Sportech PLC
31 March 2005
Sportech PLC
('Sportech' or the 'Group')
Preliminary Results for the year ended 31 December 2004
Highlights
* Turnover increased by 50% to a record £497.0m (2003 restated: £330.4m),
due to significant growth in Betting products, particularly on-line casino
and poker.
* Operating profit before goodwill and exceptional restructuring costs was
£16.7m (2003: £19.9m); after adjusting for the £3.2m one-off cost of a
Football Pools marketing campaign, profit at this level was £19.9m, in line
with last year. Operating profit was £6.3m (2003: £9.5m).
* Profit before tax, goodwill and exceptionals of £9.6m (2003: £13.3m).
Loss before tax was £0.8m (2003: £3.5m profit).
* Net debt reduced by £1.9m to £112.8m.
* Earnings per share before amortisation of goodwill of 1.00p (2003:
1.49p). Basic EPS was a loss of 0.56p (2003: loss of 0.04p).
* Major business review completed in Q1 2005, which has refocused Group
strategy and identified annualised employment cost savings of £2.4m,
following one-off redundancy costs in 2005 of approximately £1.4m.
* Group's growth strategy clearly focused on new media betting and gaming
including the exclusive interactive gaming deal with ITV:
-Important strategic position established in the new media betting and
gaming market, delivering growth and continuous product development.
-ITV and Sportech fully committed to further developing a joint vision
for the future with current work focusing on several exciting
opportunities including a night-time Poker and soft casino games offer.
* Resilient Football Pools business continuing to deliver significant free
cash flow.
Roger Withers, Acting Managing Director, Sportech PLC said:
'We are confident that the review undertaken in early 2005 will focus the
business on its core profit generating divisions and will deliver significant
cost savings over the year. The 2004 results demonstrate that we have made good
progress in the Betting division, which is on track to deliver profits in 2005,
and the Football Pools business continues to deliver substantial cash flow. We
remain optimistic about the long-term opportunities for growth in the
interactive market which is underpinned by our continuing strong relationship
with ITV.'
- ends -
Enquiries
Sportech PLC
Roger Withers, Acting Managing Director
Gary Speakman, Finance Director 0151 288 3376
Bell Pottinger Corporate & Financial
David Rydell / Charlotte Kirkham 020 7861 3232
OPERATING REVIEW
The encouraging growth in Group revenue achieved in the first half of 2004
continued in the second half with full year revenues up 50% at £497.0m (2003:
£330.4m).
Group operating profit, before amortisation of goodwill, restructuring and the
one-off impact of a Football Pools marketing campaign, was in line with last
year at £19.9m. This reflects a good underlying performance from Soft Gaming and
the progress made within our Betting business, where our key action plan is on
track. The one-off impact of a Football Pools marketing campaign reduced Group
operating profit, pre exceptional restructuring and goodwill, to £16.7m (2003:
£19.9m).
Turnover Operating
Profit
2004 2003* 2004 2003
£m £m £m £m
Soft Gaming
Football Pools (pre one-off marketing campaign) 79.5 89.7 26.4 25.6
Net cost of one-off marketing campaign (3.2) -
------- ------- ------- -------
Football Pools 79.5 89.7 23.2 25.6
Games & Lotteries 7.5 8.6 1.1 0.4
------- ------- ------- -------
Established Soft Gaming 87.0 98.3 24.3 26.0
Interactive Development 7.6 4.2 (5.5) (3.6)
------- ------- ------- -------
Total Soft Gaming 94.6 102.5 18.8 22.4
------- ------- ------- -------
Betting
Interactive 319.8 147.5 0.7 0.1
Telephone 82.6 80.4 (2.8) (2.6)
------- ------- ------- -------
Total Betting 402.4 227.9 (2.1) (2.5)
------- ------- ------- -------
Total pre exceptional restructuring and goodwill 497.0 330.4 16.7 19.9
------- ------- ------- -------
Restructuring (1.2) (1.3)
------- ------- ------- -------
Total before amortisation of goodwill 497.0 330.4 15.5 18.6
------- ------- ------- -------
*As restated - see note 2 of the accounts
Soft Gaming
Underlying profits from the core Football Pools business were 3% ahead of 2003
at £26.4m, reflecting an improving gross margin and the full year impact of
operating efficiencies, which will also positively impact on 2005. The revenue
attrition rate for Pools was 11%, in line with last year.
