24 August 2017

 

Sportech PLC ("Sportech" or the "Group")

Interim results for the six months ended 30 June 2017

 

Sportech, one of the world's leading regulated gaming technology suppliers and operators, is pleased to announce its interim results for the six months ended 30 June 2017.

 

Group Highlights

 

·      Technology investment delivering global expansion in:

o  Asia (Hong Kong)

o  Europe (Denmark and Netherlands)

o  US (additional Connecticut licensing)

·      Group has cash of £76.2m at 30 June 2017, and no bank debt following the cancellation of the bank facility, which totalled £75m at 30 June 2016

·      Successful VAT claim - final receipt of outstanding cash in March 2017 taking refund to £97m

·      Returned £21m to shareholders through Tender Offer in March 2017

·      Following shareholder approval, Court process commenced to create approximately £55m of reserves to enable a substantial return to shareholders

·      Completion of £83m sale of The Football Pools announced on 26 June 2017

·      Total Group EBITDA of £3.9m from continuing operations (2016: £4.1m)

 

Financial Highlights

 

Continuing operations	Reported 2017 H1 £m	Reported 2016 H11 £m	Change %
Revenue	36.4	34.7	5%
EBITDA2	3.9	4.1	-5%
Adjusted profit/(loss) before tax3	1.1	(0.4)	n/a
Adjusted earnings/(loss) per share 3	0.5p	(0.1)p	n/a
Statutory loss before tax	(0.1)	(0.8)	88%
Adjusted net cash/(debt)4	76.2	(59.8)	n/a

 

·      Revenue up by 5% but reducing on a constant currency basis by 7%, primarily due to timing delays in the completion of one-off system sales, with a corresponding impact on EBITDA

·      Adjusted profit before tax improved by £1.5m to £1.1m

·      Statutory loss before tax improved by £0.7m

·      Sportech Racing and Digital - EBITDA of £3.9m, down £0.9m on a constant currency basis, due to timing delays in system sales, offsetting the improvement in quality of earnings with growth in recurring revenues

·      Sportech Venues - EBITDA of £1.7m, on a constant currency, in line with last year

·      The Group generated approximately £6m of cash from the Football Pools during the period prior to disposal for a further £83m

 

 

Ian Penrose, Chief Executive of Sportech PLC, said:

 

"2017 has seen the transformation of the Group continue.

 

We were successful with the £97m VAT legal case in the Supreme Court, we modernised and sold the Football Pools for £83m, repaid over £60m in debt and returned £21m to shareholders with further substantial shareholder returns still to come from the £76m cash balance.

 

Following significant investment into our technology and licensing, Sportech has now established a strategic base to grow our business globally through our unique regulated gaming business based in North America together with our expanding presence in Asia. We have transitioned our business away from the UK market which is encountering regulatory headwinds, and await with interest the Supreme Court's decision in the US on the future of sports betting.

 

With our strong balance sheet and cash balances, we have the resources to fund attractive growth opportunities, meet ongoing commitments and deliver substantial returns to shareholders."

 

  

⁽¹⁾    2016 revenue and EBITDA are those at reported currency excluding the results of the Football Pools segment.

⁽²⁾    EBITDA is stated before amortisation of acquired intangibles, impairment of assets, exceptional items and share option expense.

⁽³⁾    Adjusted profit figures are stated before amortisation of acquired intangibles, impairment of assets, exceptional items, share of loss after tax and impairment of joint ventures and associates, and other finance income.

⁽⁴⁾    Adjusted net cash/(debt) represents cash balances net of overdrafts and customer funds. The Spot the Ball VAT repayment was also excluded prior to the Supreme Court ruling, in the Group's favour, in December 2016.

 

  

For further information, please contact:

 

Sportech PLC                                                                                Tel: +44 (0)20 7268 2400

Ian Penrose, Chief Executive

Mickey Kalifa, Chief Financial Officer

 

Brunswick Group LLP                                                                   Tel: +44 (0)20 7404 5959

Jonathan Glass, Stuart Donnelly

 

Investec Bank PLC                                                                        Tel: +44 (0)20 7597 4000

Patrick Robb, Henry Reast

 

 

Forward-looking statements

 

Certain statements in this Interims Statement are forward-looking. Although the Group believes that the expectations reflected in this forward-looking statement are reasonable, it can give no assurance that these expectations will prove to be correct. As these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

 

 

 

Sportech PLC ("Sportech" or the "Group")

Preliminary results for the six months ended 30 June 2017

 

Group Overview

 

The Group is a highly-focused gaming technology and betting organisation with its primary business operations based in North America, with growing activities across Europe and Asia.

