SPO.L Regulatory News (SPO)

31 Mar 2005 07:00

Sportech PLC31 March 2005 Sportech PLC ("Sportech" or the "Group") Preliminary Results for the year ended 31 December 2004 Highlights * Turnover increased by 50% to a record £497.0m (2003 restated: £330.4m), due to significant growth in Betting products, particularly on-line casino and poker. * Operating profit before goodwill and exceptional restructuring costs was £16.7m (2003: £19.9m); after adjusting for the £3.2m one-off cost of a Football Pools marketing campaign, profit at this level was £19.9m, in line with last year. Operating profit was £6.3m (2003: £9.5m). * Profit before tax, goodwill and exceptionals of £9.6m (2003: £13.3m). Loss before tax was £0.8m (2003: £3.5m profit). * Net debt reduced by £1.9m to £112.8m. * Earnings per share before amortisation of goodwill of 1.00p (2003: 1.49p). Basic EPS was a loss of 0.56p (2003: loss of 0.04p). * Major business review completed in Q1 2005, which has refocused Group strategy and identified annualised employment cost savings of £2.4m, following one-off redundancy costs in 2005 of approximately £1.4m. * Group's growth strategy clearly focused on new media betting and gaming including the exclusive interactive gaming deal with ITV: -Important strategic position established in the new media betting and gaming market, delivering growth and continuous product development. -ITV and Sportech fully committed to further developing a joint vision for the future with current work focusing on several exciting opportunities including a night-time Poker and soft casino games offer. * Resilient Football Pools business continuing to deliver significant free cash flow. Roger Withers, Acting Managing Director, Sportech PLC said: "We are confident that the review undertaken in early 2005 will focus thebusiness on its core profit generating divisions and will deliver significantcost savings over the year. The 2004 results demonstrate that we have made goodprogress in the Betting division, which is on track to deliver profits in 2005,and the Football Pools business continues to deliver substantial cash flow. Weremain optimistic about the long-term opportunities for growth in theinteractive market which is underpinned by our continuing strong relationshipwith ITV." - ends - Enquiries Sportech PLCRoger Withers, Acting Managing DirectorGary Speakman, Finance Director 0151 288 3376 Bell Pottinger Corporate & FinancialDavid Rydell / Charlotte Kirkham 020 7861 3232 OPERATING REVIEW The encouraging growth in Group revenue achieved in the first half of 2004continued in the second half with full year revenues up 50% at £497.0m (2003:£330.4m). Group operating profit, before amortisation of goodwill, restructuring and theone-off impact of a Football Pools marketing campaign, was in line with lastyear at £19.9m. This reflects a good underlying performance from Soft Gaming andthe progress made within our Betting business, where our key action plan is ontrack. The one-off impact of a Football Pools marketing campaign reduced Groupoperating profit, pre exceptional restructuring and goodwill, to £16.7m (2003:£19.9m). Turnover Operating Profit 2004 2003* 2004 2003 £m £m £m £mSoft GamingFootball Pools (pre one-off marketing campaign) 79.5 89.7 26.4 25.6Net cost of one-off marketing campaign (3.2) - ------- ------- ------- -------Football Pools 79.5 89.7 23.2 25.6Games & Lotteries 7.5 8.6 1.1 0.4 ------- ------- ------- -------Established Soft Gaming 87.0 98.3 24.3 26.0Interactive Development 7.6 4.2 (5.5) (3.6) ------- ------- ------- -------Total Soft Gaming 94.6 102.5 18.8 22.4 ------- ------- ------- ------- BettingInteractive 319.8 147.5 0.7 0.1Telephone 82.6 80.4 (2.8) (2.6) ------- ------- ------- -------Total Betting 402.4 227.9 (2.1) (2.5) ------- ------- ------- ------- Total pre exceptional restructuring and goodwill 497.0 330.4 16.7 19.9 ------- ------- ------- -------Restructuring (1.2) (1.3) ------- ------- ------- -------Total before amortisation of goodwill 497.0 330.4 15.5 18.6 ------- ------- ------- -------*As restated - see note 2 of the accounts Soft Gaming Underlying profits from the core Football Pools