11 September 2023

Sportech PLC

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

Interim Results & Proposed Delisting

Sportech (AIM:SPO), an international betting technology business, is pleased to announce its interim results for the six months ended 30 June 2023 ("H1 2023" or the "period").

Summary

The Group has continued to deliver solid operational performance, marked by stable revenue growth and a renewed emphasis on margin enhancement. This strategic approach has led to a 7.2% increase in gross profit and a notably improved Adjusted EBITDA performance, in comparison to the same period of the previous year.

The Group's Adjusted EBITDA demonstrated positive momentum, reaching £0.9 million (£0.4 million in H1 2022). This improvement was fuelled by several key factors, most notably growth in contributions from US gaming and a sustained focus on optimizing operational and corporate costs.

In July 2023, the Group completed a share capital restructuring that helped to provide approximately 3,600 smaller shareholders with a cost effective exit. Additionally, the Company announced a meaningful return of capital to shareholders totalling £3.5 million, paid in August 2023, bringing the cumulative shareholder repayments to c.£46 million over the past two years and c.£121 million since 2017.  Group cash (excluding customer balances) at the end of H1 2023 was £7.8 million and at the end of August 2023 was £3.6 million.

However, it is important to acknowledge the significant financial burden associated with maintaining a listing on the public markets, particularly given the Company's reduced size, following the successful implementation of the strategic drive to return capital to investors. In light of this, the Board will today also announce, subject to shareholder approval, a proposed cancellation of its ordinary shares to trading on AIM (the "Proposed Cancellation"). The background to and reasons for the Proposed Cancellation will be set out in a separate announcement, and if approved by shareholders,  is expected to deliver significant future cost savings and strengthen the Company's financial position.

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

2.        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.

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

Richard McGuire, Executive Chairman of Sportech, said:  "Despite delivering improving operational results announced today, the substantial financial cost associated with maintaining a public listing, given our current scale, and the increasing volatility in the market valuation is adversely impacting net returns and future prospects. Regrettably, in light of these circumstances, we find it necessary to take the difficult but pragmatic step of proposing delisting from the AIM market today."

For further information, please contact:

Sportech PLC                                                                                        enquiries@sportechplc.com

Richard McGuire, Executive Chairman

Clive Whiley, Senior Independent Director

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

(NOMAD and Corporate Broker to Sportech)

George Sellar / Andrew Clark / Lalit Bose

Group Operational Overview   

Navigating Challenges and Seizing Opportunities: A Solid Performance in H1 2023

Amidst the intricacies of a predominantly physical retail business within a heavily regulated industry, the Group's performance in H1 2023 stands as a testament to resilience and strategic prowess. Overcoming the challenges inherent to delivering scalable growth in such an environment, the Company managed to deliver enhanced results in H1.

The Board has remained proactive in charting the path forward. Management continue to address the operational cost structure of the Group and expand operations beyond its historic major dependence on pari-mutuel wagering. In January 2023 the Company unveiled the divestiture of certain non-core assets. This strategic move coupled with the receipt of contingent proceeds resulting from a prior year disposal, resulted in both streamlining future operating costs and bolstering Group cash by a net amount of £1.5 million.

The dedication to positive initiatives, coupled with the cultivation of an efficient operational cost base, yielded a commendable outcome. Despite a modest yet steady revenue growth, the Group was pleased to achieve positive Adjusted EBITDA, a testament to the Group's prudent financial management.

Looking ahead to the latter half of 2023, operational focus remains resolute. Strengthening Company affiliations with betting partners, seizing scalable growth opportunities, and realigning non-operational costs to harmonize with the Group's scale stand out as pivotal objectives for the management team. We are committed to capitalizing on our strengths, adjusting the operational cost to manage growth prospects, and optimizing our performance within this intricate and opportunistic landscape.

1.Adjusted EBITDA

2. 2022 numbers are at constant currency.

Sportech Digital

Following the 2021 sale of the core lottery contract and delivery of the contractual obligations the decision was taken to sell the remaining non-core lottery related assets in January 2023.

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 nine gaming locations/venues in the State of Connecticut under an exclusive and in-perpetuity license for pari-mutuel betting and under agreement with the state lottery for sports betting. This section outlines the company's performance in key areas and highlights its strategies for growth.

Financial Performance:

Food and Beverage (F&B) Revenue:

In H1 2023, F&B revenue increased +10%, reaching £1.85 million, (H1 2022 £1.68m) demonstrating stability, until the anticipated return to normal office occupancy occurs.

Betting Handle:

The overall betting handle within venues increased by 2.2% to $101.8 million. This growth was primarily driven by a $5.1 million increase in gross sports betting handle, effectively offsetting the $2.9 million decline in pari-mutuel.