The one-off marketing campaign, which commenced in August 2004, generated
increased awareness of the Football Pools across the UK, however new customer
recruitment levels were not as high as expected. The campaign was therefore
expensed within the financial year at a net cost of £3.2m, reducing the Football
Pools operating profits to £23.2m.
The Football Pools remains a core part of the business going forward, providing
substantial cash flow. The Group continues to examine game development and low
cost initiatives to recruit new customers to the existing Football Pools game,
whilst also seeking ways to capitalise on new media channel opportunities.
Profits from other off-line Soft Gaming products increased to £1.1m, despite a
£0.6m trading loss on scratchcards. The Company is on track to exit the
scratchcard business by the end of the first half of 2005, enabling the Group to
focus on core Soft Gaming activities - Football Pools, Spot the Ball and Lotto -
to deliver profits and cashflow.
Interactive soft gaming revenues increased by 81% to £7.6m, principally driven
by internet growth. The 5 year exclusive deal with ITV commenced in March 2004
and this initiated an increase in the cost base, principally amortisation of
development costs. In comparison, 2003 was a year of mainly development activity
with costs capitalised as appropriate. The service has attracted over 25,000
customer registrations via ITVi red button access points to date, however,
active customer numbers and average gross win levels per active customer have
remained low during this initial phase of the contract. As a result, the
operating loss increased to £5.5m (2003: £3.6m).
Betting
The Betting division, comprising sports betting, fixed odds games, casino and
peer-to-peer poker products via the direct channels of telephone, internet and
television, reduced its operating loss by 16% to £2.1m (2003: £2.5m). During the
year we continued the roll-out of new fixed odds games across our channels with
the full year benefit of these to be seen in 2005.
We are pleased to report significant growth in both Betting turnover and gross
win in the period, with increases of 77% and 68% respectively, reflecting
increasing awareness of our betting brands, Bet Direct, Littlewoodscasino.com
and Littlewoodspoker.com. Despite unfavourable sporting results, gross win of
£9.4m in the second half was 2% higher than the first half and Sports-book
margins for the full year were a pleasing 8.4%.
Approximately 50% of the total gross win was derived from non sports-book
activity including casino, poker and fixed odds games. This increasing trend is
expected to continue which will improve further the Betting Division's overall
performance during 2005 and increase future stability and resilience in the
event of unfavourable sporting results.
Operating profits from interactive betting increased sevenfold, albeit from a
low base, to £0.7m. Our interactive offer enjoyed a significant boost in
revenues, up 117%, with gross win at £10.5m, 119% ahead of 2003, due to very
strong growth in on-line casino and poker products, and the introduction of
fixed odds games. Recruitment of new interactive customers doubled to 80,000 in
the year, 24,000 of them to our casino and poker offer. Active customers across
our interactive offering were 18,900 by the end of the year, up 52% on 2003.
The Company continues to develop its interactive product and distribution
portfolio focusing on profit generation. Soon Bet Direct customers will be able
to access a wide-ranging product offer on internet, television and mobile via a
single electronic wallet. Importantly, future growth prospects will be further
enhanced by the addition of a Bet Direct branded casino and peer-to-peer poker
offer, which is on track to launch in mid April. Mobile phone sports betting
products have been launched very recently which will be accompanied by casino
style games in the near future.
Telephone betting delivered a 3% growth in full year revenues, reflecting a
stronger second half to the year once televised UK racing on Attheraces came
back on air in June 2004. Most notably, gross win on telephone increased 29% to
£8.1m. Operating losses from telephone at £2.8m were marginally higher than
2003, reflecting, in part, increased investment in sponsorship and marketing.
