26th August 2010
Sportech PLC ("Sportech" or "the Group")
Interim results for the six months ended 30 June 2010
Financial highlights
· Adjusted profit before tax* of £5.8m (2009: £6.9m)
· Adjusted earnings per share of 2.9p (2009: 5.0p), the reduction principally reflecting the increased number of shares in issue following equity fundraising to fund the acquisition of Scientific Gaming Racing ("SGR")
· Loss per share of 4.0p (2009: profit of 3.7p), reflecting the above equity fundraising, exceptional costs (primarily due to the SGR acquisition) and increased amortisation charges
· Total net bank debt reduced by 35% to £51.7m (31 December 2009: £79.9m). Excluding cash held for the completion of the SGR acquisition, net bank debt reduced by 7.9% to £73.6m
· Revised banking facilities in place until 30 June 2013
· Successful equity fundraising raised gross proceeds of £29.2m
Strategic and operational highlights
· Proposed acquisition of SGR, the tote pools ("pari-mutuel") technology provider and venue management division of Scientific Games Corporation - completion is awaiting regulatory approval in North America, which is anticipated in the near future
· Integration plan for SGR well advanced
· Joint venture formed with Playwin, the leading Indian lottery and gaming brand owned by Essel Group. Launch of www.SportsHero.com, the first step in a multi-platform sports gaming offering
· Agreement with Ladbrokes.com to distribute pools products online to its customer database
· Successful merger of Vernons and Littlewoods' customer databases and overhaul of customer offering with creation of sales and customer service centre
Ian Penrose, Chief Executive of Sportech PLC, said:
"The first half of the year has been dominated by the proposed acquisition of Scientific Games Racing, as we develop Sportech into an international sport and gaming business with significant opportunities for profitable growth.
We have made solid progress in our initiatives to drive this growth, not only with the proposed acquisition of Scientific Games Racing but also through our joint venture in India with Playwin. At the same time, we have maintained our focus on modernising our core Football Pools business and developing our e-Gaming operation.
The completion of the acquisition of Scientific Games Racing has taken longer than originally expected, due to the extensive regulatory approval process in North America. However, recent progress has given us confidence to anticipate that completion will occur in the near future.
The enlarged Group will have the capability to take advantage of the rapidly growing regulated gaming markets worldwide, building upon our strong pools/tote sporting and technology foundations."
* Adjusted profit figures are stated before amortisation of acquired intangibles, exceptional costs and other finance charges.
A conference call for analysts will take place today, 26 August, at 13:00, hosted by Ian Penrose and Steve Cunliffe. For further information on dial-in details please contact Pelham Bell Pottinger.
For further information, please contact:
Ian Penrose, Chief Executive
Steve Cunliffe, Finance Director
Sportech PLC Tel: 020-7268-2400
Emma Kent / Rosanne Perry
Pelham Bell Pottinger Tel: 020-7861-3232
Forward-looking statements
Certain statements in this interim report 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 have been correct. Because 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")
Interim results for the six months ended 30 June 2010
Overview
The strategy to transform Sportech into a profit orientated, sport and gaming business with international reach has continued during 2010 with two major strategic initiatives and many organic and operational improvements.
In January 2010, we were pleased to announce the conditional acquisition of SGR. This acquisition will create one of the world's leading operators and suppliers of pool/tote (pari-mutuel) betting in the world. With operations in over 30 countries, processing in excess of $13bn of bets on football and horseracing annually, Sportech, through its enlarged scale and capabilities will be well positioned to take advantage of the rapidly growing regulated global gaming markets, to become a leading profit focused sports and gaming business with international reach. The acquisition remains subject to certain international regulatory approvals which, whilst taking longer than was originally anticipated, the Directors are confident will be received in the near future.
In May 2010, the Group launched a multi-platfom, multi sports prediction and fantasy games business in the Indian market place, with its Indian JV partner Playwin. Over a very short period of time www.SportsHero.com has attracted a significant number of new registrations and visitors as it builds a presence and identity in the sports prediction and fantasy gaming sector in one of the world's largest economies.
Throughout the first half of 2010 we have continued to modernise and enhance our existing product range and technical capabilities, reduced our level of debt, negotiated and entered into new banking facilities and successfully completed a £29.2m equity fundraising.
Financial Performance
For the six months ended 30 June 2010, adjusted operating profit amounted to £8.6m (2009: £9.4m) with the reduction in operating profit due primarily to the Group's preparation for the SGR acquisition and, compared to the same period last year, a shortfall within our casino and poker operations. With an increase in finance costs attributable to the revised banking arrangements to £2.8m (2009: £2.5m) adjusted profit before tax amounted to £5.8m (2009: £6.9m).
At the end of 2009, the Group reviewed the asset lives of acquired intangible assets, which has led to an increase in the Group's non-cash amortisation charge for the first six months to 30 June 2010 of £3.0m (2009: £1.3m). In addition, following the adoption of IFRS 3 (Revised) 'Business Combinations', all costs associated with the proposed acquisition of SGR have been expensed through the income statement, which along with other exceptional costs, has led to a significant one-off exceptional charge of £7.5m (2009: £0.4m). The Group has also incurred other finance costs of £1.2m (2009: £0.1m), principally arrangement fees in respect of the new bank facilities announced in January 2010.
Following these charges, the Group has reported a net loss before tax of £5.9m (2009: profit of £5.1m) and a loss after tax of £5.8m (2009: profit of £3.7m). Adjusted earnings per share amounted to 2.9p (2009: 5.0p), the reduction principally reflecting the increased number of shares in issue following the equity fundraising earlier this year.
Football Gaming
Total operating profit before exceptional costs and amortisation of acquired intangibles for the combined Football Gaming divisions amounted to £9.4m, broadly flat compared to last year (2009: £9.5m).
