Sportech PLC 27 September 2005 Sportech PLC ("Sportech" or "the Company") Unaudited Interim Results for the six months ended 30th June 2005 Group Highlights * Turnover of £254.3m in line with last year (2004: £254.5m) with 3% revenue growth in the Betting business offset by the15% Football Pools revenue decline. * Operating profit, pre-restructuring costs, 3% lower at £9.1m (2004: £9.4m). Operating profit of £6.6m (2004: £9.1m). * Profit before tax and restructuring costs of £5.2m (2004: £6.0m). Profit before tax, £2.7m (2004: £5.7m). * Executive team significantly strengthened with appointment of Ian Penrose as Chief Executive. * Business strategy focused on two core profit generating Divisions: Betting and Football Pools. * Cost base significantly reduced across Divisions, delivering annualised employment cost savings of £2.7m. * Good progress in development and integration of Betting products: * Launch of betdirectcasino.com and betdirectpoker.com * Introduction of mobile sports book * Further strengthening of content on ITV * Littlewoodspoker.com successfully linked to first mainstream television poker programme (ITV Celebrity Poker) * Commercial negotiations with ITV are underway, aimed at improving the ITVi service and establishing a mutually beneficial financial framework. * Earnings per share of 0.34p (2004: 0.67p). Roger Withers, Acting Managing Director, said: "Sportech has undertaken a review of its business units in the first half of the year which has resulted in a restructuring to the Group delivering significant costs savings. Financial results have been impacted by poor sports results, as experienced by the industry, and a higher rate of attrition in the Football Pools. The benefit of the cost savings have started to take effect and we have developed further our New Media betting offering. We look forward to the future with renewed optimism as we today announce the appointment of Ian Penrose as our new Chief Executive. Sportech has a strong platform on which to build." - ends - Enquiries Sportech PLC Roger Withers, Acting Managing Director Gary Speakman, Finance Director 0151 288 3561 Bell Pottinger Corporate & Financial David Rydell / Charlotte Kirkham 020 7861 3232 The Company will hold a briefing for analysts at 9.30am today at the offices of Kirkpatrick & Lockhart Nicholson Graham, 110 Cannon Street, London, EC4N 6AR. All interested parties are duly invited. CHAIRMAN'S STATEMENT Business Update During the first six months of 2005, Sportech completed a thorough review of its business. The company is now clearly focused on its core profit generating Divisions of Football Pools and Betting, and is well positioned to capitalise on future growth opportunities in the online Betting market and around the exclusive interactive deal with ITV. We are very pleased to announce the appointment of Ian Penrose. He will commence full time duties with effect from 1 October 2005. Ian joins from Arena Leisure Plc ("Arena") where he led the company since May 2001, initially as Group Managing Director and then as Chief Executive. Ian, a chartered accountant, has extensive commercial experience of the leisure and media industry which will be invaluable to Sportech as it drives its growth strategy forward. The Senior Management team has been further strengthened with the appointment of Chris Brown as New Media Gaming Director in August 2005. Chris is focused on developing and integrating Sportech's Betting Division, whilst increasing customer activity levels across our Betting channels and continuing to revise and improve content. Basis of Reporting These are the first financial results that the Group has published subsequent to the adoption of International Financial Reporting Standards (IFRS). The major impact for the Group is that goodwill is no longer being amortised. The impact of all other IFRS adjustments is small and the adoption of IFRS has no impact upon the Groups cash flows. Details of the restatement of prior year information was published on the London Stock Exchange on 26th September 2005 and is available from the Groups website. The Football Pools Division comprises the core Littlewoods and Zetters Pools competitions along with "shoulder games" such as Spot the Ball and Lotto. The Betting Division comprises Telephone Betting and Interactive Betting. The development of our ITV interactive gaming service is reported within Interactive Betting. We remain firmly committed to offering our wide range of Betting products across the direct, new media channels of internet, television, mobile and telephone. Financial Overview Revenue for the Group was broadly unchanged at £254.3m (2004: £254.5m) with 3% revenue growth in the Betting business offset by the 15% revenue decline in Football Pools business. Profit before tax was £2.7m (2004: £5.7m) with the reduction partly