Significant steps were taken during the second half of 2004 to improve the
telephone-betting model. In October 2004, telephone handling was successfully
moved in house and this action is on track to deliver annualised call handling
cost savings in excess of £1m, offset by non-recurring exit costs in 2004 and
2005, relating to the previous outsourcing contract. The cost charged as an
operating exceptional in 2004 was £0.3m and £0.6m will be charged in 2005.
Interactive Television Gaming with ITV
We have just completed the first year of the exclusive interactive betting and
gaming partnership with ITV which has a minimum further 4 years to run. There is
a joint vision for the future and current developments are focusing on several
exciting opportunities, including the integration of betting and gaming
propositions within ITV programming. These include night-time poker and soft
casino games, gaming linked to a virtual Coronation Street and soft games linked
to daytime programming.
The full Littlewoods Game On service on ITVi, including sports betting,
commenced in June 2004. To date the service has relied on red button
interactivity only, with future developments expected to widen product appeal by
encompassing other interactive return paths such as SMS. The ITVi Game On
service has been further strengthened with the launch in early March 2005 of a
full-screen 24:7 Game Zone.
Whilst we are focusing on the recruitment of new customers and growing gross win
levels, it is in a cost conscious framework. Specific action has been taken on
the cost base to ensure that cash requirements for 2005 will be substantially
lower than 2004 levels.
Cashflow
The Group again generated strong cashflow, although net cash inflow from
operating activities at £14.3m was lower than the previous year (2003: £18.6m),
mainly reflecting expenditure on the one-off Pools marketing campaign. Total
capital expenditure during the year was £2.2m (2003: £3.0m), which included
further investment in developing games and betting content for interactive
television. Net debt reduced by £1.9m to £112.8m.
Group Strategy and Structure
A major review of the business was undertaken at the beginning of 2005 under the
control of the acting Managing Director, Roger Withers. The business strategy is
now clearly focused on the core revenue generating areas of the business,
Football Pools and new media betting and gaming, and the future growth
opportunity around the exclusive interactive deal with ITV.
The consequential impact is to reduce annualised employment costs by £2.4m,
£0.5m relating to the scratchcard closure. This is expected to result in an
associated exceptional restructuring cost in H1 2005 of approximately £1.4m.
Current Trading & Outlook
The Soft Gaming business, underpinned by Football Pools, is trading in line with
expectations and continues to provide strong cash flow. We expect the Betting
division, which is being further enhanced by new product development, to deliver
profits in 2005. Casino and poker gross win in the 11 week period ended 25th
March 2005 is up 27% against the comparative period, however telephone betting
margins have been much weaker than their strong 2004 comparators.
We remain excited by the long-term opportunities for growth and are committed to
developing the Group's interactive offering to increase its share of the
interactive market. This confidence is reinforced by our continuing strong
relationship with ITV.
I look forward to updating you in the near future on the search for a new Chief
Executive which is progressing well. A leading headhunter has been appointed and
we will be shortly moving to the short-list stage in the process. We are seeking
top quality candidates with relevant experience in the gaming sector.
I am pleased with the positive start we have made in 2005 with significant steps
being taken to refocus the Group.
David Mathewson
Chairman
31 March 2005
Consolidated Profit & Loss Account
For the year ended 31 December 2004
Unaudited Audited
(Restated)
2004 2003
Notes £m £m
Group turnover 2, 3 497.0 330.4
Cost of sales (439.9) (275.5)
--------- ---------
Gross profit 57.1 54.9
Net operating expenses (50.8) (45.4)
--------- ---------
Operating profit before exceptional
restructuring costs
and amortisation of goodwill 16.7 19.9
Exceptional restructuring costs 4 (1.2) (1.3)
--------- ---------
Operating profit before amortisation of goodwill 15.5 18.6
Amortisation of goodwill (9.2) (9.1)
--------- ---------
Operating profit 6.3 9.5
Profit on sale of Technology Patents 5 - 0.6
(discontinued)
Net interest payable and similar items (7.1) (6.6)
--------- ---------
(Loss)/profit on ordinary activities before
taxation 3 (0.8) 3.5
Tax on (loss)/profit on ordinary activities 6 (2.5) (3.7)
--------- ---------
Retained (loss) for the financial year (3.3) (0.2)
========= =========
Earnings per share 7
Basic and diluted (0.56)p (0.04)p
========= =========
Pre amortisation of goodwill 1.00p 1.49p
========= =========
All operations are continuing.
