9 September 2021

Sportech PLC

("Sportech" or the "Group" or the "Company")

 

Interim Results

 

Sportech (AIM:SPO), an international betting technology business and retail gaming operator, announces its interim results for the six months ended 30 June 2021 ("H1 2021" or the "period").

 

Summary

 

The Group continued to operate all business lines through most of the period before announcing the completion of the disposals of the Global Tote business to BetMakers Technology; the sale of Bump 50:50 to Canadian Banknote and the sale of a freehold property in New Haven, Connecticut in June 2021. Those disposals supported a resulting stronger balance sheet, with shareholder equity increasing by £23.3 million to £48.5 million (31 December 2020: £25.2 million), including an impressive cash position excluding customer cash of £48.6 million at the end of the period (31 December 2020: £16.8 million, which included £6.12 million deposit on a corporate sale and cash in disposal entities, and excluded customer cash balances).

 

Post the period end the Group announced and completed a move to AIM, an Exchange which is more suited to the Company's current size and strategy and, in August 2021, shareholders approved a proposed share capital reduction and a subsequent significant capital return to shareholders.

 

COVID related challenges persist within the Group's retail food and beverage operations in Connecticut, however wagering handle increased significantly versus the challenged 2020 period and in aggregate only declined 1.2% versus the 2019 comparable period. Online wagering handle which recorded solid gains through 2020 continued during the period +16% versus 2020 and +45% versus the 2019 comparable period.

 

The Lotteries unit delivered +75.1% revenue growth versus the challenged 2020 comparable period, unfortunately with domestic and international travel remaining difficult, this corresponded to 9% lower revenues than the H1 2019 period. However, in recent months revenues have returned to comparable 2019 levels. Post the period end, the Group announced discussions had commenced relating to a potential sale of a terrestrial lottery contract and will update the market in due course.

 

£m's	Versus H1 2020 constant currency	H1 2021	Constant Currency H1 2020	Reported Currency5 H1 2020
Revenue	+70.3%	13.4	7.9	8.4
Gross Profit	+59.4%	7.1	4.4	4.0
Contribution1	+62.6%	6.9	4.2	3.7
Adjusted EBITDA pre-Sports Betting Investment2		0.5	(2.3)	(2.4)
Adjusted EBITDA3		0.3	(2.4)	(2.5)
Profit/(loss) pre-tax from continuing operations		1.2	(9.2)	(9.0)
Adjusted loss before tax4		(0.7)	(4.3)	(4.1)

 

 

1.        Contribution is defined as gross profit, less marketing and distribution costs.

2.        Excludes Sports Betting Investment during the period, amounting to £0.2 million (2020: £0.1 million), see note 4.

3.        Adjusted EBITDA is earnings from continuing operations before interest, taxation, depreciation and amortisation, share option charges, impairments and separately disclosed items as reported in note 1 of the Interim Financial Statements.

4.        Adjusted loss is the aggregate of Adjusted EBITDA, share option charges, depreciation, amortisation (excluding amortisation of acquired intangibles) and certain finance charges.

5.        Prior year comparatives have been adjusted for discontinued operations.

As the Group moves through the rest of the financial year, the corporate focus will be on completing the proposed share capital reduction and shareholder capital return; operationally executing the delivery of sports betting across Connecticut, as announced in August 2021, and escalating the Group's digital lottery opportunities.

 

In spite of current encouraging trading, the uncertainty on the timing of when Connecticut Sports Betting will commence plus the potential impact of any further lockdowns means the Board cannot give meaningful guidance on H2 2021 outlook, at this precise time. The Board remain confident in the quality of the Group's innovative products, management strategy and in the stability of the significantly stronger balance sheet to support future investment and growth.

 

During the period the Group delivered the following notable strategic achievements:

 

•              Completed key corporate transactions.

•              Successfully managed discontinued operations to conclusion.

•              Aligned business to focus on substantial growth opportunities.

•              Significantly enhanced Group cash position and balance sheet.

•              Initiated substantial capital return plan.

•              Set out move to AIM market, completed in July.

•              Progressed role in Connecticut expanded gaming.

•              Built on recent developments to deliver a less capital-intensive business going forward.

               

The business transformation continues with the following objectives:

 

•      Deliver significant capital return to investors.

•      Deliver a less capital-intensive business and significantly reduce future corporate cost base.

•      Develop and deliver meaningful returns from expanded opportunities in Connecticut.

•      Execute further licensing opportunities within digital lottery.

•    Evaluate and execute material corporate opportunities, delivering tangible investor returns.

 

 

Richard McGuire, Chief Executive Officer of Sportech, said: "The first half of 2021 marked a notably successful period of restructuring as Sportech completed business disposals, secured the move to the AIM market and built further on the online revenue gains from 2020. In recent weeks we also secured shareholder support for a proposed capital reduction and a significant capital return to shareholders and were delighted to announce a 10-year business relationship with the Connecticut Lottery Corporation to support their sports betting initiative."