due to higher underlying interest rates, which increased the charge to £3.9m (2004: £3.4m), and a restructuring charge of £2.5m (2004: £0.3m). The £2.5m restructuring charge in H1 2005 reflects the final cost of terminating the outsourced call handling contract and the redundancies arising from the closure of the scratchcard business and the strategic review. Annualised employment cost savings are estimated at £2.7m. The summarised results for the Half Year were: H1 05 H1 04 % £m £m Change Turnover Football Pools 37.5 43.9 (15) Telephone Betting 46.3 38.6 20 Interactive Betting 170.5 172.00 (1) ------- ------- -------- Total 254.3 254.5 - PBIT Football Pools 12.6 13.2 (5) Telephone Betting (0.9) (1.3) 31 Interactive Betting (2.6) (2.5) (4) ------- ------- -------- PBIT (pre restructuring) 9.1 9.4 (3) Interest (3.9) (3.4) (15) ------- ------- -------- PBT (pre restructuring) 5.2 6.0 (13) Restructuring (2.5) (0.3) ------- ------- PBT 2.7 5.7 (53) The net cash outflow of £1.5m (2004: £0.6m outflow) reflected the impact of the restructuring payments. Net debt at the end of the period was £113.1m (2004: £114.8m) which was marginally higher than the 2004 year end position of £112.8m. Bank loans were reduced by a further £3m in the period to £109m. Football Pools Total Football Pools revenues from the Littlewoods and Zetters brands were £34.3m, 15% lower than reported last year (2004: £40.2m). Excluding overseas revenues, where we experienced a steep decline following a re-positioning of the game, the year on year attrition was 13.4%. Pools Direct revenues now account for 44% of UK revenues and in this channel, attrition was 7%. Further improvements in gross margin and operating cost savings limited the impact of the revenue decline on profits to 6%, with profits from Football Pools totalling £12.0m (2004: £12.8m). Football Pools remains a very popular competition played by circa 700,000 customers per week. We continue to seek extended distribution for the Football Pools and develop game variants which are suited to new media channels. Other games sold into the Football Pools customer base contributed revenues of £3.2m (2004: £3.7m) and profits of £0.6m (2004: £0.4m). This included operating losses, pre restructuring, from scratchcards of £0.1m (2004: £0.3m loss). The plan to exit the scratchcard business has now been completed and no further costs will be incurred. Total profits from Football Pools and related games pre restructuring costs were £12.6m (2004: £13.2m). Betting Total Betting revenues increased by 3% however gross win was 8% lower at £8.7m (2004: £9.5m) reflecting the impact of poor sports results. Betting Division losses, pre restructuring costs, reduced by £0.3m to £3.5m, with this improved performance principally due to a significant reduction in the cost base for both telephone betting and the ITV Service. We remain on track to deliver the key developments identified at the beginning of the year. The Bet Direct offer was extended in Q2 2005 by adding branded casino, poker and mobile sportsbook. We have also continued to expand the sports betting markets offered on telephone and interactive channels. Telephone Betting We have continued to invest in improving customer service within our telephone betting business whilst reducing operating costs. Revenues were 20% higher at £46.3m (2004: £38.6m) due to a combination of an increased number of calls (4% up) and higher average stake (18% up). The adverse sporting results impacted most significantly on telephone gross win which reduced to £2.8m (2004: £4.2m). Telephone margins reduced to 6% compared to the very strong margins (11%) experienced in H1 2004. With direct costs and overheads reduced significantly, particularly call handling, the operating loss from Telephone Betting was 31% lower than last year at £0.9m (2004: £1.3m loss). Interactive Betting There was good growth in active customers (i.e. those placing a bet in the 6 month period) with sportsbook active customers up 8% and casino/poker up 30%. Interactive gross win increased by 11% with gross win across our Casino and Poker products up 7% to £4.7m (2004: £4.4m) driven by Poker. Other interactive products saw gross win increase 33% to £1.2m (2004: £0.9m). Our red button based, 24/7, content within the ITVi service has been strengthened further during the period, including a new Keno game and a suite of full screen games such as multi-line slots. Interactive Gaming revenues from the ITVi service are building slowly with total revenues in H1 2005 of £0.6m (2004: £0.1m). The cost of delivering the gaming service with ITV reduced significantly following the planned restructuring of the development team. ITV development costs were 21% lower at £2.2m (2004: £2.8m). Commercial negotiations with ITV are underway, aimed at improving the performance of the