 

We provide gaming technology solutions (in our Racing and Digital division) for customers in horseracing and lotteries and to professional sports teams (NFL, NBA, NHL and MLB) and other gaming operators. Sportech's core technology system (Quantum^TM) is the most widely deployed tote based betting software in the world, currently powering 99 customers worldwide and facilitating commingling between 244 betting organisations, in 37 countries and 38 US states, processing an estimated $11.6 billion in annual betting turnover.

 

Our Venues division comprises our betting activities in the state of Connecticut and in the Netherlands. In Connecticut, we operate under an exclusive and in perpetuity licence for all legal betting currently permitted by the State. This is carried out in 16 venues and across digital platforms. In the Netherlands, our betting activities currently centre around 12 betting shops, a number of point of sale positions and the digital platform, all under an exclusive licence.

 

Globally we employ over 800 people.

 

Group Financial Overview

 

	Revenue		EBITDA
£m	2017 H1	2016 H1*	2017 H1	2016 H1*
Sportech Racing and Digital	17.6	20.0	3.9	4.8
Sportech Venues	19.3	19.7	1.7	1.7
Trading divisions	36.9	39.7	5.6	6.5
Inter-segment elimination and corporate costs	(0.5)	(0.5)	(1.7)	(1.7)
Results from continuing channels	36.4	39.2	3.9	4.8
FX effect	-	(4.5)	-	(0.7)
Total Group	36.4	34.7	3.9	4.1

* 2016 divisional results are at "constant currency", retranslated using 2017 exchange rates.

 

Sportech Racing and Digital

 

(i)    Sportech Racing and Digital: Business Review

 

Since we acquired the division in 2010, we have transformed our gaming technology business from a North American horseracing centric business, to owning industry leading gaming technology for use across a host of sporting and gaming institutions. Customers include the Dallas Cowboys, Miami Dolphins, Atlanta Braves, Chicago Bulls, Penn National Gaming (the leading North American casino and racecourse group), Betfred's UK Tote, the Macau Jockey Club, and LEIDSA, (the leading lottery in the Dominican Republic).

 

In order to expand our market leading position in North America and Europe and to broaden our global profile, we have established a sales office in Singapore from which to expand into the already sizeable and rapidly growing Asian horseracing betting market. The advancement and flexibility of our new technology has brought about significant new revenue streams, including enabling customers in Europe, Asia and the Americas to bet into each other's markets, most notably allowing betting into the world's premier race market, the Hong Kong Jockey Club, by our customers in the UK, Macau, Canada and the Americas. We expect further such international/cross-border betting contracts to be signed in due course.

 

We have renewed and extended eight existing customer contracts in our core North American base, including Hawthorne Race Course and Mohegan Sun at Pocono Downs. We are also pleased to report that we have not experienced any lost contracts in the period and remain confident of securing and delivering important contracts in Asia in the second half of the year.

  

The Bump 50:50 business continues to make good progress. Bump, which supplies in-stadia electronic lotteries to professional sports teams, is growing rapidly from a customer base of seven in June 2014 to 48 professional sports teams within three years. Revenues have grown at 55% CAGR since acquisition. Newly secured and renewed customers, obtained or renewed, in the first half of the year include the Atlanta Braves, the Detroit Lions, Jacksonville Jaguars and three Raceways featuring NASCAR events, and since the half year, we have secured the Columbus Blue Jackets (NHL). 

 

Bump has also secured approval for online and mobile sales in the province of Manitoba (Canada), expected to commence in the autumn. Using our technology, this will be the first time a team can sell its lottery outside of the stadium addressing a significantly larger customer base. We expect an increase in sales following this development and anticipate this to be the first of many teams to move online as other states and provinces enact similar regulation.

 

In February 2017, the Group's Indian joint venture partner, Playwin, India's largest lottery provider, commenced its betting operations in the State of Sikkim. We are watching developments in the market with great interest.

 

(ii)    Sportech Racing and Digital: Financial Review

 

	Revenue		EBITDA
£m	2017 H1	2016 H1*	2017 H1	2016 H1*
Recurring Revenues
Tote services and maintenance contracts	13.0	12.4	2.0	1.0
Digital services including sports and other lotteries	4.1	3.8	1.8	1.9
	17.1	16.2	3.8	2.9
System software and equipment sales	0.5	3.8	0.1	1.9
FX effect	-	(2.2)	-	(0.5)
Total	17.6	17.8	3.9	4.3

* 2016 channel results are at "constant currency", retranslated using 2017 exchange rates.

