh office of Sportech following the acquisition of Littlewoods Leisure. 3. Other operating income 2000 1999 £m £m Proceeds from settlement of Seagate litigation 27.8 - ===== ===== On 18 November 1992 the company initiated litigation against Seagate Technology Inc. in the United States District Court for the Central District of California seeking damages for wilful infringement by Seagate of the company's '383 patent and for unfair competition and interference with prospective economic advantage. In January 2000, on the advice of its lawyers, Sportech agreed to participate in mediation discussions with Seagate. As a result of the mediation, Sportech and Seagate agreed to settle their dispute, without admission of liability by either party, and Seagate paid to Sportech the sum of £27.8m in full and final settlement of Sportech's claims under its '383 patent. 4. Discount on redemption of loan stock In January 2000, the company negotiated to pay the Bank of Scotland £16.9m out of the proceeds received from Seagate in full settlement of its outstanding loan stock. The bank agreed to a discount of £3.9m as part of negotiations. 5. Taxation The taxation charge for the period has been reduced by £3.9m by the utilisation of brought forward trading losses. 6. Earnings per Share The calculations of earnings per share are based on the following profits and numbers of shares. 2000 1999 Weighted Weighted average Per average Per number share number share Earn- of amount Earn- of amount ings shares pence ings shares pence £m '000 £m '000 Basic EPS excluding goodwill amortisation 24.9 462,532 5.40p (1.2) 428,442 (0.29)p Effect of goodwill amortisation 2.8 462,532 0.61p - - - ------ ------ ------ ------ ------ ------ Basic EPS 22.1 462,532 4.79p (1.2) 428,442 (0.29)p ====== ====== ====== ====== ====== ====== 7. Reconciliation of operating profit to operating cash flows 2000 1999 £m £m Operating profit/(loss) 25.7 (1.2) Exchange movement on loans - 0.6 Increase in provisions 1.8 - Depreciation on tangible fixed assets 1.2 - Amortisation of goodwill 2.8 - Amortisation of loan arrangement fee 0.1 - Decrease in stocks 0.1 - Decrease in trade debtors 1.9 - (Increase) in other debtors (0.1) - Decrease in prepayments 0.5 - (Decrease) in trade creditors (2.1) - (Decrease) in other taxes (0.6) - Increase in accruals and deferred income 1.1 - -------- -------- Net cash inflow/(outflow) from operating activities 32.4 (0.6) ======== ======== 8. Analysis and reconciliation of net debt At 31 At 1 October Cash Loan December 1999 flow discharged 2000 £m £m £m £m Cash at bank and in hand excluding increase in charity cash balances 0.1 16.2 - 16.3 Bank overdrafts - (0.8) - (0.8) -------- ------- -------- -------- 0.1 15.4 - 15.5 -------- ------- -------- -------- Debt due within one year - (5.9) - (5.9) Debt due after one year (20.3) (117.4) 3.9 (133.8) -------- ------- -------- -------- (20.3) (123.3) 3.9 (139.7) -------- ------- -------- -------- (20.2) (107.9) 3.9 (124.2) ======== ======= ======== ======== 2000 1999 £m £m Increase in cash in period 17.0 - Less increase in charity cash (1.6) - -------- -------- Change in net debt resulting from cash flows 15.4 - Cash inflow from increase in loans (123.3) 0.6 Discount on redemption of loan 3.9 - -------- -------- Movement in net debt for the period (104.0) (0.6) At 1 October 1999 (20.2) (19.6) -------- -------- At 31 December 2000 (124.2) (20.2) ======== ======== 9. Acquisition of Littlewoods Leisure On 4 September 2000 Sportech PLC acquired the whole of theshare capital of Littlewoods Promotions Limited, Littlewoods Leisure Marketing Services Limited, Littlewoods Competitions Company Limited and Littlewoods Lotteries Limited, which companies together with their subsidiaries collectively comprised the Leisure division of The Littlewoods Organisation PLC. The purchase consideration was £162.5m satisfied by cash. Acquisition accounting has been used to account for this acquisition. Goodwill arising on the acquisition of these companies has been capitalised and included within fixed assets and will be amortised over a 20 year period. An analysis of the acquisition of Littlewoods Leisure is as follows; Book value on Fair Value Acquisition Impairment Other to Group £m £m £m £m Net (liabilities) acquired (0.9) (5.9) (1.7) (8.5) ======== ======== ======== Acquisition (1.6) costs Goodwill 172.6 -------- Discharged by 162.5 cash ======== Goodwill 172.6 Amortisation of goodwill (2.8) -------- Goodwill carried in the balance sheet 169.8 ========

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