One of the key elements of the revitalisation of the core Football Pools business has been to access improved distribution routes in order to recruit additional customers and increase pool liquidity. During 2009 and into 2010 economic conditions have impacted on our ability to make the progress we would have liked in securing these distribution routes. Therefore we have focused on the ongoing modernisation of the core Football Pools business by further enhancing our technology, increasing our product range and improving our customer experience. These enhancements, both offline and online, will accelerate our ability to integrate our products seamlessly into third party websites. We also considered it appropriate, in the short term, to focus on increasing spend per head from our existing core customer base rather than target expensive low margin recruitment. Whilst this has had an inevitable impact on active customer numbers, it ensures a more focused approach to profitable customer recruitment and retention going forward.
The traditional Retail Football Pools business, for the first six months of the year, reported an operating profit contribution of £10.3m (2009: £11.0m). During the period we successfully merged the former Vernons and Littlewoods' customer databases, giving us further clarity on our customer profile, and overhauled our call centre to create a sales and customer service centre. Working practices continue to be modernised and we expect to see the benefits of these changes flowing through into the beginning of next year.
In respect of our online division, operating losses have been reduced dramatically by £0.6m to £0.9m (2009: loss of £1.5m), principally due to a restructuring of the cost base now the online distribution channel is fully operational. The footballpools.com website continues to provide a great customer experience. In the period to 30 June 2010, we had close to 1 million unique visitors to the website (16% higher than 2009) and over 20,000 new registrations (33% higher than in 2009). Average stakes per player in the period has increased by 40% to £286.
Improving and expanding our product base into a suite of football pools games has continued and we now have products ranging from long odds with multi-million pound top prizes through to shorter odds Pool games.
As part of our product expansion, our online customers and distribution partners will have access to a significantly increased variety of gaming opportunities with the launch of a number of new games, such as Head to Head and Score 3. With these new products complementing our existing games such as Classic Pools, Premier 10 and Super 6, we anticipate offering our customers 40% more pool gaming opportunities in the 2010/11 football season than in the 2009/10 season. This significantly increases our frequency and relevancy with customers, as we endeavour to recruit more customers and increase their average spends per head.
We have also aligned our product mix to closely follow the ever expanding football fixture list and to offer our customers increasing opportunities to play and win. As a result, the number of Classic Pools games that our customers are able to play in 2010 will have increased from 66 to 71 and we anticipate a further increase in 2011. Whilst not all customers will take up these additional games, we are already seeing a 10% increase in spend per head from those customers who have been offered and taken up these additional games.
In line with expanding our product offering, the FIFA World Cup 2010 enabled the Group to offer a variety of new products both offline and online. We were pleased, therefore, that we were able to trial new games to complement certain World Cup games in the traditional pools format, games that can now be taken forward into the 2010/11 football season. Over the period of the FIFA World Cup 2010, we recruited an additional 12,000 online players.
An enhanced footballpools.com website was launched earlier this month, offering more gaming opportunities, better navigation and improved customer experience. Built into this website is technology that allows a simple, seamless integration of our enlarged suite of football pools games into third party gaming websites. This effectively offers additional gaming products to our partners at a guaranteed margin with no risk to them. Ladbrokes.com has recently signed an agreement to take this product offering, an endorsement of our product and online technology enhancements, and we anticipate further partnerships to emerge in due course.
e-Gaming
The first half of the year presented many challenges for our e-Gaming division. The trading environment for e-Gaming has been challenging generally and we have had considerable uncertainty with regard to our software providers following the acquisition, by Playtech Limited, of a sizeable shareholding in Sportech. As a consequence, we have had to take numerous short term business decisions. Despite this, we are pleased to report an operating profit for the period of £0.8m, a 100% increase in profitability (and recovery) compared to the second half of 2009, albeit this was down on the £1.3m profit achieved in the comparable period in 2009.
Our strategic distribution and marketing agreement with 888 Holdings Plc for the supply and management of many e-Gaming products, produced operating profits of £0.4m (2009: £1.1m). As previously reported, the financial performance of this agreement has been disappointing and, in anticipation of a migration to Playtech, we have focused our trading efforts during the period on core customer retention and lapsed customer reactivation, rather than new customer recruitment.
Littlewoods Bingo increased its profitability to £0.3m (2009: £0.1m) through a very focused approach to customer recruitment. The vernons.co.uk performance was steady and contributed operating profit of £0.1m (2009: £0.1m).
We have started working with Playtech to ensure that we can begin to benefit from their strategic shareholding and commercial partnership, as we jointly build an e-Gaming business with strong growth potential from an established base, the benefits of which will be first seen in 2011.
Central costs
We continue to exercise a tight control on central costs. It has been important, however, to commence structuring the business in anticipation of the completion of the transformational acquisition of SGR, so that we are able to integrate and manage the enlarged Group efficiently and effectively. As a result, central costs have increased by £0.2m to £1.6m.
Finance costs
The Group incurred finance costs of £2.8m, £0.3m higher than last year, principally due to increases in the interest margin payable to Lloyds Banking Group to 3% following the revised banking facilities.
Other finance charges
The Group has also incurred other finance costs of £1.2m (2009: £0.1m), £0.9m of which relate to the arrangement fees payable to Lloyds Banking Group in respect of the new banking facilities and the remaining £0.3m relating to foreign currency exchange contracts taken out in respect of the SGR acquisition.
Net debt
As a consequence of the fundraising and strong cash generation of the Group, net debt has reduced by 35% to £51.7m (31 December 2009: £79.9m). This net debt figure is stated after deducting cash of $33.0m (£21.9m) which is held on deposit for settling the cash consideration payable to Scientific Games Corporation upon completion of the acquisition of SGR. Excluding this cash, net bank debt reduced by 7.9% to £73.6m.