Reconciliation of Movement in Group Shareholders' Funds
For the year ended 31 December 2004
Unaudited Audited
2004 2003
£m £m
Shareholders' funds at 1 January 2004 31.3 31.5
(Loss) for the financial year (3.3) (0.2)
--------- ---------
Shareholders' funds at 31 December 2004 28.0 31.3
========= =========
Consolidated Balance Sheet
As at 31 December 2004
Note Unaudited Audited
2004 2003
£m £m
Fixed assets
Intangible assets 10 137.3 146.4
Tangible assets 10 9.0 9.1
----------- ------------
146.3 155.5
----------- ------------
Current assets
Debtors - due within one year 10 4.7 9.5
Debtors - due after more than one year 10 6.4 0.7
Cash at bank and in hand 2.4 4.1
----------- ------------
13.5 14.3
Creditors
Amounts falling due within one year (30.2) (44.3)
----------- ------------
Net current liabilities (16.7) (30.0)
----------- ------------
Total assets less current liabilities 129.6 125.5
Creditors
Amounts falling due after more than one year (101.6) (94.2)
----------- ------------
28.0 31.3
=========== ============
Capital and reserves
Called up share capital 29.6 29.6
Profit & loss account (1.6) 1.7
----------- ------------
Total shareholders' funds 28.0 31.3
=========== ============
Consolidated Cash Flow Statement
For the year ended 31 December 2004
Unaudited Audited
Notes 2004 2003
£m £m £m £m
Net cash inflow from operating
activities 8 14.3 18.6
Returns on investments and
servicing of finance:
Interest received 0.5 0.2
Interest paid (7.3) (6.5)
-------- --------
Net cash outflow from returns on
investments and servicing of
finance (6.8) (6.3)
Taxation (2.7) (3.1)
Capital expenditure and
financial investment:
Purchase of tangible fixed assets (1.9) (2.6)
Purchase of intangible fixed
assets (0.3) (0.4)
Sale of tangible fixed assets 0.3 0.1
Sale of Technology Patents 5 - 0.6
-------- --------
Net cash outflow from capital
expenditure and
financial investment (1.9) (2.3)
------- --------
Cash inflow before financing 2.9 6.9
Financing:
Net loans drawn/(repaid) 2.0 (10.0)
-------- --------
Net cash inflow/(outflow) from
financing 2.0 (10.0)
------- --------
Increase/(decrease) in net cash 9 4.9 (3.1)
======= ========
Notes to the Preliminary Statement
For the year ended 31 December 2004
1. Basis of reporting
a) The preliminary results have been prepared on the basis of the accounting
policies set out in the Group's 2003 financial statements with the exception of
the changes set out in note 2 below. The preliminary results have been drawn up
for the 53 week period from 3 January 2004 to 7 January 2005 (2003: 52 week
period).
b) The preliminary results for the year ended 31 December 2004 are unaudited.
The financial information on pages 7 to 16 does not amount to full financial
statements within the meaning of Section 240 of the Companies Act 1985 (as
amended).
The comparative figures for the year ended 31 December 2003 do not constitute
statutory accounts. These figures, apart from the restatement of turnover (see
note 2), have been extracted from the audited accounts for that year which have
been delivered to the Registrar of Companies and on which the auditors issued an
unqualified report which did not contain a statement under either Section 237
(2) or (3) of the Companies Act 1985.