service and establishing a mutually beneficial financial framework. The pipeline of ITVi initiatives in Q4 2005, includes interactive gaming behind Coronation Street, Emmerdale, X Factor, which commenced in late August, and following the resolution of rights issues, a full betting service behind Champions League coverage. Following the first mainstream poker television programme (ITV Celebrity Poker) in July 2005, ITV will be expanding its programming in this area and the next ITV Poker Show "Home Nations" is scheduled for early 2006. We look forward to further promotion of the ITVi service by the recently established ITV Consumer Division. Current Trading & Outlook Based on the trading performance since the beginning of July, we expect the decline in Football Pools revenue to continue at levels similar to the first half. The Company also expects a return to gross win growth in the Betting division but not at a level to regain the profit shortfall in the first half. As a result, the Board expects profits before tax and restructuring in H2 2005 to be similar to that of the first half. A lot of work has been done in the first half and the Group is now well positioned to realise the potential of our product and multi channel capabilities around internet, television, telephone and mobile. With Ian Penrose 's appointment as Chief Executive, we look forward to the future with confidence. David Mathewson Chairman 27 September 2005 CONSOLIDATED profit and loss account For the six months ended 30 June 2005 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, Notes (Unaudited) restated) restated) £m £m £m Continuing operations Revenue 3 254.3 254.5 497.0 Cost of sales (227.5) (225.5) (439.9) --------- --------- --------- Gross profit 26.8 29.0 57.1 Distribution costs - (0.1) (0.1) Administrative expenses (20.2) (19.8) (41.5) --------- --------- --------- Operating profit before restructuring costs 9.1 9.4 16.7 Restructuring costs 4 (2.5) (0.3) (1.2) --------- --------- --------- Operating profit 3 6.6 9.1 15.5 Interest payable and similar items 5 (3.9) (3.4) (7.4) Interest receivable - - 0.1 --------- --------- --------- Profit before taxation 2.7 5.7 8.2 Taxation 6 (0.8) (1.7) (2.6) --------- --------- --------- Profit for the period from continuing operations 1.9 4.0 5.6 --------- --------- --------- Profit for the financial period 1.9 4.0 5.6 ========= ========= ========= Profit attributable to equity shareholders 1.9 4.0 5.6 ========= ========= ========= Earnings per share 7 Basic and diluted 0.34p 0.67p 0.96p ========= ========= ========= Earnings per share from continuing operations Basic and diluted 0.34p 0.67p 0.96p ========= ========= ========= CONSOLIDATED Statement of recognised income and expense For the six months ended 30 June 2005 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, (Unaudited) restated) restated) £m £m £m Profit for the financial period 1.9 4.0 5.6 --------- --------- --------- Total recognised income for the period 1.9 4.0 5.6 ========= ========= ========= CONSOLIDATED balance sheet As at 30 June 2005 30 June 31 December 30 June 2004 2004 2005 (Unaudited, (Unaudited, Notes (Unaudited) restated) restated) £m £m £m ASSETS Non-current assets Goodwill 145.2 145.2 145.2 Other intangible assets 2.8 3.5 2.8 Property, plant and equipment 6.8 6.9 7.5 Prepayments 9.6 - 5.9 Retirement benefit assets 0.2 0.2 0.2 Deferred tax assets 0.5 0.6 0.3 --------- --------- --------- 165.1 156.4 161.9 --------- --------- --------- Current assets Trade and other receivables 3.8 10.8 4.4 Financial assets - derivative financial instruments - 0.4 0.2 Cash and cash equivalents 8 1.9 2.9 2.4 --------- --------- --------- 5.7 14.1 7.0 --------- --------- --------- LIABILITIES Current liabilities Financial liabilities- borrowings (17.4) (8.5) (11.5) Trade and other payables (18.3) (17.4) (17.4) Current tax liabilities (0.7) (1.8) (1.3) --------- --------- --------- (36.4) (27.7) (30.2) --------- --------- --------- Net current liabilities (30.7) (13.6) (23.2) --------- --------- --------- Non-current liabilities Financial liabilities- borrowings (95.5) (107.2) (101.6) --------- --------- --------- NET ASSETS 38.9 35.6 37.1 ========= ========= ========= SHAREHOLDERS' EQUITY Ordinary shares 29.6 29.6 29.6 Retained earnings 9.3 6.0 7.5 --------- --------- --------- TOTAL SHAREHOLDERS' FUNDS 38.9 35.6 37.1 ========= ========= ========= The interim accounts on pages 6 - 13 were approved by the board of directors on 26 September and were signed on its behalf by G Speakman Director CONSOLIDATED Cash flow statement For the six months ended 30 June 2005 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, Notes (Unaudited) restated) restated) £m £m £m Cash flows from operating activities Cash generated from operations 9 4.4 6.3 14.3 Interest received 0.2 0.2 0.5 Interest paid (3.3) (3.4) (7.3) Tax paid (1.3) (1.6) (2.7) --------- --------- --------- Net cash from operating activities - 1.5 4.8 --------- --------- --------- Cash flows from investing activities Proceeds from sale of property, plant and equipment 0.3 - 0.3 Purchase of intangible fixed assets - (0.3) (0.3) Purchase of property, plant and equipment (0.8) (1.0) (1.9) --------- --------- --------- Net cash used in investing activities (0.5) (1.3) (1.9) --------- --------- --------- Cash flows from financing activities Net proceeds from issue of new bank loan - 3.0 3.0 Finance lease principal payments (0.1) - - Repayment of borrowings (3.0) (1.0) (1.0) --------- --------- --------- Net cash (used)/generated in financing activities (3.1) 2.0 2.0 --------- --------- --------- Net (decrease)/increase in cash and cash equivalents (3.6) 2.2 4.9 Cash and cash equivalents at start of period 2.1 (2.8) (2.8) --------- --------- --------- Cash and cash equivalents at end of period (1.5) (0.6) 2.1 --------- --------- --------- Cash and cash equivalents consists of: Cash and cash equivalents 1.9 2.9 2.4 Overdrafts (3.4) (3.5) (0.3) --------- --------- --------- (1.5) (0.6) 2.1 --------- --------- --------- Movement in Net Debt 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, Notes (Unaudited) (restated) restated) £m £m £m (Decrease)/increase in cash in period (3.6) 2.2 4.9 Movement in charity cash 8 0.2 (0.3) (0.3) --------- --------- --------- Change in net debt resulting from cash flows (3.4) 1.9 4.6 Cash inflow from increase in loans - (3.0) (3.0) Cash outflow from repayment of loans 3.0 1.0 1.0 Cash outflow / (inflow) from lease agreements 0.1 - (0.7) --------- --------- --------- (Increase)/decrease in net debt for the period (0.3) (0.1) 1.9 At start of period (112.8) (114.7) (114.7) --------- --------- --------- At end of period (113.1) (114.8) (112.8) ========= ========= ========= Notes to the financial statements For the six months ended 30 June 2005 1. Accounting Policies The results for the half year ended 30 June 2005 have been prepared on the basis of the accounting policies expected to be adopted in the Group's full year financial statements and which are set out in the IFRS transition document available from the corporate website, www.Sportech-plc.co.uk. a) Basis of Accounting The interim financial statements have been prepared in accordance with the accounting policies required by those International Financial Accounting Standards, incorporating International Accounting Standards (IAS's) and interpretations (collectively IFRS) published by the International Accounting Standards Board (IASB), which are expected to be endorsed by the EU and applicable for use in the Group's annual financial statements for the year ended 31 December 2005, the Group's first annual reporting date at which it is required to use IAS. Comparative information for the six months ended 30 June 2004 and for the year ended 31December 2004 has been restated on an IFRS basis. The endorsed IFRS that will be effective (or available for early adoption) in the annual financial for the year ended 31 December 2005 are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for the period will only be determined finally when the annual consolidated financial statements are prepared for the year ended 31 December 2005. On 26 September 2005 Sportech plc published financial information in accordance with IFRS on the London Stock Exchange. This document included explanations of the impact of the transition from UK GAAP to IFRS on the financial statements of Sportech plc and contained reconciliations in respect of the restatement of the 2004 interim and full year accounts from UK GAAP to IFRS of the Group's net assets at 1 January 2004, 30 June 2004 and 31 December 2004, and of the Group's net profit or loss for the 6 months ended 30 June 2004 and year ended 31 December 2004. The document is available on the Group's website. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. b) Basis of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries drawn up for the 26 week period from 8 January 2005 to 8 July 2005 (2004, 26 week period). 2. Non-statutory accounts The results for the half year to 30 June 2005 and the comparative period are neither audited or reviewed by the auditors. The financial information on pages 6 to 13 does not amount to full accounts within the meaning of the Companies Act 1985 (as amended). The comparative figures for the year ended 31 December 2004 do not constitute statutory accounts. Apart from the changes resulting from the adoption of International Financial Accounting Standards, these figures have been extracted from the audited accounts for that period which have been delivered to the registrar of companies and on which the auditors issued an unqualified report which did not contain a statement under either section 237 (2) or (3) of the Companies Act 1985. 