Total shareholders' equity and the Group's net assets have increased to £108.6m (31 December 2009: £85.5m).
Banking facilities
Our balance sheet remains strong, supported by new banking facilities entered into on 31 December 2009. The revised facilities, which at 30 June 2010, amount to £84.5m, give the Group the flexibility required to develop organically, as well as to accommodate the acquisition of SGR.
The Group has swap agreements for one to six years on a total of £60m of debt, at an average rate (before the lending margin payable to Lloyds Banking Group) of 4.82%. These agreements, which were entered into over two years ago, have reduced the Group's exposure to any volatility in the credit markets.
Dividend
Continuing the policy of recent years, no dividend is proposed, as the Board believes that the Group's significant cash generation must be used to reduce debt as well as undertake selective investment in growth opportunities.
Taxation
The Group has tax assets (including losses) brought forward of approximately £15.0m. In the first instance the Group has utilised £5.2m of these losses against the previous period's taxable profits and has received a refund of tax of £1.5m during the period in respect of prior year tax. The remaining tax assets will be carried forward to utilise against future taxable profits as appropriate.
VAT claim
Last year the Board submitted a claim for in excess of £40m to HM Revenue & Customs ("HMRC") for the repayment of VAT overpaid in respect of the "Spot the Ball" game from 1979 to 1996. Interest may also be added to the principal sum claimed, which if successful, given the timeframe of the claim, would be significant. The claim has not been recognised in the Group's financial statements.
During the period, the Group's VAT advisers in this matter have been in continual dialogue and correspondence with HMRC. The Group can give no guarantees as to the successful outcome of this claim and has been advised that it may take a number of years to reach a final decision. We will update the market as appropriate.
Branding
In line with our branding strategy adopted in 2008, The New Football Pools has become The Football Pools from the start of the 2010/11 football season.
Indian joint venture
The Board considers that the international marketplace offers great potential for our pari-mutuel games of skill, particularly in highly regulated and emerging gaming markets, where we can leverage our heritage and track record of operational integrity. On 15 January 2010, Sportech announced its entry into a joint venture with Playwin, the leading Indian lottery and gaming business, owned by one of the sub-continent's largest conglomerates, Essel Group, to launch a multi-platform sports prediction and fantasy gaming business in the Indian market. Both Sportech and Playwin have agreed to contribute £2m each over the next two years to the joint venture and the Group had invested £0.2m by the half year.
In May 2010, we launched www.SportsHero.com, offering sports prediction games on cricket, football, tennis and Formula 1. At the end of June 2010, the site had received 225,000 unique visitors and over 45,000 registrations via mobile and online, and has continued to show strong growth subsequently. Since it was established, the joint venture has been monitoring the potential for gaming licences to be issued in the state of Sikkim, Northern India. Further announcements will be made as appropriate.
Acquisition of SGR
On 27 January 2010, the Group announced that it had entered into an agreement to acquire SGR, a leading provider of pari-mutuel wagering services and systems and a pari-mutuel venue management business for a total consideration of up to $83m (approximately £51.4m). The consideration comprises an initial consideration of $65m, payable at completion, a deferred consideration of $10m, payable on 30 September 2013 and a further potential deferred consideration of up to $8m which will become payable in the event that SGR meets certain performance targets during the next three years.
The initial consideration will be satisfied by an issue to the owner, Scientific Games Corporation, of 39,742,179 new ordinary shares and a payment of approximately $32.9m in cash. The cash is currently held on deposit (as described in the net debt section above) and following completion, Scientific Games Corporation, one of the world's largest lottery and gaming services businesses, will become Sportech's largest shareholder (and strategic partner) with a 19.9% shareholding.
The completion of the acquisition is subject to certain international regulatory approvals in both North America and the Netherlands. We have received preliminary regulatory clearance in the Netherlands. In the US, we have made significant progress. This process has been more demanding than originally anticipated and consequently has taken longer than initially expected. This highlights both the challenges of the US licensing process but also the significant benefits that will arise from being one of a number of licensed gaming operators and providers in North America. The Group has taken advantage of this lengthy procedure to focus on the fine detail of the integration plan for the two businesses and the development potential of the enlarged Group.
Recent progress has given us confidence to anticipate that the transaction will receive all regulatory approvals and subsequently complete in the near future.
Capital raising
On 27 January 2010, the Group announced that it intended to raise £29.2m (prior to costs and expenses) in a Capital Raising by way of a Firm Placing and a Placing and Open Offer consisting of the issue of 58,415,520 new ordinary shares at an issue price of 50p per new ordinary shares. The net proceeds of the Capital Raising will be used to finance the cash consideration payable on completion of the acquisition, unless the acquisition fails to complete, in which case the net proceeds of the Capital Raising will be applied to reduce the Group's liabilities under its debt facilities.
At a General Meeting of the Company held on 12 February 2010, all resolutions to approve the proposed acquisition and Capital Raising and other related matters were duly passed without amendment. On 15 February 2010, the new Capital Raising shares were issued by the Company.
Following completion, and as part of the Placing, Playtech, the world's largest online gaming software provider, will own 9.9% and be a strategic partner of the enlarged Group.
Board and employees
The Board is proud of the commitment and dedication shown by its employees in order to achieve the Group's strategic objectives. The challenges and pressures placed upon the Board and its employees have been, and continue to be, significant.
Principal risks and uncertainties for the remainder of the year
The principal risk and uncertainties for the Group remain the same as those detailed on page 24 of the 2009 Sportech PLC Annual Report and Accounts.