business were 3% ahead of 2003at £26.4m, reflecting an improving gross margin and the full year impact ofoperating efficiencies, which will also positively impact on 2005. The revenueattrition rate for Pools was 11%, in line with last year. The one-off marketing campaign, which commenced in August 2004, generatedincreased awareness of the Football Pools across the UK, however new customerrecruitment levels were not as high as expected. The campaign was thereforeexpensed within the financial year at a net cost of £3.2m, reducing the FootballPools operating profits to £23.2m. The Football Pools remains a core part of the business going forward, providingsubstantial cash flow. The Group continues to examine game development and lowcost initiatives to recruit new customers to the existing Football Pools game,whilst also seeking ways to capitalise on new media channel opportunities.Profits from other off-line Soft Gaming products increased to £1.1m, despite a£0.6m trading loss on scratchcards. The Company is on track to exit thescratchcard business by the end of the first half of 2005, enabling the Group tofocus on core Soft Gaming activities - Football Pools, Spot the Ball and Lotto -to deliver profits and cashflow. Interactive soft gaming revenues increased by 81% to £7.6m, principally drivenby internet growth. The 5 year exclusive deal with ITV commenced in March 2004and this initiated an increase in the cost base, principally amortisation ofdevelopment costs. In comparison, 2003 was a year of mainly development activitywith costs capitalised as appropriate. The service has attracted over 25,000customer registrations via ITVi red button access points to date, however,active customer numbers and average gross win levels per active customer haveremained low during this initial phase of the contract. As a result, theoperating loss increased to £5.5m (2003: £3.6m). Betting The Betting division, comprising sports betting, fixed odds games, casino andpeer-to-peer poker products via the direct channels of telephone, internet andtelevision, reduced its operating loss by 16% to £2.1m (2003: £2.5m). During theyear we continued the roll-out of new fixed odds games across our channels withthe full year benefit of these to be seen in 2005. We are pleased to report significant growth in both Betting turnover and grosswin in the period, with increases of 77% and 68% respectively, reflectingincreasing awareness of our betting brands, Bet Direct, Littlewoodscasino.comand Littlewoodspoker.com. Despite unfavourable sporting results, gross win of£9.4m in the second half was 2% higher than the first half and Sports-bookmargins for the full year were a pleasing 8.4%. Approximately 50% of the total gross win was derived from non sports-bookactivity including casino, poker and fixed odds games. This increasing trend isexpected to continue which will improve further the Betting Division's overallperformance during 2005 and increase future stability and resilience in theevent of unfavourable sporting results. Operating profits from interactive betting increased sevenfold, albeit from alow base, to £0.7m. Our interactive offer enjoyed a significant boost inrevenues, up 117%, with gross win at £10.5m, 119% ahead of 2003, due to verystrong growth in on-line casino and poker products, and the introduction offixed odds games. Recruitment of new interactive customers doubled to 80,000 inthe year, 24,000 of them to our casino and poker offer. Active customers acrossour interactive offering were 18,900 by the end of the year, up 52% on 2003. The Company continues to develop its interactive product and distributionportfolio focusing on profit generation. Soon Bet Direct customers will be ableto access a wide-ranging product offer on internet, television and mobile via asingle electronic wallet. Importantly, future growth prospects will be furtherenhanced by the addition of a Bet Direct branded casino and peer-to-peer pokeroffer, which is on track to launch in mid April. Mobile phone sports bettingproducts have been launched very recently which will be accompanied by casinostyle games in the near future. Telephone betting delivered