 

Total revenue is broadly in line with last year at £17.6m (2016: £17.8m) and EBITDA for the division was reduced for the first six months, at £3.9m (2016: £4.3m). Variances to prior year include foreign exchange benefits in revenue and EBITDA of £2.2m and £0.5m respectively.

 

Revenue from tote services and maintenance contracts has increased from £12.4m to £13.0m and EBITDA has increased 100% to £2.0m as a result of the commencement of our contract to enable commingling into horseracing pools in Hong Kong, through our customer, Betfred.

 

Digital services including sports and other lotteries has performed in line with prior year and is positioned well for growth as we continue to drive our Bump business forward.

 

Revenue from system software and equipment sales has decreased by £3.3m (87%). 2016 sales were generated in Asia as a result of our increased activities. We expect sales in H2 to be secured and delivered in this region, demonstrating the benefit of our expanded international focus in recent years.

 

Sportech Venues

 

(i)    Sportech Venues: Business Review

 

Sportech Venues operates all betting on horseracing, greyhound racing and jai alai in the state of Connecticut under an exclusive and in perpetuity licence for retail, telephone and online. The business, which is operated with close consultation and oversight from the State, is the only legally permitted betting operator in Connecticut outside of the tribal casinos. We continue to develop our retail estate as we endeavour to broaden our revenue streams, increase the product offering and create a modern environment to eat, drink and place bets.

 

We have now completed the construction of our flagship sports bar, restaurant and betting venue in downtown Stamford, which opened in June 2017. This venue, in common with our venue in Bradley, has been developed in partnership with Bobby Valentine, who relocated his existing Stamford sports bar and restaurant into the new facility. We have received positive customer feedback and early trading has been encouraging.

 

The business currently offers wagering on horseracing, greyhounds and jai alai. In due course, dependent on there being changes in the regulatory environment, we intend to develop these operations into a wider portfolio of sports and gaming products. With this in mind, and following several years of positioning and lobbying by the Group, we were delighted when the Governor of the state of Connecticut signed into law a new Bill which authorised the extension of our licence from 18 to 24 venues. Equally, the Bill has also required regulators to consider the future for sports betting in Connecticut, should it be permitted federally. Developments advanced on the future of sports betting in the United States when the Supreme Court on 27 June 2017, agreed that it would consider whether the existing ban on betting on sports imposed by PASPA is legal. Oral arguments are scheduled for the autumn/winter and a decision expected by June 2018.

 

We are progressing with unlocking value through the sale (and leaseback) of the nine-acre Sports Haven site in New Haven, Connecticut.

 

In the Netherlands, we were successful in June 2017, following an open tender process in obtaining a new five-year licence for the exclusive right to carry out tote betting on horseracing. This is operated in nine betting shops, 38 other outlets with point-of-sale terminals and online through our site www.runnerz.nl. Having operated in the past under a few short-term temporary licences, we are now able to plan and operate for the medium term.

 

(ii)    Sportech Venues: Financial Review

 

	Revenue		EBITDA
£m	2017 H1	2016 H1*	2017 H1	2016 H1*
Connecticut Venues	16.2	16.7	1.5	1.6
Other Venues	3.1	3.0	0.2	0.1
FX effect	-	(2.3)	-	(0.2)
Total	19.3	17.4	1.7	1.5

* 2016 channel results are at "constant currency", retranslated using 2017 exchange rates.

 

Revenues and EBITDA for the division are ahead of prior year at £19.3m and £1.7m respectively. On a constant currency basis, revenue and EBITDA are broadly in line with last year.

 

Although handle was down by 2% in the first half compared to prior year, this is a marked improvement from the reduction seen in H1 2016 (down 5% vs H1 2015). The opening of Stamford should see a growth in handle, together with further growth in food and beverage revenues in the second half of 2017. The online betting platform ("ADW") continues to grow having seen a further 8% increase in handle, and now represents 10% of overall betting turnover. This growth is despite the continued presence of illegal online operators in the State. The business remains focused on its cost base.

 

In the Netherlands and California, the combined revenues and EBITDA were marginally up on prior year.

 

The Football Pools - discontinued operations

 

We completed the sale of The Football Pools for £83m in cash, which was paid on 26 June 2017. In addition to the proceeds from the sale, The Football Pools generated approximately £6m of cash for the Group in the first half of the year.