2. Changes in accounting policy
During the year ended 31 December 2004, the Company has made changes to its
accounting policies with respect to segmental reporting and to turnover.
a) In prior periods, the Company's online casino has been reported within Soft
Gaming. The Company has reviewed the playing patterns on its online casino and
concluded that it would be more appropriate to report it within Betting. This
change will only affect the segmental reporting note, and will not change the
profit and loss account in aggregate. In respect of the prior year, the impact
is to move £3.7m of turnover, which in 2003 was equivalent to gross win, from
Soft Gaming to Betting. The impact for the current year is to move £8.8m of
gross win from Soft Gaming to Betting.
b) At the same time, the basis of turnover disclosure for the online casino
business has been reviewed. Previously turnover for this business was defined as
the gross win achieved; following a review of the rationale underlying this
basis and to bring on-line casino turnover into line with other similar internet
based games that the Company offers, as well as that for non-internet based
products, the basis of reporting turnover is now believed to be best defined as
the amounts customers spend with the business, rather than the amount of
customer spend net of winnings returned to them. The impact for the prior year
is to add £122.5m to both turnover and cost of sales. There is no impact on
profit for the prior year. The impact for the current year is to add £277.5m to
turnover and cost of sales. There is no impact on profit.
The effect of these changes in accounting policy on the comparatives for the
year ended 31 December 2003 is as follows:
As Adjustment As
originally restated
stated
£m £m £m
Turnover
Soft Gaming 106.2 (3.7) 102.5
Betting 101.7 126.2 227.9
--------- --------- ---------
207.9 122.5 330.4
========= ========= =========
Cost of sales 153.0 122.5 275.5
========= ========= =========
Operating profit before exceptional
restructuring costs and amortisation
of goodwill
Soft Gaming 23.0 (0.6) 22.4
Betting (3.1) 0.6 (2.5)
--------- --------- ---------
19.9 - 19.9
========= ========= =========
Net assets
Soft Gaming 45.5 (0.3) 45.2
Betting (14.2) 0.3 (13.9)
--------- --------- ---------
31.3 - 31.3
========= ========= =========
3. Segmental reporting
2004 2003
£m £m
Turnover
Soft Gaming 94.6 102.5
Betting 402.4 227.9
--------- ---------
497.0 330.4
========= =========
Profit/(loss) before taxation
Soft Gaming 18.8 22.4
Betting (2.1) (2.5)
--------- ---------
Operating profit before restructuring costs and amortisation
of goodwill 16.7 19.9
Exceptional restructuring costs ** (1.2) (1.3)
Amortisation of goodwill ** (9.2) (9.1)
--------- ---------
Operating profit 6.3 9.5
Profit on sale of Technology Patents - 0.6
Net interest payable and similar items (7.1) (6.6)
--------- ---------
(0.8) 3.5
========= =========
** - mainly Soft Gaming
2004 2003
£m £m
Net assets/(liabilities)
Soft Gaming 43.7 45.5
Betting (15.7) (14.2)
--------- ---------
28.0 31.3
========= =========
4. Exceptional restructuring costs
2004 2003
£m £m
Exceptional restructuring costs - operating (1.2) (1.3)
========= =========
Restructuring costs in the year relate to the establishment of an in-house call
centre operation within the Betting segment, further rationalisation of the
football pools business operating cost base within the Soft Gaming segment, and
the rationalisation of interactive developments teams consequent upon the
transition from development stage to trading stage.
Restructuring costs in the prior year related to the transfer of the Zetters
football pools operation from London to Liverpool and also to costs incurred in
respect of a reorganisation subsequent to the sale of the Technology Patents
business.
5. Profit on sale of Technology Patents
During the prior year the Group sold its portfolio of Technology Patents for
$1.5m (£0.9m). Disposal costs of £0.3m resulted in a profit on sale of £0.6m.
6. Taxation
2004 2003
£m £m
Current tax
UK corporation tax at 30% (2003: 30%) 2.4 3.4
Adjustments in respect of prior periods (0.1) -
--------- ---------
Total current tax 2.3 3.4
--------- ---------
Deferred tax
Current year 0.2 0.3
--------- ---------
2.5 3.7
========= =========
The tax for the period is higher than the standard rate of corporation tax in
the UK of 30%. The differences are explained below:
2004 2003
£m £m
(Loss)/profit on ordinary activities before tax (0.8) 3.5
========= =========
(Loss)/profit on ordinary activities multiplied by the
standard rate of corporation tax in the UK of 30% (2003:
30%) (0.2) 1.0
Effects of:
Goodwill write-off not deductible for tax purposes 2.6 2.6
Other permanent differences 0.2 0.1
Origination and reversal of timing differences (0.2) (0.3)
Adjustments to tax in respect of prior periods (0.1) -
--------- ---------
2.3 3.4
========= =========
7. Earnings per share
The calculations of earnings per share are based on the following profits and
numbers of shares.