a 3% growth in full year revenues, reflecting astronger second half to the year once televised UK racing on Attheraces cameback on air in June 2004. Most notably, gross win on telephone increased 29% to£8.1m. Operating losses from telephone at £2.8m were marginally higher than2003, reflecting, in part, increased investment in sponsorship and marketing.Significant steps were taken during the second half of 2004 to improve thetelephone-betting model. In October 2004, telephone handling was successfullymoved in house and this action is on track to deliver annualised call handlingcost savings in excess of £1m, offset by non-recurring exit costs in 2004 and2005, relating to the previous outsourcing contract. The cost charged as anoperating exceptional in 2004 was £0.3m and £0.6m will be charged in 2005. Interactive Television Gaming with ITV We have just completed the first year of the exclusive interactive betting andgaming partnership with ITV which has a minimum further 4 years to run. There isa joint vision for the future and current developments are focusing on severalexciting opportunities, including the integration of betting and gamingpropositions within ITV programming. These include night-time poker and softcasino games, gaming linked to a virtual Coronation Street and soft games linkedto daytime programming. The full Littlewoods Game On service on ITVi, including sports betting,commenced in June 2004. To date the service has relied on red buttoninteractivity only, with future developments expected to widen product appeal byencompassing other interactive return paths such as SMS. The ITVi Game Onservice has been further strengthened with the launch in early March 2005 of afull-screen 24:7 Game Zone. Whilst we are focusing on the recruitment of new customers and growing gross winlevels, it is in a cost conscious framework. Specific action has been taken onthe cost base to ensure that cash requirements for 2005 will be substantiallylower than 2004 levels. Cashflow The Group again generated strong cashflow, although net cash inflow fromoperating activities at £14.3m was lower than the previous year (2003: £18.6m),mainly reflecting expenditure on the one-off Pools marketing campaign. Totalcapital expenditure during the year was £2.2m (2003: £3.0m), which includedfurther investment in developing games and betting content for interactivetelevision. Net debt reduced by £1.9m to £112.8m. Group Strategy and Structure A major review of the business was undertaken at the beginning of 2005 under thecontrol of the acting Managing Director, Roger Withers. The business strategy isnow clearly focused on the core revenue generating areas of the business,Football Pools and new media betting and gaming, and the future growthopportunity around the exclusive interactive deal with ITV. The consequential impact is to reduce annualised employment costs by £2.4m,£0.5m relating to the scratchcard closure. This is expected to result in anassociated exceptional restructuring cost in H1 2005 of approximately £1.4m. Current Trading & Outlook The Soft Gaming business, underpinned by Football Pools, is trading in line withexpectations and continues to provide strong cash flow. We expect the Bettingdivision, which is being further enhanced by new product development, to deliverprofits in 2005. Casino and poker gross win in the 11 week period ended 25thMarch 2005 is up 27% against the comparative period, however telephone bettingmargins have been much weaker than their strong 2004 comparators. We remain excited by the long-term opportunities for growth and are committed todeveloping the Group's interactive offering to increase its share of theinteractive market. This confidence is reinforced by our continuing strongrelationship with ITV. I look forward to updating you in the near future on the search for a new ChiefExecutive which is progressing well. A leading headhunter has been appointed andwe will be shortly moving to the short-list stage in the process. We are seekingtop quality candidates with relevant experience in the gaming sector. I am pleased with the positive start we have made in 2005 with significant