The risks that are most applicable in the short term are in the areas of:
· the level of retention of customers;
· our ability to recruit new customers to The Football Pools;
· the challenging economic environment in the United Kingdom;
· a serious breach of gaming regulations and legislation; and
· the non-completion of the SGR acquisition.
Related party transactions
Related party transactions are detailed in note 13 of the Interim Financial Statements.
Outlook
The successful completion of the acquisition of SGR will provide us with a unique opportunity to create a leading profit focused sports and gaming business with international reach.
Although completion has taken longer than originally anticipated we are making good progress with the international regulatory authorities and anticipate regulatory approvals will be forthcoming in the near future.
In the meantime, our core Football Pools business continues to be modernised and our e-Gaming division has significant scope for growth as we start working closely with our new significant shareholder, Playtech.
We look forward to the future with confidence.
Piers Pottinger
Chairman
Ian R Penrose
Chief Executive
26 August 2010
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Consolidated income statement For the six months ended 30 June 2010 |
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|
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|
|
|
|
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Six months |
Six months |
|
|
|
|
ended |
ended |
Year ended |
|
|
|
30 June |
30 June |
31 December |
|
|
|
2010 |
2009 |
2009 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Continuing operations |
Note |
£m |
£m |
£m |
|
Gross win revenue |
4 |
28.6 |
32.4 |
64.6 |
|
Cost of sales |
|
(6.4) |
(7.4) |
(14.6) |
|
Gross profit |
|
22.2 |
25.0 |
50.0 |
|
Distribution costs |
|
(0.4) |
(0.4) |
(0.8) |
|
Administrative expenses |
|
(23.7) |
(16.9) |
(61.2) |
|
Operating profit before amortisation of acquired intangibles and exceptional costs |
|
|
|
|
|
Amortisation of acquired intangibles |
|
(3.0) |
(1.3) |
(6.6) |
|
Exceptional costs |
5 |
(7.5) |
(0.4) |
(24.9) |
|
Operating (loss) / profit |
4 |
(1.9) |
7.7 |
(12.0) |
|
Finance costs |
6 |
(2.8) |
(2.5) |
(4.8) |
|
Other finance charges |
6 |
(1.2) |
(0.1) |
(0.2) |
|
(Loss) / profit before taxation |
|
(5.9) |
5.1 |
(17.0) |
|
Adjusted profit before taxation* |
|
5.8 |
6.9 |
14.7 |
|
Taxation |
7 |
0.1 |
(1.4) |
4.7 |
|
(Loss) / profit for the period from continuing operations attributable to equity shareholders |
|
|
|
|
|
(Loss) / earnings per share from continuing operations |
|
|
|
|
|
Basic and diluted |
8 |
(4.0)p |
3.7p |
(12.2)p |
|
Adjusted earnings per share |
|
|
|
|
|
Basic and diluted |
8 |
2.9p |
5.0p |
10.5p |
* Adjusted profit before taxation is profit before taxation, amortisation of acquired intangibles, exceptional costs and other finance charges.
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Consolidated statement of comprehensive income For the six months ended 30 June 2010 |
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Six months |
Six months |
|
|
|
ended |
ended |
Year ended |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£m |
£m |
£m |
|
(Loss)/profit for the financial period |
(5.8) |
3.7 |
(12.3) |
|
Other comprehensive income: |
|
|
|
|
Actuarial loss on retirement benefit obligations |
- |
- |
(0.1) |
|
Movement on derivative financial instruments |
0.3 |
0.5 |
0.5 |
|
Deferred tax on derivative financial instruments |
0.3 |
(0.1) |
(0.1) |
|
Other comprehensive income for the period, net of tax |
0.6 |
0.4 |
0.3 |
|
Total comprehensive (expense)/income for the period attributable to equity shareholders |
(5.2) |
4.1 |
(12.0) |
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Other reserves |
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Share |
|
Financial |
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|
|
Share |
Share |
option |
Pension |
instrument |
Retained |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
earnings |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 January 2010 |
50.3 |
20.7 |
0.9 |
- |
(3.0) |
16.6 |
85.5 |
|
Loss for the period |
- |
- |
- |
- |
- |
(5.8) |
(5.8) |
|
Issue of new shares |
29.2 |
(1.0) |
- |
- |
- |
- |
28.2 |
|
Share option credit |
- |
- |
0.1 |
- |
- |
- |
0.1 |
|
Financial instrument reserve movement* |
- |
- |
- |
- |
0.6 |
- |
0.6 |
|
At 30 June 2010 |
79.5 |
19.7 |
1.0 |
- |
(2.4) |
10.8 |
108.6 |
Consolidated statement of changes in equity
For the six months ended 30 June 2010
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Other reserves |
|
|
|
|
|
|
|
|
Share |
|
Financial |
|
|
|
|
Share |
Share |
option |
Pension |
instrument |
Retained |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
earnings |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 January 2009 |
50.3 |
20.7 |
0.7 |
0.1 |
(3.4) |
28.9 |
97.3 |
|
Profit for the period |
- |
- |
- |
- |
- |
3.7 |
3.7 |
|
Share option credit |
- |
- |
0.1 |
- |
- |
- |
0.1 |
|
Financial instrument reserve movement* |
- |
- |
- |
- |
0.4 |
- |
0.4 |
|
At 30 June 2009 |
50.3 |
20.7 |
0.8 |
0.1 |
(3.0) |
32.6 |
101.5 |
|
|
|
|
Other reserves |
|
|
|
|
|
|
|
|
Share |
|
Financial |
|
|
|
|
Share |
Share |
option |
Pension |
instrument |
Retained |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
earnings |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 January 2009 |
50.3 |
20.7 |
0.7 |
0.1 |
(3.4) |
28.9 |
97.3 |
|
Loss for the period |
- |
- |
- |
- |
- |
(12.3) |
(12.3) |
|
Share option credit |
- |
- |
0.2 |
- |
- |
- |
0.2 |
|
Pension reserve charge* |
- |
- |
- |
(0.1) |
- |
- |
(0.1) |
|
Financial instrument reserve movement* |
- |
- |
- |
- |
0.4 |
- |
0.4 |
|
At 31 December 2009 |
50.3 |
20.7 |
0.9 |
- |
(3.0) |
16.6 |
85.5 |
* Net of deferred tax.
