Sportech PLC
Interim Management Statement
Sportech PLC ("Sportech" or the "Group"), one of the UK's leading gaming businesses, today issues its Interim Management Statement for the period from 1 July 2008 to 5 November 2008.
The Board is pleased to report that customer numbers continue to show their strongest resilience since the National Lottery was introduced in 1994, and for the first time in recent history, Sportech has been a net recruiter of customers since the start of the new football season. This progress stands the Group in a good position to weather any economic downturn, as it has done on many occasions since the business was founded in 1923.
Considerable operational progress has been made in the period, notably the August relaunch and rebranding of the core football pools business (formerly Littlewoods and the recently acquired Vernons Football Pools) as "The New Football Pools" alongside the launch of a series of new games aimed at younger gamers. In addition, we have invested in upscaling our online operations in partnership with 888 Holdings plc ("888"), first announced in June and successfully initially launched in October. The Board anticipates that these major initiatives will generate significant long term value for the Group.
The New Football Pools
The launch of The New Football Pools, to coincide with the start of the football season in August, concluded a fifteen month period of activity which saw the introduction of new technology, a major overhaul and update of the Group's brand strategy, the launch of a suite of new products and the securing of new distribution routes.
Alongside the update of existing games, two new core products, Premier 10 and Footy 15, have been introduced to extend the customer offering into shorter odds games, complementing the traditional Classic Football Pools long odds game. Premier 10 is "The Official UK Football Pool of the Premier League", and Footy 15 focuses on matches from the Premier League, the Championship, Scottish Premier League and Europe. More than £1m in prize money has been paid out in these new games since August. In October, an additional game specifically for midweek fixtures, Midweek 10, was introduced, encompassing the popular Champions League and UEFA Cup matches, in addition to domestic games, and thereby increasing the frequency that customers can play the Group's games.
The Group has negotiated new partnerships to distribute both existing and new games. Next month a selection of the Group's games will go live across the Ladbrokes betting shop estate, and in January 2009 to the 4.9 million registered customers of the internationally renowned gaming website 888.com. In addition, the Group has recently secured major media partners, including The Daily Telegraph, The Daily Mail and The Daily Mirror, which are distributors for www.footballpools.com, the Group's new content-rich, football prediction website.
Today, the Group acquired the world's oldest football community website, 4TheGame at a cost of £600,000. With 700,000 unique monthly users and an international customer base, this is a strategically important acquisition as it is a perfect host site to cross-sell and market the full suite of Sportech's football games, in addition to providing cost efficient football content to footballpools.com.
The Board is pleased to report that despite launching The New Football Pools into challenging economic circumstances, the online business has recruited more than 20,000 new registrations and 15,000 active customers in the 11 week period since the start of the football season. Furthermore, progress continues to be made in the traditional routes to market (collector and direct mail), as customer numbers for the traditional Classic Pools game continue to show their strongest resilience since 1994 and, for the first time in recent history, over this period Sportech has been a net recruiter of customers.
The Board expects this trend to continue and anticipates a significant boost to customer numbers with the addition of the Ladbrokes and 888.com distribution routes.
Strategic Marketing, Distribution and Technology Partnership with 888 and e-Gaming Activities
Following the announcement of the strategic partnership with 888, there has been an intense period of activity to consolidate many of the Group's e-Gaming activities onto the 888 technology platform. The result has been the creation of a common platform and e-wallet to enable the cross-promotion of Sportech's suite of gaming products, combined with the marketing support from 888. This is expected to provide a strong foundation from which significant growth will be delivered.
Online casino and poker, the first two products on this common platform, were launched on 2 October and over the next three months bingo, sports betting, quickplay (instant win slots) and football pool games will also be introduced. The existing online bingo offer, Littlewoodsbingo.com, continues to perform well.
All software, operations and marketing services have now been successfully transferred across to 888, but this necessary transition was very challenging.
International Expansion
As previously stated the Board believes the pari-mutuel gaming model has significant commercial appeal across international markets and a variety of sports. Sportech is actively pursuing international expansion plans, particularly in Asia, and although no conclusion has yet been reached, the Board continues to have discussions with a number of parties with a view to securing the right long term opportunity.
Financial Position
The balance sheet remains strong. In December last year the Group negotiated and entered into new 10 year bank facilities totalling £124m, £110m of which are committed long term facilities, with repayments and covenants in line with the Group's cash generation forecast. During the course of the year to date, it has remained comfortably within these facilities, with current debt of £83m. £60m (approximately 70% of total debt) has been hedged at average rates of 4.82% excluding the HBOS lending margin.
We have continued to strategically position and invest in the start up of our online football business, footballpools.com. In line with our strategic objective to create a focussed, content rich, football prediction website, we decided to remove all "non-football" content from the website and move the instant win games to our 888 common platform for launch in January 2009. This, together with further investment in the start up and management of the online football business, has resulted in a short term one-off impact on trading. Further, additional costs, and short term revenue shortfall, were incurred as a result of the business disruption caused in migrating the casino and poker business from the Cryptologic software to that of our partners at 888.
The Board stresses that these costs were necessary investments made to improve the strategic positioning and performance of the business and it is anticipated that they will deliver substantial benefits in 2009 and beyond. However, as a result, the Board expects Sportech's adjusted profit before tax* for the full year ended 31 December 2008 to be marginally below the current market consensus, although still showing a considerable increase on the previous year.
Outlook
Sportech continues to make significant progress as it continues its transition into a growth oriented sports, leisure and gaming business. This is exemplified in the improvement in The New Football Pools player numbers. While the Group is aware of wider macro-economic issues, the Board believes that Sportech's position as a high volume, small value ticket gaming business places it in a favourable position to weather any economic downturn, as it has done on many occasions since the business was founded in 1923. With many of the challenging operational and financial initiatives now completed, the Board remains confident regarding Sportech's future prospects.
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For further information
Sportech PLC
Ian Penrose, Chief Executive 0207 268 2400
Bell Pottinger Corporate & Financial
David Rydell / Emma Kent / Rosanne Perry 0207 861 3232
* Adjusted profit before tax is profit before taxation, amortisation of acquired intangibles, exceptional costs and other non-cash finance costs.