 

The Football Pools has been classified as a discontinued operation, against which a loss of £3.1m has been reported. This comprises a first half year post-tax trading profit of £3.8m, offset by a loss on disposal of £6.9m, comprising a gain on disposal of assets of £1.6m, taxes arising on the disposal of £6.4m (payable by the end of 2017) and £2.1m of disposal costs.

 

Corporate costs

 

Following the sale of The Football Pools, the Group has commenced a programme of reducing central costs. The benefits of these actions which will be seen in the second half of 2017 and the full year of 2018. Costs have remained static in H1 2017 at £1.7m (2016: £1.7m). In addition, we also have a non-cash share option expense under IFRS 2 of £0.5m (2016: £0.1m).

 

Depreciation and amortisation

 

The Group's normal depreciation and amortisation charge decreased in the period to £2.1m (2016: £3.0m). In addition, the Group incurred a non-cash amortisation charge of £0.1m (2016: £0.3m) on the intangible assets acquired with Datatote in 2013.

 

Exceptional costs

 

The Group has exceptional administration costs of £0.3m, significantly reduced from prior year (2016: £2.0m). The costs in 2017 comprise further licensing costs in relation to New Jersey (£0.1m), accrued contingent consideration costs for Bump (£0.1m) and pre-construction costs for new venue builds (£0.1m).

 

Net finance costs

 

The significant reduction in Group net interest costs in the period to £0.2m (2016: £1.4m) arises from substantially lower average net debt levels this year. In addition, other finance charges amounted to £0.6m (2016: income of £2.3m) representing foreign exchange losses arising from the retranslation of foreign currency denominated inter-company loans and cash balances held within the Group.

 

Taxation

 

A tax charge for the period of £nil (2016: £0.2m) has been provided at the weighted average applicable tax rate for the Group of (3.68)% (2016: 23.3%) together with the tax effects of permanent differences and other adjustments. The underlying effective tax rate of 6.61% (2016: 8.29%) is similar to prior year.

The Group has a net deferred tax asset of £3.4m (2016: £0.9m), representing primarily foreign taxes withheld which can be utilised against future profits. Tax payments of £12.1m were made during the period (2016: £1.1m), principally representing final payments for prior-year tax liabilities including tax payable on the Spot the Ball receipt of £13.8m (less adjustments for overestimated UK tax payments in 2016 following the impairments made to assets in the final quarter) and overseas tax deducted at source in the US.

 

VAT claim

 

The Group received the outstanding payment of £3.1m from HMRC in March 2017 taking the total VAT repayment claim on the "Spot the Ball" game to £97m.

 

Net cash/net current assets

 

The Group held cash balances of £76.2m at 30 June 2017. As a result, the Group's remaining bank facility of £50.0m was cancelled. Net current assets amounted to £64.4m (December 2016: £8.2m).

 

Foreign exchange

 

Following the sale of The Football Pools, the Group generates approximately 78% of revenues in USD and 18% of revenues in Euros, with the balance being generated in Sterling and Canadian Dollars. Movements in overseas currency rates are closely monitored by management and action taken to minimise cash flow risk arising from this. The Group has benefited in its reported results from the weakening of GBP from H1 2016, with an EBITDA benefit versus prior year of £0.7m. We have entered into hedging instruments to protect a portion of the Group EBITDA denominated in USD, at £1 : $1.29 to year end.

 

Capital expenditure

 

Capital expenditure in the period was £8.6m (2016: £3.7m), of which £5.2m related to the newly opened 20,000 sq ft Stamford venue.

 

Dividend and capital distribution

 

Sportech returned £21m (representing approximately 10% of the share capital of the Company at that time) to shareholders in March 2017, by way of a tender offer. Following the completion of the Court process to create £55m of distributable reserves, the Board will announce its intention regarding a further significant return to shareholders.

 

Shareholders' funds

 

Total equity and the Group's net assets at 30 June 2017 have reduced to £122.2m (31 December 2016: £148.8m), principally as a result of the return to shareholders.

 

Board and employees

 

The Group announced on 27 January 2017 that Andrew Gaughan was appointed to the Board as an Executive Director.

 

On 24 May 2017 Roger Withers retired as Chairman and Richard McGuire was appointed to the role. In addition, Richard Cooper was appointed to the Board as Independent Non-executive Director and Chairman of the Audit Committee.

 

Sportech is a global business which places significant demands upon executives and employees. The Board would like to thank them for their dedication and commitment to the Group.