3. Segmental reporting Six months ended Football Interactive Telephone 30 June 2005 pools Betting Betting Group £m £m £m £m Continuing operations Revenue 37.5 170.5 46.3 254.3 ------- ------- ------- ------- Operating profit/(loss) before restructuring costs 12.6 (2.6) (0.9) 9.1 Restructuring (0.5) (1.2) (0.8) (2.5) ------- ------- ------- ------- Operating profit/(loss) 12.1 (3.8) (1.7) 6.6 ------- ------- ------- ------- Six months ended Football Interactive Telephone 30 June 2004 pools Betting Betting Group £m £m £m £m Continuing operations Revenue 43.9 172.0 38.6 254.5 ------- ------- ------- ------- Operating profit/(loss) before restructuring costs 13.2 (2.5) (1.3) 9.4 Restructuring (0.2) (0.1) - (0.3) ------- ------- ------- ------- Operating profit/(loss) 13.0 (2.6) (1.3) 9.1 ------- ------- ------- ------- Football Interactive Telephone pools Betting Betting Group £m £m £m £m Year ended 31 December 2004 Revenue 87.1 323.6 86.3 497.0 ------- ------- ------- ------- Operating profit/(loss) before restructuring costs 24.3 (4.8) (2.8) 16.7 Restructuring (0.6) (0.3) (0.3) (1.2) ------- ------- ------- ------- Operating profit/(loss) 23.7 (5.1) (3.1) 15.5 ------- ------- ------- ------- 4. Exceptional restructuring costs 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, (Unaudited) restated) restated) £m £m £m Football Pools 0.5 0.2 0.6 Interactive betting 1.2 0.1 0.3 Telephone betting 0.8 - 0.3 --------- --------- --------- Restructuring costs - operating 2.5 0.3 1.2 ========= ========= ========= Exceptional restructuring costs in the current year relate to further costs in respect of the establishment of an in house call centre and further rationalisation of the interactive cost base together with associated head office support costs within the interactive and telephone betting segments as well as further rationalisation of the operating cost base within the football pools segment. Exceptional restructuring costs in the prior year relate to the establishment of an in house call centre operation within the telephone betting segment, further rationalisation of the football pools operating cost base, and rationalisation of interactive development teams consequent upon the transition from development to trading stage 5. Interest payable and similar items 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, (Unaudited) restated) restated) £m £m £m Interest payable on bank loans and overdrafts 3.9 3.4 7.4 ========= ========= ========= 6. Taxation note Taxation is provided on taxable profits at 30.0% being the anticipated rate of taxation for the Group's current financial year 7. Earnings per Share The calculation of earnings per share is based on the net profit attributable to ordinary shareholders of £1.9m (6 months to 30 June 2004; £4.0m: year to 31 December 2004; £5.6m) divided by the weighted average number of shares in issue during the period - 592.1m (6 months to 30 June 2004; 592.1m; year to 31 December 2004; 592.1m). Basic and diluted earnings per share are identical. 8. Cash 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, Notes (Unaudited) restated) restated) £m £m £m Cash balances held on behalf of registered charities (a) 1.9 2.1 2.1 Cash balance constituting committed security (b) - 0.8 0.3 --------- --------- --------- 1.9 2.9 2.4 ========= ========= ========= (a) Cash balances held on behalf of registered charities relate to the sale of Charity Scratchcards in respect of charity lotteries which have not reached their final sale date and for which proceeds have not been passed to the charities concerned. (b) The cash balance constituting committed security related to deferred payments that were required to be made under a contractual obligation of a subsidiary company. The contract was with Rehab Charity Lotteries, and related to the running of charity lotteries. This contract has now terminated and the associated cash balance fully released. 9. Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities 6 months to Year to 31 6 months to 30 June December 30 June 2004 2004 2005 (Unaudited, (Unaudited, (Unaudited) restated) restated) £m £m £m Continuing operations Net profit 1.7 4.0 5.6 Adjustments for: Taxation 0.8 1.7 2.6 Depreciation 1.4 1.2 2.4 Profit on disposal of property, plant and equipment (0.3) - - Interest income - - (0.1) Interest expense 3.9 3.4 7.4 Changes in working capital: (Increase) in trade and other receivables (3.5) (1.7) (1.2) Increase/(decrease) in trade and other payables 0.4 (2.3) (2.4) --------- --------- --------- Cash generated from continuing operations 4.4 6.3 14.3 --------- --------- --------- Cash generated from operations 4.4 6.3 14.3 --------- --------- --------- This information is provided by RNS The company news service from the London Stock Exchange