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.