stepsbeing taken to refocus the Group. David MathewsonChairman31 March 2005 Consolidated Profit & Loss AccountFor the year ended 31 December 2004 Unaudited Audited (Restated) 2004 2003 Notes £m £m Group turnover 2, 3 497.0 330.4 Cost of sales (439.9) (275.5) --------- --------- Gross profit 57.1 54.9 Net operating expenses (50.8) (45.4) --------- ---------Operating profit before exceptionalrestructuring costs and amortisation of goodwill 16.7 19.9Exceptional restructuring costs 4 (1.2) (1.3) --------- ---------Operating profit before amortisation of goodwill 15.5 18.6Amortisation of goodwill (9.2) (9.1) --------- --------- Operating profit 6.3 9.5 Profit on sale of Technology Patents 5 - 0.6(discontinued) Net interest payable and similar items (7.1) (6.6) --------- ---------(Loss)/profit on ordinary activities before taxation 3 (0.8) 3.5 Tax on (loss)/profit on ordinary activities 6 (2.5) (3.7) --------- ---------Retained (loss) for the financial year (3.3) (0.2) ========= ========= Earnings per share 7Basic and diluted (0.56)p (0.04)p ========= =========Pre amortisation of goodwill 1.00p 1.49p ========= ========= All operations are continuing. Reconciliation of Movement in Group Shareholders' FundsFor the year ended 31 December 2004 Unaudited Audited 2004 2003 £m £m Shareholders' funds at 1 January 2004 31.3 31.5 (Loss) for the financial year (3.3) (0.2) --------- ---------Shareholders' funds at 31 December 2004 28.0 31.3 ========= ========= Consolidated Balance SheetAs at 31 December 2004 Note Unaudited Audited 2004 2003 £m £m Fixed assetsIntangible assets 10 137.3 146.4Tangible assets 10 9.0 9.1 ----------- ------------ 146.3 155.5 ----------- ------------ Current assetsDebtors - due within one year 10 4.7 9.5Debtors - due after more than one year 10 6.4 0.7Cash at bank and in hand 2.4 4.1 ----------- ------------ 13.5 14.3 CreditorsAmounts falling due within one year (30.2) (44.3) ----------- ------------Net current liabilities (16.7) (30.0) ----------- ------------ Total assets less current liabilities 129.6 125.5 CreditorsAmounts falling due after more than one year (101.6) (94.2) ----------- ------------ 28.0 31.3 =========== ============ Capital and reservesCalled up share capital 29.6 29.6Profit & loss account (1.6) 1.7 ----------- ------------Total shareholders' funds 28.0 31.3 =========== ============ Consolidated Cash Flow StatementFor the year ended 31 December 2004 Unaudited Audited Notes 2004 2003 £m £m £m £m Net cash inflow from operating activities 8 14.3 18.6 Returns on investments andservicing of finance:Interest received 0.5 0.2Interest paid (7.3) (6.5) -------- -------- Net cash outflow from returns on investments and servicing offinance (6.8) (6.3) Taxation (2.7) (3.1) Capital expenditure andfinancial investment:Purchase of tangible fixed assets (1.9) (2.6)Purchase of intangible fixed assets (0.3) (0.4)Sale of tangible fixed assets 0.3 0.1Sale of Technology Patents 5 - 0.6 -------- -------- Net cash outflow from capitalexpenditure and financial investment (1.9) (2.3) ------- --------Cash inflow before financing 2.9 6.9 Financing:Net loans drawn/(repaid) 2.0 (10.0) -------- -------- Net cash inflow/(outflow) from financing 2.0 (10.0) ------- --------Increase/(decrease) in net cash 9 4.9 (3.1) ======= ======== Notes to the Preliminary StatementFor the year ended 31 December 2004 1. Basis of reporting a) The preliminary results have been prepared on the basis of the accountingpolicies set out in the Group's 2003 financial statements with the exception ofthe changes set out in note 2 below. The preliminary results have been drawn upfor the 53 week period from 3 January 2004 to 7 January 2005 (2003: 52 weekperiod). b) The preliminary results for the year ended 31 December 2004 are unaudited. The financial information on pages 7 to 16 does not amount to full financialstatements within the meaning of Section 240 of the Companies Act 1985 (asamended). The comparative figures for the year ended 31 December 2003 do not constitutestatutory accounts. These figures, apart from the restatement of turnover (seenote 2), have been extracted from the audited accounts for that year which havebeen delivered to the Registrar of Companies and on which the auditors issued anunqualified report which did not contain a statement under either Section 237(2) or (3) of the Companies Act 1985. 