2004 2003
Earnings Weighted Per Earnings Weighted Per
average share average share
number of amount number of amount
shares shares
£m '000 pence £m '000 pence
Basic and
diluted EPS
excluding
goodwill
amortisation 5.9 592,074 1.00p 8.9 592,074 1.49p
Effect of
goodwill
amortisation (9.2) 592,074 (1.56)p (9.1) 592,074 (1.53)p
-------- --------- ------- -------- --------- -------
Basic and
diluted EPS (3.3) 592,074 (0.56)p (0.2) 592,074 (0.04)p
======== ========= ======= ======== ========= =======
8. Reconciliation of operating profit to operating cash flows
2004 2003
£m £m
Operating profit 6.3 9.5
Depreciation on tangible fixed assets 2.4 2.1
Amortisation of goodwill 9.2 9.1
Amortisation of intangible fixed assets 0.2 -
Decrease in stocks - 0.1
Decrease in trade debtors - 0.4
Decrease in other debtors 0.6 -
Increase in prepayments (2.0) (1.9)
Increase/(decrease) in trade creditors 0.1 (1.0)
Decrease in other taxes (0.5) (0.2)
(Decrease)/increase in accruals and deferred income (2.0) 0.5
---------- ----------
Net cash inflow from operating activities 14.3 18.6
========== ==========
9. Analysis and reconciliation of net debt
At 1 January Cash Other At 31 December
2004 flow movement 2004
£m £m £m £m
Cash at bank
and in hand
excluding
charity cash
balances 2.3 (2.0) - 0.3
Bank
overdrafts (6.9) 6.6 - (0.3)
--------- -------- --------- ---------
(4.6) 4.6 - -
--------- -------- --------- ---------
Debt due
within one
year (15.9) 1.0 4.0 (10.9)
Debt due
after
one year (94.0) (3.0) (4.0) (101.0)
Hire purchase
contracts (0.2) - (0.7) (0.9)
--------- -------- --------- ---------
(110.1) (2.0) (0.7) (112.8)
--------- -------- --------- ---------
(114.7) 2.6 (0.7) (112.8)
========= ======== ========= =========
2004 2003
£m £m
Increase/(decrease) in cash in period 4.9 (3.1)
Movement in charity cash (0.3) (0.1)
----------- ---------
Change in net debt resulting from cash flows 4.6 (3.2)
New hire purchase contracts (0.7) (0.2)
Cash inflow from increase in loans (3.0) (6.0)
Cash outflow from reduction in loans 1.0 16.0
----------- ---------
Movement in net debt for the period 1.9 6.6
At 1 January 2004 (114.7) (121.3)
----------- ---------
At 31 December 2004 (112.8) (114.7)
=========== =========
10. Interactive television contracts
Included in these financial statements are assets held in respect of interactive
gaming television gaming products. The following costs were deferred and
capitalised at the year-end.
2004 2003
£m £m
Debtors - prepayments recoverable within one year 0.7 3.5
Debtors - prepayments recoverable in more than one year 5.9 -
Tangible fixed assets 1.7 1.3
Intangible fixed assets - other 1.3 1.2
---------- ----------
9.6 6.0
========== ==========
Prepayments represent advanced payments of commission to television broadcasters
and together with tangible and intangible assets will be recovered from
cashflows to be generated over the life of the interactive television gaming
contracts.
The level and timings of these cashflows have been forecast by the directors'
based on estimates of viewers' participation and expenditure on the Group's
interactive television offering in the period of the agreement which runs until
February 2009.
This information is provided by RNS
The company news service from the London Stock Exchange
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