Consolidated balance sheet
As at 30 June 2010
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|
|
As at |
As at |
As at |
|
|
|
30 June |
30 June |
31 December |
|
|
|
2010 |
2009 |
2009 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£m |
£m |
£m |
|
ASSETS |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Goodwill |
|
147.7 |
165.5 |
147.6 |
|
Other intangible assets |
9 |
28.4 |
37.3 |
30.3 |
|
Property, plant and equipment |
9 |
1.3 |
1.8 |
1.5 |
|
Retirement benefit assets |
|
- |
0.2 |
- |
|
Deferred tax assets |
|
2.6 |
1.4 |
2.3 |
|
|
|
180.0 |
206.2 |
181.7 |
|
Current assets |
|
|
|
|
|
Trade and other receivables |
|
4.7 |
3.3 |
8.5 |
|
Current tax receivable |
|
0.1 |
- |
1.9 |
|
Deferred tax assets |
|
1.4 |
- |
1.3 |
|
Cash and cash equivalents |
10 |
26.0 |
2.3 |
2.3 |
|
|
|
32.2 |
5.6 |
14.0 |
|
TOTAL ASSETS |
|
212.2 |
211.8 |
195.7 |
|
LIABILITIES |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Derivative financial instruments |
|
(5.4) |
(4.2) |
(4.2) |
|
Financial liabilities |
11 |
(10.5) |
(10.4) |
(8.0) |
|
Trade and other payables |
|
(20.4) |
(18.1) |
(23.6) |
|
Current tax liabilities |
|
(0.1) |
(1.8) |
(0.2) |
|
|
|
(36.4) |
(34.5) |
(36.0) |
|
Net current liabilities |
|
(4.2) |
(28.9) |
(22.0) |
|
Non-current liabilities |
|
|
|
|
|
Financial liabilities |
11 |
(67.0) |
(75.0) |
(74.0) |
|
Deferred tax liabilities |
|
(0.2) |
(0.8) |
(0.2) |
|
|
|
(67.2) |
(75.8) |
(74.2) |
|
TOTAL LIABILITIES |
|
(103.6) |
(110.3) |
(110.2) |
|
NET ASSETS |
|
108.6 |
101.5 |
85.5 |
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
Ordinary shares |
|
79.5 |
50.3 |
50.3 |
|
Share premium |
|
19.7 |
20.7 |
20.7 |
|
Other reserves |
|
1.0 |
0.9 |
0.9 |
|
Financial instrument reserve |
|
(2.4) |
(3.0) |
(3.0) |
|
Retained earnings |
|
10.8 |
32.6 |
16.6 |
|
TOTAL SHAREHOLDERS' EQUITY |
|
108.6 |
101.5 |
85.5 |
|
Consolidated statement of cash flows For the six months ended 30 June 2010 |
|
|
|
|
|
|
|
Six months |
Six months |
|
|
|
|
ended |
ended |
Year ended |
|
|
|
30 June |
30 June |
31 December |
|
|
|
2010 |
2009 |
2009 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£m |
£m |
£m |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
12 |
6.3 |
7.1 |
15.4 |
|
Net interest paid |
|
(2.7) |
(2.5) |
(4.8) |
|
Loss on foreign exchange contracts |
|
(0.1) |
- |
|
|
Tax received/(paid) |
|
1.5 |
(0.6) |
(0.8) |
|
Net cash generated from operating activities |
|
5.0 |
4.0 |
9.8 |
|
Net cash from operating activities before charity and customer cash movement |
|
5.0 |
4.4 |
10.3 |
|
Charity and customer cash movement |
10 |
- |
(0.4) |
(0.5) |
|
Net cash generated from operating activities |
|
5.0 |
4.0 |
9.8 |
|
Cash flows from investing activities |
|
|
|
|
|
Vernons deferred consideration |
|
- |
- |
(3.0) |
|
Acquisition of SGR |
|
(4.2) |
- |
- |
|
Investment in joint venture |
|
(0.2) |
- |
- |
|
Purchase of intangible fixed assets |
9 |
(1.1) |
(1.6) |
(3.8) |
|
Purchase of property, plant and equipment |
9 |
(0.1) |
(0.1) |
(0.2) |
|
Net cash used in investing activities |
|
(5.6) |
(1.7) |
(7.0) |
|
Cash flows from financing activities |
|
|
|
|
|
Proceeds from borrowings |
|
- |
- |
3.0 |
|
Repayment of borrowings |
11 |
(4.5) |
(3.5) |
(7.0) |
|
Bank arrangement fees paid |
|
(0.9) |
- |
|
|
Receipts from issue of shares |
|
28.2 |
- |
- |
|
Net cash generated from/(used in) financing activities |
|
22.8 |
(3.5) |
(4.0) |
|
Net increase/(decrease) in cash and cash equivalents |
|
22.2 |
(1.2) |
(1.2) |
|
Cash and cash equivalents at start of period |
|
2.3 |
3.5 |
3.5 |
|
Exchange gains on cash and cash equivalents |
|
1.5 |
- |
- |
|
Cash and cash equivalents at end of period |
|
26.0 |
2.3 |
2.3 |
|
Reconciliation of net debt |
|
|
|
|
|
Increase/(decrease) in cash in period |
|
23.7 |
(1.2) |
(1.2) |
|
Movement in charity and customer cash |
10 |
- |
0.4 |
0.5 |
|
Change in net debt resulting from cash flows |
|
23.7 |
(0.8) |
(0.7) |
|
Cash outflow from repayment of loans |
11 |
4.5 |
3.5 |
7.0 |
|
Cash inflow from loans taken |
|
- |
- |
(3.0) |
|
Movement in net debt for the period |
|
28.2 |
2.7 |
3.3 |
|
At start of period |
|
(79.9) |
(83.2) |
(83.2) |
|
At end of period |
|
(51.7) |
(80.5) |
(79.9) |
|
Net debt comprises: |
|
|
|
|
|
Cash and cash equivalents including charity and customer cash |
|
26.0 |
2.3 |
2.3 |
|
Less charity and customer cash balances |
|
(0.2) |
(0.3) |
(0.2) |
|
Available cash and cash equivalents |
|
25.8 |
2.0 |
2.1 |
|
Loans repayable within one year |
|
(10.5) |
(7.5) |
(8.0) |
|
Loans repayable after one year |
|
(67.0) |
(75.0) |
(74.0) |
|
At end of period |
|
(51.7) |
(80.5) |
(79.9) |
Notes to the consolidated interim financial statements
For the six months ended 30 June 2010
1. General information
Sportech PLC (the 'Company') and its subsidiaries (together the 'Group') operate football pools and associated games through various distribution channels including direct mail and telephone, agent‑based collection and via the internet. The Group also operates a portfolio of online casino, poker, bingo and fixed-odds games businesses through its e-Gaming division.