2. Changes in accounting policy During the year ended 31 December 2004, the Company has made changes to itsaccounting policies with respect to segmental reporting and to turnover. a) In prior periods, the Company's online casino has been reported within SoftGaming. The Company has reviewed the playing patterns on its online casino andconcluded that it would be more appropriate to report it within Betting. Thischange will only affect the segmental reporting note, and will not change theprofit and loss account in aggregate. In respect of the prior year, the impactis to move £3.7m of turnover, which in 2003 was equivalent to gross win, fromSoft Gaming to Betting. The impact for the current year is to move £8.8m ofgross win from Soft Gaming to Betting. b) At the same time, the basis of turnover disclosure for the online casinobusiness has been reviewed. Previously turnover for this business was defined asthe gross win achieved; following a review of the rationale underlying thisbasis and to bring on-line casino turnover into line with other similar internetbased games that the Company offers, as well as that for non-internet basedproducts, the basis of reporting turnover is now believed to be best defined asthe amounts customers spend with the business, rather than the amount ofcustomer spend net of winnings returned to them. The impact for the prior yearis to add £122.5m to both turnover and cost of sales. There is no impact onprofit for the prior year. The impact for the current year is to add £277.5m toturnover and cost of sales. There is no impact on profit. The effect of these changes in accounting policy on the comparatives for theyear ended 31 December 2003 is as follows: As Adjustment As originally restated stated £m £m £mTurnoverSoft Gaming 106.2 (3.7) 102.5Betting 101.7 126.2 227.9 --------- --------- --------- 207.9 122.5 330.4 ========= ========= ========= Cost of sales 153.0 122.5 275.5 ========= ========= =========Operating profit before exceptionalrestructuring costs and amortisationof goodwillSoft Gaming 23.0 (0.6) 22.4Betting (3.1) 0.6 (2.5) --------- --------- --------- 19.9 - 19.9 ========= ========= =========Net assetsSoft Gaming 45.5 (0.3) 45.2Betting (14.2) 0.3 (13.9) --------- --------- --------- 31.3 - 31.3 ========= ========= ========= 3. Segmental reporting 2004 2003 £m £mTurnoverSoft Gaming 94.6 102.5Betting 402.4 227.9 --------- --------- 497.0 330.4 ========= =========Profit/(loss) before taxationSoft Gaming 18.8 22.4Betting (2.1) (2.5) --------- ---------Operating profit before restructuring costs and amortisationof goodwill 16.7 19.9Exceptional restructuring costs ** (1.2) (1.3)Amortisation of goodwill ** (9.2) (9.1) --------- ---------Operating profit 6.3 9.5Profit on sale of Technology Patents - 0.6Net interest payable and similar items (7.1) (6.6) --------- --------- (0.8) 3.5 ========= =========** - mainly Soft Gaming 2004 2003 £m £mNet assets/(liabilities)Soft Gaming 43.7 45.5Betting (15.7) (14.2) --------- --------- 28.0 31.3 ========= ========= 4. Exceptional restructuring costs 2004 2003 £m £m Exceptional restructuring costs - operating (1.2) (1.3) ========= ========= Restructuring costs in the year relate to the establishment of an in-house callcentre operation within the Betting segment, further rationalisation of thefootball pools business operating cost base within the Soft Gaming segment, andthe rationalisation of interactive developments teams consequent upon thetransition from development stage to trading stage. Restructuring costs in the prior year related to the transfer of the Zettersfootball pools operation from London to Liverpool and also to costs incurred inrespect of a reorganisation subsequent to the sale of the Technology Patentsbusiness. 