5th Mar 2014 14:02
LONDON (Alliance News) - Online gambling and sports-entertainment company Sportech PLC Wednesday reported an increase in revenues and profits for the year 2013, as it shed its loss-making e-gaming business and pumped investment into its Sportech Racing and Digital unit.
But the group warned that it has had a tough start to 2014, as severe winter weather in the US has hindered its US operations.
The group, which is focused on football, horse racing and also greyhound racing, said it remains well positioned for future growth in the US market, but warned that its US-based businesses have been hit by the country's harsh winter, with a trebling of race cancellations, a huge 170 races in just two months, compared with only 54 in 2013, and 12 in 2012, as well as the closure of its retail venues for several days this year.
"It has cost us a few hundred thousand pounds as it stands, and clearly the focus is to make that all back, but from a group viewpoint we need to recover to make it back from all sources," Chief Executive Officer Ian Penrose told Alliance News Wednesday.
Despite the bad weather, Sportech said it remains well positioned for future growth in the US market and, with the strong cash flows from its football pools business, is confident for the year ahead. Penrose said that while its expects the upcoming World Cup in Brazil in June to help the business over the summer, he does not expect the event to be a huge material benefit.
Sportech reported a pretax profit of GBP5.2 million in 2013, compared with only GBP1.3 million in 2012. It said profits were driven by growth in its Sportech Racing and Digital business, offsetting a decline in football betting.
Revenue from continuing operations was slightly ahead at GBP110.3 million, up from GBP107.7 million a year earlier, with the group's US-based businesses now accounting for 60% of overall revenues, as it shifts it business focus from the UK over to the US.
"Four years ago we made all our money in the UK, and now the US accounts for 60%. Most of the group's initiatives are based in the US, so that figure will continue growing over the next two or three years," said Penrose.
Sportech said it spent a total of GBP22 million on capital investment, such as technological improvements, as well as acquisitions during the year, an increase from GBP14.3 million in investments in 2012, but is looking to spend only half the amount it spent in 2013.
"In 2013 we spent GBP13 million on what we would call 'pure capital expenditure' investment, and GBP9 million for acquisitions. This year we are looking at spending around GBP11 million, which will really be spent on investment outside of acquisitions," said Penrose.
During the year, the group booked a total of GBP2.7 million in exceptional costs, a similar level to the prior year, a majority of which was made up of restructuring costs, as well as acquisition costs and costs in relation to its New Jersey licence. Penrose said he is expecting that figure to rise in the current financial year.
"We are currently looking at some things which will bring a real benefit to our business in 2015, so the figure could well be more than that this year. We have some things in the pipeline, and there are some final pieces of restructuring we need to put into place, which will leave the group in good shape," Penrose told Alliance News.
Momentum has been building both offline and online for the group's Sportech Racing business, boosted by new horse-race betting contracts with major gaming businesses in the UK, as well as Danske Spil in Denmark, and Penn National in the US, and the acquisition of eBet Online in December 2012. The group said the division performed well during the year, as it continues to invest in new online and mobile products to help drive customer revenues and cost efficiencies. It said the new contracts are expected to be earnings and revenue enhancing from 2014 and beyond.
During 2013, Sportech also bought Data Tote Ltd, an on-track and online greyhound and horse race betting services provider in Europe, for GBP3.1 million, which it said will significantly strengthen its European horse-race betting operations.
Revenues from group's pools business for the period fell to GBP41.3 million, down from GBP42.9 million in 2012, which it said was primarily due to a GBP1.6 million decrease in the collector and overseas channels.
The company is in the process of modernising its football pools division, including system and process improvements, which has led to more costs savings and a fall in operational overheads.
In the first half of the year, an increase in spend per customer helped to offset a decline in player numbers, which continued into the second half of the year.
During the year the group commenced a distribution agreement with France-Pari to enable French residents to bet into football pools, which buoyed revenues during the period.
The group has been focusing its efforts on developing is multi-channel gambling strategy in the US, and investment in its US business is set to drive future growth for the company. It has already opened its new flagship betting and sports bar venue in the US state of Connecticut, and similar venues in California are due to open later this year.
The group entered a joint venture with NYX Gaming, and a separate joint venture with Picklive Ltd back in September to launch a new gaming product targeted at the growing US fantasy sports market, with the website expected to go live later this year.
"Its a question of augmenting our product base, giving a broader range of products for our customers, and it's a start of a roll out to increase product offering that will continue over the next few years, especially as what might be legal in the US is changing," said Penrose.
Sportech sold its loss-making e-gaming business, consisting of the Vernons.com brand, to Netplay TV PLC in October for GBP3 million, after the division swung to a loss in the first half of the year, hit by increased market spend, which continued into the second half.
"This disposal followed a strategic review that concluded the business was not of sufficient scale ahead of the implementation of UK point-of-consumption tax, which would impact the business significantly," the company said in a statement Wednesday.
Sportech confirmed Wednesday that the chief operating officer of its UK and online consumer-facing business Ian Hogg will be leaving the company by the end of the year for personal reasons, as he does not wish to increase his duties overseas, as the company shifts its focus away from the UK and to the US.
"He will remain with us until the end of the year, working on some key projects," said Penrose.
The group said it is confident that the outcome of the GBP95 million VAT claim appeal in the UK due to be heard on April 29 and 30, will be in its favour. The VAT repayment claim, in respect of the "Spot the Ball" game, was successfully determined in the group's favour by the First-Tier Tax Tribunal in March last year, but HMRC is appealing the decision to the Upper Tribunal.
"If it doesn't go our way, we would look at whether we could appeal or not, but it won't affect our business plans, as we have not built any part of our business on whether we get the VAT claim or not. We have clearly considered what we would do with the money if we win," Penrose said.
Sportech did not propose a dividend for the year, and said it will continue to assess when to commence the payment of a maiden dividend, taking into account its financial position, business performance and future growth opportunities.
"The challenge we have had it that we have come from a history and position of an exceedingly high debt level, which we have reduced dramatically, but we still have a lot of debt," said Penrose, adding: "We would like to get on the dividend list as soon as it is prudently appropriate as we have never paid a dividend before."
Shares in the company were trading 1.6% lower Wednesday afternoon at 88.60 pence per share.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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