The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled within the UK. The address of the registered office is 249 West George Street, Glasgow G2 4RB.
The condensed consolidated interim financial statements were approved for issue on 26 August 2010.
2. Basis of preparation
a) These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. They do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2009.
The financial information set out in this document in respect of the year ended 31 December 2009 does not constitute the Group's statutory accounts for the year ended 31 December 2009. The statutory accounts for the year ended 31 December 2009 were approved by the Board of Directors on 25 March 2010 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
These condensed consolidated interim financial statements have not been reviewed or audited.
(b) The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing its financial statements. In assessing the going concern basis, the Directors considered the Group's business activities, the financial position of the Group, its new banking facilities and its future planned activities.
3. Accounting policies
Except as noted below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2009, as described in those annual financial statements:
· IFRS 3 (Revised) Business Combinations;
IFRS 3 (Revised) 'Business Combinations' introduces significant changes in the accounting for business combinations. Changes affect the valuation of non-controlling interest, the accounting for transactions costs, the initial recognition and subsequent measurement of contingent consideration and business combinations achieved in stages. These changes will impact on the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results.
The Group has applied this revised standard from 1 January 2010.
There have been a number of other new standards and amendments to standards that are effective for the first time for the financial year beginning 1 January 2010 as noted below, none of which are expected to have a significant impact on the results or financial position of the Group:
· IFRS 2 (Amendment) 'Group Cash-settled and Share-based Payment Transactions';
· IAS 39 (Amendment) 'Financial Instruments: Recognition and Measurement - Eligible Hedged Items';
· IFRIC 19 'Distribution of Non-cash Assets to Owners';
· IAS 27 (Revised) 'Consolidated and Separate Financial Statements';
· IFRIC 17 'Distribution of Non-cash Assets to Owners'
· IFRIC 18 'Transfer of Assets from Customers'.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total earnings for the year taking into consideration the likely taxable position of one off items such as costs associated with acquisitions.
4. Segmental reporting
|
|
Six months ended 30 June 2010 |
|||||||
|
|
(Unaudited) |
|||||||
|
|
Football |
Football |
|
|
|
|||
|
|
Gaming |
Gaming |
|
Corporate |
|
|||
|
|
- Retail |
- Online |
e-Gaming |
costs |
Group |
|||
|
Continuing operations |
£m |
£m |
£m |
£m |
£m |
|||
|
Gross win revenue |
25.5 |
0.6 |
2.5 |
- |
28.6 |
|||
|
Segment result before exceptional costs and amortisation |
|
|
|
|
|
|||
|
Amortisation of acquired intangibles |
(3.0) |
- |
- |
- |
(3.0) |
|||
|
Exceptional costs |
(0.4) |
- |
- |
(7.1) |
(7.5) |
|||
|
Operating profit /(loss) |
6.9 |
(0.9) |
0.8 |
(8.7) |
(1.9) |
|||
|
Net finance costs |
|
|
|
|
(4.0) |
|||
|
Loss before taxation |
|
|
|
|
(5.9) |
|||
|
Taxation |
|
|
|
|
0.1 |
|||
|
Loss for the period from continuing operations |
|
|
|
|
(5.8) |
|||
|
|
Six months ended 30 June 2009 |
|||||||
|
|
(Unaudited) |
|||||||
|
|
Football |
Football |
|
|
|
|||
|
|
Gaming |
Gaming |
|
Corporate |
|
|||
|
|
- Retail |
- Online |
e-Gaming |
costs |
Group |
|||
|
Continuing operations |
£m |
£m |
£m |
£m |
£m |
|||
|
Gross win revenue |
28.6 |
0.6 |
3.2 |
- |
32.4 |
|||
|
Segment result before exceptional costs and amortisation |
|
|
|
|
|
|||
|
Amortisation of acquired intangibles |
(1.3) |
- |
- |
- |
(1.3) |
|||
|
Exceptional costs |
(0.2) |
(0.2) |
- |
- |
(0.4) |
|||
|
Operating profit/(loss) |
9.5 |
(1.7) |
1.3 |
(1.4) |
7.7 |
|||
|
Net finance costs |
|
|
|
|
(2.6) |
|||
|
Profit before taxation |
|
|
|
|
5.1 |
|||
|
Taxation |
|
|
|
|
(1.4) |
|||
|
Profit for the period from continuing operations |
|
|
|
|
3.7 |
|||
|
|
|
|||||||
|
|
Year ended 31 December 2009 |
|||||||
|
|
(Audited) |
|||||||
|
|
Football |
Football |
|
|
|
|||
|
|
Gaming |
Gaming |
|
Corporate |
|
|||
|
|
- Retail |
- Online |
e-Gaming |
costs |
Group |
|||
|
Continuing operations |
£m |
£m |
£m |
£m |
£m |
|||
|
Gross win revenue |
57.8 |
1.1 |
5.7 |
- |
64.6 |
|||
|
Segment result before exceptional costs and amortisation of acquired intangibles |
|
|
|
|
|
|||
|
Amortisation of acquired intangibles |
(6.0) |
(0.6) |
- |
- |
(6.6) |
|||
|
Exceptional costs |
(19.5) |
(4.7) |
- |
(0.7) |
(24.9) |
|||
|
Operating (loss)/profit |
(1.9) |
(8.4) |
1.7 |
(3.4) |
(12.0) |
|||
|
Net finance costs |
|
|
|
|
(5.0) |
|||
|
Loss before taxation |
|
|
|
|
(17.0) |
|||
|
Taxation |
|
|
|
|
4.7 |
|||
|
Loss for the period from continuing operations |
|
|
|
|
(12.3) |
|||
5. Exceptional costs
All exceptional costs for continuing operations are included within administrative costs within the Consolidated Income Statement.