5. Profit on sale of Technology Patents During the prior year the Group sold its portfolio of Technology Patents for$1.5m (£0.9m). Disposal costs of £0.3m resulted in a profit on sale of £0.6m. 6. Taxation 2004 2003 £m £mCurrent taxUK corporation tax at 30% (2003: 30%) 2.4 3.4Adjustments in respect of prior periods (0.1) - --------- ---------Total current tax 2.3 3.4 --------- ---------Deferred taxCurrent year 0.2 0.3 --------- --------- 2.5 3.7 ========= ========= The tax for the period is higher than the standard rate of corporation tax inthe UK of 30%. The differences are explained below: 2004 2003 £m £m (Loss)/profit on ordinary activities before tax (0.8) 3.5 ========= ========= (Loss)/profit on ordinary activities multiplied by thestandard rate of corporation tax in the UK of 30% (2003: 30%) (0.2) 1.0Effects of:Goodwill write-off not deductible for tax purposes 2.6 2.6Other permanent differences 0.2 0.1Origination and reversal of timing differences (0.2) (0.3)Adjustments to tax in respect of prior periods (0.1) - --------- --------- 2.3 3.4 ========= ========= 7. Earnings per share The calculations of earnings per share are based on the following profits andnumbers of shares. 2004 2003 Earnings Weighted Per Earnings Weighted Per average share average share number of amount number of amount shares shares £m '000 pence £m '000 pence Basic anddiluted EPSexcludinggoodwillamortisation 5.9 592,074 1.00p 8.9 592,074 1.49pEffect ofgoodwillamortisation (9.2) 592,074 (1.56)p (9.1) 592,074 (1.53)p -------- --------- ------- -------- --------- -------Basic anddiluted EPS (3.3) 592,074 (0.56)p (0.2) 592,074 (0.04)p ======== ========= ======= ======== ========= ======= 8. Reconciliation of operating profit to operating cash flows 2004 2003 £m £m Operating profit 6.3 9.5Depreciation on tangible fixed assets 2.4 2.1Amortisation of goodwill 9.2 9.1Amortisation of intangible fixed assets 0.2 -Decrease in stocks - 0.1Decrease in trade debtors - 0.4Decrease in other debtors 0.6 -Increase in prepayments (2.0) (1.9)Increase/(decrease) in trade creditors 0.1 (1.0)Decrease in other taxes (0.5) (0.2)(Decrease)/increase in accruals and deferred income (2.0) 0.5 ---------- ----------Net cash inflow from operating activities 14.3 18.6 ========== ========== 9. Analysis and reconciliation of net debt At 1 January Cash Other At 31 December 2004 flow movement 2004 £m £m £m £mCash at bankand in handexcludingcharity cashbalances 2.3 (2.0) - 0.3Bankoverdrafts (6.9) 6.6 - (0.3) --------- -------- --------- --------- (4.6) 4.6 - - --------- -------- --------- ---------Debt duewithin oneyear (15.9) 1.0 4.0 (10.9)Debt dueafter one year (94.0) (3.0) (4.0) (101.0)Hire purchasecontracts (0.2) - (0.7) (0.9) --------- -------- --------- --------- (110.1) (2.0) (0.7) (112.8) --------- -------- --------- --------- (114.7) 2.6 (0.7) (112.8) ========= ======== ========= ========= 2004 2003 £m £m Increase/(decrease) in cash in period 4.9 (3.1)Movement in charity cash (0.3) (0.1) ----------- ---------Change in net debt resulting from cash flows 4.6 (3.2) New hire purchase contracts (0.7) (0.2)Cash inflow from increase in loans (3.0) (6.0)Cash outflow from reduction in loans 1.0 16.0 ----------- ---------Movement in net debt for the period 1.9 6.6At 1 January 2004 (114.7) (121.3) ----------- ---------At 31 December 2004 (112.8) (114.7) =========== ========= 10. Interactive television contracts Included in these financial statements are assets held in respect of interactivegaming television gaming products. The following costs were deferred andcapitalised at the year-end. 2004 2003 £m £m Debtors - prepayments recoverable within one year 0.7 3.5Debtors - prepayments recoverable in more than one year 5.9 -Tangible fixed assets 1.7 1.3Intangible fixed assets - other 1.3 1.2 ---------- ---------- 9.6 6.0 ========== ========== Prepayments represent advanced payments of commission to television broadcastersand together with tangible and intangible assets will be recovered fromcashflows to be generated over the life of the interactive television gamingcontracts. The level and timings of these cashflows have been forecast by the directors'based on estimates of viewers' participation and expenditure on the Group'sinteractive television offering in the period of the agreement which runs untilFebruary 2009. 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