 

"Shareholder funds during H1 almost doubled to £48.5 million, we have no debt and significant cash to deliver on our shareholder and investment commitments."

 

"In August, the Group also announced senior management changes and after several years of restructuring the business and pursuing a clear goal of realising shareholder value where possible, that objective now being mostly achieved, that our CFO Tom Hearne and I would hand over the leadership reins to the very experienced Andrew Lindley and Nicola Rowlands who know the business and its markets well. The business is in a strong position and it has been my privilege to work with so many dedicated professionals, business partners and supportive shareholders and I know the future of Sportech is in extremely capable hands."

 

 

For further information, please contact:

 

Sportech PLC                                                                                        enquiries@sportechplc.com

Giles Vardey, Chairman

Richard McGuire, Chief Executive Officer

Thomas Hearne, Chief Financial Officer

 

Peel Hunt                                                                                              Tel: +44 (0) 20 7418 8900

(Corporate Broker to Sportech)

George Sellar / Andrew Clark

 

Buchanan                                                                                               Tel: +44 (0) 20 7466 5000

(Financial PR adviser to Sportech)

Henry Harrison-Topham / Jamie Hooper / George Beale

 

 

 

 

 

Group Overview

 

The Group underwent significant restructuring during the period, completed the sale of operational divisions, strengthened its balance sheet and increased net cash for a potential combination of growth investment and investor returns. Recently the Group has moved its market listing to AIM, a market more appropriate for its scale and potential corporate transactions. In recent weeks shareholders approved a reduction of share capital and following certain required consents, a share buyback of approximately 47% of the outstanding shares in issue.

 

Group Overview

 

	Revenue			EBITDA
£'000 Continuing operations	H1 2021	H1 20201		H1 2021	H1 20201
Venues	11,505	6,785		1,192	(1,135)
Lotteries	1,940	1,108		781	63
Corporate costs	-	-		(1,516)	(1,173)
	13,445	7,893		457	(2,245)
Sports Betting Investment	-	-		(191)	(146)
Total at constant currency	13,445	7,893		266	(2,391)
Exchange rate impact	-	484		-	(146)
Total reported	13,445	8,377		266	(2,537)

 

1. 2020 numbers are at constant currency.

 

Discontinued Operations

 

The Group concluded the disposals of Global Tote, Bump 50:50 and a freehold property in Connecticut during the period and announced the completions on 18 June 2021.

 

Management continued to operate and oversee the operational business during the period as buyers sought the extensive regulatory gaming consents to complete. Although discontinued operations do not feature in certain financial metrics these business lines required continued management resource ensuring operational progress through the transition period.

 

These included key Global Tote business contract renewals and extensions preceding the completion of the sale to BetMakers Technology Group, including long-term extensions with Monmouth Park and Kentucky Downs.

 

Sustained momentum in the Bump 50:50 raffle business included new client acquisitions preceding the completion of the sale to Canadian Bank Note, including new contracts with the Miami Marlins and Arizona Diamondbacks, both Major League Baseball, MLB®.

 

Sportech maintains a strong supportive business relationship with the acquirers of each business unit and wishes them continued success under their respective banners and our thanks to the hundreds of employees for their dedication and professionalism.

 

Sportech Lotteries

 

Sportech is a member of the World Lottery Association (WLA) and the North American Association of State and Provincial Lotteries (NASPL). The acquisition of the technology platforms and talent of Lot.to Systems and the integration of these assets into Sportech's organisation was completed in 2019, resulting in further expansion of the Group's B2B lottery capabilities with a key mobile component and robust administrative, CRM and marketing tools.

 

Continued COVID challenges impacted sales for several months in 2021, however sales have recovered in recent months against 2019 comparisons. Revenues increased 75.1% versus H1 2020 and reported EBITDA was £0.8 million (H1 2020: £0.1 million).

 

The team advanced digital lottery capabilities further and post the period engaged in discussions which may lead to a potential sale of a terrestrial lottery contract.

 

Core focus for the lottery team remains pursuing licensing opportunities drawing on the Sportech brand, legacy and digital expertise to deliver an enhanced consumer experience.

 

Lotteries £'000	H1 2021		Constant Currency H1 2020		Reported Currency H1 2020
Service revenue	1,940		1,108		1,146
Contribution	1,342		441		451
Contribution margin	69.2%		39.8%		39.4%
Adjusted operating expenses1	(561)		(378)		(371)
Adjusted EBITDA	781		63		80
Intangible assets capex	95		-		-
Tangible assets capex	2		-		-
Total capex	97		-		-

 

1.               Adjusted operating expenses exclude depreciation and amortisation, impairments and separately disclosed items as reported in note 1 of the Interim Financial Statements.