|
|
Six months |
Six months |
|
|
|
ended |
ended |
Year ended |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Continuing operations |
£m |
£m |
£m |
|
Football Gaming - Retail |
0.4 |
0.2 |
19.5 |
|
Football Gaming - Online |
- |
0.2 |
4.7 |
|
Corporate costs |
7.1 |
- |
0.7 |
|
Total exceptional costs |
7.5 |
0.4 |
24.9 |
Exceptional costs in the period relate principally to costs incurred for the acquisition of Scientific Games Racing ("SGR"). Following the adoption of IFRS 3 (Revised) 'Business Combinations' all costs incurred in relation to an acquisition are now charged directly to the income statement.
6. FINANCE COSTS
|
|
Six months |
Six months |
|
|
|
ended |
ended |
Year ended |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£m |
£m |
£m |
|
Interest payable on bank loans and overdrafts |
(2.8) |
(2.5) |
(4.8) |
|
Non-cash finance charges* |
- |
(0.1) |
(0.2) |
|
Bank arrangement fees |
(0.9) |
- |
- |
|
Loss on foreign exchange contracts |
(0.3) |
- |
- |
|
Net finance cost |
(4.0) |
(2.6) |
(5.0) |
* Non-cash finance charges are in respect of the deferred consideration payable on the acquisition of Vernons, which has been settled in full in 2009.
Non-cash finance charges, bank arrangement fees and loss on foreign exchange contracts are together shown as Other finance charges in the income statement.
7. Taxation
Taxation is provided based on management's best estimate of the weighted average annual taxation rate expected for the full year. The estimated average annual tax rate used for the year ending 31 December 2010 is 28.0% (2009: 28.0%). Certain costs in relation to the acquisition of SGR are not expected to be allowable for taxation purposes.
8. (LOSS) / Earnings per share
The calculation of continuing (loss)/earnings per share is based on the continuing net loss attributable to ordinary shareholders of £5.8m (six months ended 30 June 2009: profit of £3.7m; year ended 31 December 2009: loss of £12.3m) divided by the weighted average number of shares in issue during the period of 145.3m (six months ended 30 June 2009: 100.7m; year ended 31 December 2009: 100.7m). There is no difference between basic and diluted earnings per share.
The calculation of adjusted earnings per share is based on the adjusted profit after taxation attributable to ordinary shareholders of £4.2m (six months ended 30 June 2009: £5.0m; year ended 31 December 2009: £10.6m) divided by the weighted average number of shares in issue during the period of 145.3m (six months ended 30 June 2009: 100.7m; year ended 31 December 2009: 100.7m). There is no difference between basic and diluted earnings per share. Adjusted profit after taxation is defined as profit before taxation, amortisation of acquired intangibles, exceptional costs and other finance charges, less taxation based on management's best estimate of the underlying taxation rate for the year of 28% (2009: 28%).
9. Capital expenditure
|
|
Property, plant and equipment |
||
|
|
and other intangible assets |
||
|
|
Six months |
Six months |
|
|
|
ended |
ended |
Year ended |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£m |
£m |
£m |
|
Opening net book amount at start of period |
31.8 |
39.4 |
39.4 |
|
Additions |
1.4 |
1.7 |
3.9 |
|
Depreciation and amortisation |
(3.5) |
(2.0) |
(7.6) |
|
Impairment |
- |
- |
(3.9) |
|
Closing net book amount at end of period |
29.7 |
39.1 |
31.8 |
10. Cash AND CASH EQUIVALENTS
|
|
As at |
As at |
As at |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£m |
£m |
£m |
|
Cash balances held on behalf of registered charities* |
0.2 |
0.3 |
0.2 |
|
Cash held for acquisition** |
21.9 |
- |
- |
|
Other cash balances |
3.9 |
2.0 |
2.1 |
|
|
26.0 |
2.3 |
2.3 |
* Cash balances held on behalf of registered charities relate to the sale of charity scratchcards and lotto products. These balances are excluded when calculating the net debt of the Group.