 

Outlook

 

Following significant investment into our technology and licensing, Sportech has now established a strategic base to grow our business globally through our unique regulated gaming business based in North America together with our expanding presence in Asia. We have transitioned our business away from the UK market which is encountering regulatory headwinds and await with interest the Supreme Court's decision in the US on the future of sports betting.

 

With our strong balance sheet and cash balances, we have the resources to fund attractive growth opportunities, meet ongoing commitments and deliver substantial returns to shareholders.

 

We have had a good first half, are trading in line with management expectations, and are looking forward to delivering further progress in 2017.

  

Ian Penrose

Chief Executive

 

24 August 2017

 

 

 

 Interim consolidated income statement
For the six months ended 30 June 2017

		Six months ended 30 June 2017 (Unaudited)	Restated Six months ended 30 June 2016 (Unaudited)	Restated Year ended 31 December 2016 (Audited)
	Note	£m	£m	£m
Revenue		36.4	34.7	70.2
Cost of sales		(27.5)	(26.8)	(53.7)
Gross profit		8.9	7.9	16.5
Distribution costs		-	-	(0.2)
Administrative expenses		(8.0)	(9.2)	(41.9)
Other operating income		-	-	91.0
EBITDA before exceptional items, share option expense and impairment of assets		3.9	4.1	8.8
Share option (expense)/credit		(0.5)	(0.1)	0.1
Depreciation and amortisation (excluding amortisation of acquired intangibles)		(2.1)	(3.0)	(6.4)
Amortisation of acquired intangibles		(0.1)	(0.3)	(0.6)
Impairment of assets		-	-	(21.2)
Exceptional income	5	-	-	91.0
Exceptional costs	5	(0.3)	(2.0)	(6.3)
Operating profit		0.9	(1.3)	65.4
Finance costs	7	(0.2)	(1.4)	(1.7)
Other finance (charges)/income	7	(0.6)	2.3	1.1
Net finance (charges)/income	7	(0.8)	0.9	(0.6)
Share of loss after tax and impairment of joint ventures and associates	11	(0.2)	(0.4)	(1.2)
(Loss)/profit before taxation		(0.1)	(0.8)	63.6
Adjusted profit/(loss) before taxation *		1.1	(0.4)	0.8
Taxation	8	-	(0.2)	(15.3)
(Loss)/profit from continuing operations		(0.1)	(1.0)	48.3
Net (loss)/profit from discontinued operations	12	(3.1)	2.8	(35.2)
(Loss)/profit for the period		(3.2)	1.8	13.1
Attributable to:
Owners of the Company		(3.2)	1.8	13.1
Non-controlling interests		-	-	-
		(3.2)	1.8	13.1
(Loss)/earnings per share attributable to owners of the Company from continuing operations
Basic	9	(0.1)p	(0.5)p	23.4p
Diluted	9	-	(0.5)p	22.8p
(Loss)/Earnings per share attributable to owners of the Company from discontinued operations
Basic	9	(1.6)p	1.4p	(17.1)p
Diluted	9	(1.6)p	1.3p	(16.6)p
Adjusted earnings/(loss) per share attributable to owners of the Company
Basic	9	0.5p	(0.1)p	0.2p
Diluted	9	0.5p	(0.1)p	0.2p

* Adjusted profit/(loss) before taxation is profit/(loss) before taxation, net (loss)/profit from discontinued operations, amortisation of acquired intangibles, impairment of assets, exceptional items, share of loss after tax and impairment of joint ventures and associates, and other finance (charges)/income.

 

 

Interim consolidated statement of comprehensive income
For the six months ended 30 June 2017

	Six months ended 30 June 2017 (Unaudited)	Restated Six months ended 30 June 2016 (Unaudited)	Restated Year ended 31 December 2016 (Audited)
	£m	£m	£m
(Loss)/profit for the period	(3.2)	1.8	13.1
Other comprehensive items:
Items that have been reclassified to profit and loss
Realised fair value loss on available-for-sale financial assets	-	-	0.7
Items that may be subsequently reclassified to profit and loss
Revaluation of available for sale financial assets	(0.1)	-	(1.6)
Currency translation differences	(2.6)	4.2	10.5
	(2.7)	4.2	8.9
Total other comprehensive items for the period, net of tax	(2.7)	4.2	9.6
Total comprehensive items for the period	(5.9)	6.0	22.7
Attributable to:
Owners of the Company	(5.9)	6.0	22.7
Non-controlling interests	-	-	-
	(5.9)	6.0	22.7