 

Sportech Venues

 

Sportech Venues operates eleven gaming venues, providing betting on horse racing, greyhound racing and jai alai in the State of Connecticut under an exclusive and in-perpetuity licence for retail, online, and telephone betting.

 

COVID related travel and hospitality restrictions within retail outlets continue to challenge food and beverage contribution, however wagering handle increased significantly versus 2020 (87.2%); whilst comparison against a more appropriate 2019 was a decline of 1.2%. Yet, online handle continued to build on the growth of last year, H1 2021 +15.6% versus H1 2020 and +44.8% versus comparable period in 2019. The Group continues to develop its online pari-mutuel betting presence with a rebranded MyWinners.com to support new customer acquisition campaigns in Connecticut, delivering growth opportunities.

 

Management addressed the global hospitality challenge, advancing the execution of estate planning, and a variety of strategic initiatives. The number of leased outlets were reduced from 12 to 10 including the sale and leaseback of one freehold asset completed during the period, realising net cash proceeds of £4.2 million. At the end of the period, the division operated 10 leasehold premises and one freehold premises in Connecticut, USA.

 

In May 2018, the US Supreme Court struck down the Professional and Amateur Sports Protection Act ("PASPA"), subsequently providing each US State with the option to introduce Sports Betting legislation. Since that time Sportech has been engaged in pursuing various opportunities and specifically a Sports Betting licence in Connecticut, where Sportech Venues Inc. has an exclusive pari-mutuel (tote) betting licence. In May 2021, the Connecticut General Assembly passed legislation to authorise sports betting in Connecticut. Governor Ned Lamont signed the Bill on 27 May 2021.

 

As previously announced, unfortunately Sportech was not awarded a Sports Betting licence. The Group considered two options: to legally challenge the decision or construct a mutually beneficial relationship with one of the three parties awarded a Sports Betting licence.

 

Sportech was delighted to announce in August 2021 a 10-year commercial arrangement with the Connecticut Lottery Corporation ("CLC") which, subject to required regulatory consents, provides Sportech Venues Inc., in conjunction with CLC's sports book provider Rush Street Interactive ("RSI"), an ability to deliver Sports Betting across its retail estate and promote CLC's online and mobile channels.

 

 

 

Venues £'000	H1 2021		H1 2020 Constant Currency		H1 2020 Reported Currency
F&B	824		765		807
Wagering revenue	10,681		6,020		6,424
Total revenue	11,505		6,785		7,231
Contribution	5,506		3,347		3,244
Contribution margin	47.9%		49.3%		44.9%
Adjusted operating expenses1	(4,314)		(4,482)		(4,510)
Adjusted EBITDA	1,192		(1,135)		(1,266)
Total capex	-		29		29

 

1.        Adjusted operating expenses exclude depreciation and amortisation and separately disclosed items as reported in note 1 of the Interim Financial Statements.

 

Corporate Costs

 

Corporate costs and Sports Betting Investment expenditure, together, increased by £0.4 million due to staff costs savings in 2020 during the peak of the COVID-19 pandemic when staff were furloughed/took voluntary reductions, which then reverted back to normal cost levels from H2 2020, as well as higher corporate insurance costs in 2021.

 

Depreciation and Amortisation

 

Capital expenditure and depreciation/amortisation is much reduced in the continuing group from that of the Group prior to the disposals. Depreciation and amortisation in the period reduced from £1.5 million to £0.9 million as a result of the impairments taken at the end of H1 2020. No further impairments were considered to be required at 30 June 2021.

 

Separately Disclosed Items

 

The Group incurred administration costs in continuing operations during the period of £0.5 million (H1 2020: £0.1 million) which are shown as separately disclosed items. H1 2021 items include redundancy payments and corporate activity, namely costs incurred for the Company to delist from the Main Market and list on AIM. The Company expects further costs will be incurred in H2 2021 as the business completes restructuring for 2022 which will be separately disclosed.

 

Net Finance Costs

 

The Group has no debt. The Group had a net finance income of £0.1 million (H1 2020: cost of £0.4 million), including £0.1 million (H1 2020: £0.2 million) interest accrued on potential tax liabilities payable, £0.1 million (H1 2020: £0.2 million) interest on lease liabilities and £0.2 million (H1 2020: £0.1 million loss) foreign exchange gain on financial assets and liabilities denominated in foreign currency.

 

Taxation

 

Taxation is provided based on management's best estimate of the expected weighted average annual taxation rate for the full year. The estimated weighted average annual tax rate for the year ended 31 December 2021 is 49.0% (2020: (0.9)%). The movement is a result of a change in mix of profits/(losses) in jurisdictions with varying tax rates and the non-recognition of deferred tax on losses in certain jurisdictions due to expectation of non-recovery.