** The Group currently holds $33.0m on deposit in anticipation of the completion of the SGR acquisition (see note 13).
11. Financial liabilities
|
|
As at |
As at |
As at |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£m |
£m |
£m |
|
Current |
|
|
|
|
Bank loans due within one year |
10.5 |
7.5 |
8.0 |
|
Deferred consideration due within one year |
- |
2.9 |
- |
|
|
10.5 |
10.4 |
8.0 |
|
Non-current |
|
|
|
|
Bank loans due after one year |
67.0 |
75.0 |
74.0 |
Bank loans bear interest based on LIBOR plus a bank margin of 3%.
Bank borrowings are secured by a composite debenture incorporating fixed and floating charges over all assets and undertakings from Sportech PLC and all trading UK companies but excluding monies standing to the credit of trust accounts and by share pledges over the shares in Littlewoods Poker Limited, Littlewoods Casino Limited and LWL Management NV.
The carrying amounts of current borrowings equals their fair value.
Deferred consideration due within one year was payable in December 2009 on the second anniversary of the acquisition of Vernons.
12. Cash flow from operating activities
Reconciliation of (LOSS) / profit to net cash inflow from operating activities
|
|
Six months |
Six months |
|
|
|
ended |
ended |
Year ended |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Continuing operations |
£m |
£m |
£m |
|
(Loss) / profit after tax |
(5.8) |
3.7 |
(12.3) |
|
Adjustments for: |
|
|
|
|
Taxation |
(0.1) |
1.4 |
(4.7) |
|
Depreciation |
0.3 |
0.3 |
0.7 |
|
Amortisation of acquired intangibles |
3.0 |
1.3 |
6.6 |
|
Amortisation of other intangibles |
0.2 |
0.4 |
0.4 |
|
Impairment of intangibles |
- |
- |
4.4 |
|
Goodwill impairment |
- |
- |
17.9 |
|
Finance costs |
2.8 |
2.5 |
4.8 |
|
Non-cash interest |
- |
0.1 |
0.2 |
|
Loss on foreign exchange contracts |
0.3 |
- |
- |
|
Bank arrangement fees |
0.9 |
- |
- |
|
Exceptional costs SGR |
6.6 |
- |
- |
|
Share option charge |
0.1 |
0.1 |
0.2 |
|
Changes in working capital: |
|
|
|
|
Decrease/(increase) in trade and other receivables |
3.8 |
(0.8) |
(6.0) |
|
(Decrease)/increase in trade and other payables |
(5.8) |
(1.9) |
3.2 |
|
Cash generated from continuing operations |
6.3 |
7.1 |
15.4 |
13. Related party transactions
The extent of transactions with related parties of Sportech PLC and the nature of the relationship with them are summarised below:
a. The Lloyds Banking Group ("LBG"), via its subsidiary the Bank of Scotland, provided loan finance for the initial acquisition of Littlewoods Gaming (formerly Littlewoods Leisure) and the acquisition of Vernons, and is a significant shareholder, as set out in the Directors' Report of the 2009 Annual report (page 25).
The details of the balances on the loans as at 30 June 2010, 30 June 2009 and 31 December 2009 are set out in note 11. Interest on these loans amounting to £1.5m (six months ended 30 June 2009: £1.8m; year ended 31 December 2009: £3.0m) has been charged in the period and £0.5m was outstanding at the balance sheet date.
The Group has various interest rate swaps with LBG. Interest payable in the period in relation to these swaps amounted to £1.3m (six months ended 30 June 2009: £0.7m; year ended 31 December 2009: £1.8m) and this has been included within finance costs and £0.4m was outstanding at the balance sheet date.
During the period the Group entered into various foreign exchange contracts with LBG. These contracts comprised of two main components:
· to fix the sterling acquisition price of SGR by contracting to purchase US$33.0m at an agreed price. The sterling cost of this trade was £20.4m, which has been re-valued at the balance sheet date to £21.9m using the current market exchange rate. This amount is included in cash and cash equivalents (see note 10).
· to fix the exchange rate of the anticipated earnings from SGR over a 15 month period by entering into a series of forward sale contracts for US$15.0m and €7.5m, the principal trading currencies of SGR. During the period a charge of £0.1m has been included in other finance costs relating to the first 3 months of the 15 month period, and a further £0.2m has been charged to other finance costs relating to the expected future charges relating to the remaining twelve months of the contracts based on current market exchange rates.
b. During the period the Group has engaged Chime Communications PLC ("Chime") to provide public relations services, media buying, digital advertising and brand and marketing consultancy services via a number of its subsidiaries. The Group's Non-executive Chairman, Piers Pottinger, is also a Director of Chime. In total £0.3m (six months ended 30 June 2009: £0.3m; year ended 31 December 2009 £0.8m) has been invoiced from subsidiaries of Chime during the period.
c. Key management compensation is disclosed below;
|
|
Six months |
Six months |
|
|
|
ended |
ended |
Year ended |
|
|
30 June |
30 June |
31 December |
|
|
2010 |
2009 |
2009 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£m |
£m |
£m |
|
Salaries and other short term employee benefits |
0.9 |
0.6 |
1.4 |
|
Post-employment benefits |
0.1 |
- |
0.1 |
|
Share-based payments |
0.1 |
0.1 |
0.2 |
|
|
1.1 |
0.7 |
1.6 |
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the Interim Management Report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
• an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
• material related-party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report and Accounts.
The Directors of Sportech PLC are listed in the Sportech PLC Annual Report and Accounts for the year ended 31 December 2009 and there have been no changes in the period. A list of current Directors is maintained on the Sportech PLC website: www.sportechplc.com.
By order of the Board
Ian R Penrose Steve Cunliffe
Chief Executive Finance Director
26 August 2010 26 August 2010