 

The Group continues to hold a tax provision of £4.6 million (30 June 2020: £5.0 million, 31 December 2020: £4.6 million) for tax potentially due on the 2016 Spot the Ball refund (excluding interest). Further provisions are held totaling £nil (30 June 2020: £0.5 million, 31 December 2020: £nil) for other uncertain tax positions. The remaining current tax liability on the balance sheet is for estimated tax payable on profits generated in the six months to 30 June 2021.

 

 

 

Net Cash

 

The Group held cash balances of £48.6 million, excluding customer balances (31 December 2020: £16.8 million, including cash in assets held for sale).

 

A further amount of consideration was received in August 2021 from BetMakers Technology Group Limited for the settlement of estimated closing cash less debt like items of £2.6 million. The final settlement for net working capital is due to be agreed between parties in H2 2021.

 

Capital Expenditure

 

Capital expenditure investment in the period was £1.1 million (H1 2020: £1.3 million). £0.1 million (H1 2020: £nil) related to the continuing Group and the remainder was mainly staff costs capitalised or expenditure agreed to be reimbursed by the buyer of the operation. Capital expenditure will increase into H2 2021 and 2022 as venues are improved ready for Sports Betting to commence.

 

Shareholders' Funds

 

Shareholders' funds increased by £23.3 million from 31 December 2020 to £48.5 million (31 December 2020: £25.2 million) following the completion of the corporate disposals and the profit on disposal recognised therefrom.

 

Going Concern

 

After making reasonable enquiries and forecasting the Group's cash flows with reasonable downside assumptions applied, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements. The Directors have not included in the downside model any assumption of a further local or more widespread "lockdown" as a result of COVID-19 cases or a new pandemic arising. Under this scenario the Directors will take all actions necessary (as evidenced in 2020) and make use of all government support available to ensure the Company and the Group continues in operational existence.

 

Outlook

 

Developing the sports betting opportunity in Connecticut with our partners, driving further growth opportunities and effective cost management remain priorities for management. Enhancing Group value remains the Board's key focus and the Group strategy is structured accordingly with regard to this central measure.

 

Timing around the commencement of Sports Betting in Connecticut is unclear at the time of writing, resulting in fluid financial forecasting. As timing becomes clearer, the Board will update the market accordingly.

 

Finally, following the restructuring of the Group, the move to AIM and the proposed significant return of capital to shareholders, the Group announced senior management changes in line with focus on reducing corporate overheads. The Board extends its sincere thanks to Richard McGuire and Tom Hearne for leading the Company in recent years and welcomes Andrew Lindley and Nicola Rowlands to their new positions as CEO and CFO respectively.

 

 

 

 

 

 

Interim consolidated income statement
For the six months ended 30 June 2021

		Six months ended 30 June 2021 (Unaudited)	Restated Six months ended 30 June 2020 (Unaudited)		Year ended 31 December 2020 (Audited)
	Note	£000	£000		£000
Revenue		13,445	8,377		19,966
Cost of sales	6	(6,370)	(4,387)		(9,432)
Gross profit		7,075	3,990		10,534
Marketing and distribution costs	6	(227)	(295)		(319)
Contribution		6,848	3,695		10,215
Other income	20a	2,575	-		-
Operating costs	6	(8,259)	(12,278)		(20,225)
Operating profit/(loss)		1,164	(8,583)		(10,010)
Finance costs	8	(154)	(429)		(568)
Finance income	8	230	16		11
Profit/(loss) before taxation from continuing operations		1,240	(8,996)		(10,567)
Taxation - continuing operations	9	(608)	77		297
Profit/(loss) for the period from continuing operations		632	(8,919)		(10,270)
Profit/(loss) after taxation from discontinued operations	20f	23,331	(1,801)		(2,562)
Profit/(loss) for the period		23,963	(10,720)		(12,832)
Attributable to:									Attributable to:
Owners of the Company		23,963	(10,720)		(12,832)
Basic profit/(loss) per share attributable to owners of the Company
From continuing operations	10	0.3p	(4.7)p		(5.4)p
From discontinued operations	10	12.4p	(1.0)p		(1.4)p
Total	10	12.7p	(5.7)p		(6.8)p
Diluted profit/(loss) per share attributable to owners of the Company
From continuing operations	10	0.3p	(4.7)p		(5.4)p
From discontinued operations	10	12.4p	(1.0)p		(1.4)p
Total	10	12.7p	(5.7)p		(6.8)p
Adjusted loss per share attributable to owners of the Company
Basic	10	(0.3)p	(2.3)p		(2.2)p
Diluted	10	(0.3)p	(2.3)p		(2.2)p

See note 4 for a reconciliation of the above interim consolidated income statement to the adjusted performance measures used by the Board of Directors to assess divisional performance.

 

Prior period comparatives have been adjusted for discontinued activities.