Betting handle represents the gross wagering by the Group retail customers in Pari-Mutuel (Tote) and Sports Betting. It is an essential Key Performance Indicator, however is not recorded as revenue within the Group. The Revenue recorded from pari-mutuel (pool betting) handle is the gross take out. Essentially the 'take out' is removed from the pool, and the remaining money returned to winning wagers.  For Sports Betting the revenue contribution is precisely the 'commission' received from our sports betting arrangement with the Connecticut Lottery Corporation.  Sports Betting handle is a core KPI, there is no direct relationship to profitability however as its risk-based fixed odds and the clear KPI remains the hold on the handle or simply the gross profit (Gross Gaming Revenue) which ultimately defines the Group sports betting commission/revenue.

Sports Betting:

Sportech offers sports betting in collaboration with the Connecticut Lottery Corporation (CLC). The net commission generated  supports the Group's operational cost base. H1 2023 saw significant growth in retail sports betting handle (+10.6%) and gross profit (+39.5%). This achievement is notable, especially in the face of competition from neighbouring Massachusetts.

Risk Management:

Sportech reminds investors of the inherent risk in fixed odds sports betting compared to traditional pool betting (pari-mutuel). During the period, the Group managed approximately $50.1 million in retail sports betting handle, with a Sportech risk exposure of around $12.5 million. Despite challenges and a tough June when customers certainly enjoyed better Baseball results, the gross profit ('hold') stood at an impressive 10.2% of handle. The American Football season, which is the Group's busiest season, has now commenced bringing additional opportunity and risks to the Group.

Pari-Mutuel Betting:

While pari-mutuel betting across the estate handled $51.7 million, there was a decline of 5.3% compared to H1 2022. Physical locations remained stable, but Telebetting and online products faced increased competition from iCasino gaming and sports betting for the consumer discretionary betting dollar.

Strategic Outlook:

1. Contribution Margin:  The contribution margin improved to 53.4% (compared to 50.8% in H1 2022). This positive trajectory is commendable, considering the costs associated with meeting sports betting requirements and enhancing infrastructure.

2. Operational Footprint:  Sportech operates across eight leasehold premises and one freehold property in Connecticut, USA. The company is actively exploring opportunities to expand its product range and enhance promotion efforts.

Conclusion:

Sportech Venues' performance in H1 2023 demonstrates resilience and growth potential. The company's focus on sports betting, despite its inherent risks, has yielded support to date, offsetting the higher cost of operating a physical retail business. As the gaming landscape in Connecticut evolves with changes in sportsbook providers and competitive pressures, the Group remains committed to managing relationships and optimizing its operational and financial performance.

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 reduced a further £0.1 million during the period. However the Board is acutely aware of the cost of maintaining a public company listing and has proposed today a delisting from AIM, which would significantly reduce corporate costs going forward if approved by shareholders and align costs as close as possible to the reduced size of the Group.

Separately Disclosed Items

The Group incurred costs of £0.1 million (H1 2022: £0.5 million) during the period, which are shown as separately disclosed items. H1 2023 items are associated with corporate activity, as the Group continues to assess and explore its strategic options.

Net Finance Costs

The Group has no debt. The Group had a net finance expense in continuing operations of £(0.2) million (H1 2022: £0.1 million), this was primarily the interest payable on lease liabilities.

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 2023 is (10)% (2022: (8.5%)). The movement is a result of a change in mix of profits/(losses) in jurisdictions with varying tax rates, the non-recognition of deferred tax on losses in the UK due to uncertainty of non-recovery as well as the utilization of previously unprovided tax assets in the US.

The Group has submitted an appeal to HMRC to contest the treatment of £4.6 million of taxation potentially due on the 2016 Spot the Ball refund. This amount was paid to HMRC, however in the event the Company is unsuccessful in its appeal there remains a potential c £0.7 million interest due. There is nothing held on the balance sheet in respect of the tax itself, the interest is accrued and if payable will be a cash outflow.

Net Cash

The Group held cash balances of £7.8 million, excluding customer balances (31 December 2022: £7.4 million) as of 30^th June 2023. Post the period end the Group has repurchased c.£0.5 million of shares as part of the share restructuring and returned £3.5 million to shareholders in August 2023 via a capital return distribution.  The updated cash balance at the end of August 2023 was c £3.6 million

Capital Expenditure

Capital expenditure ("Capex"), was controlled again in the period and amounted to £0.1 million (H1 2022: £0.1 million), whilst management anticipate higher Capex in H2 2023 due to upgrading security recording equipment and general heating and ventilation system improvements.

Shareholders' Funds

Shareholders' funds decreased by £0.8 million from 31 December 2022 to £13.2 million (31 December 2021: £14.0 million). The loss made in the period of £0.3 million is coupled with a reduction in reserves due to foreign exchange loss on translation of net assets denominated in Sterling over the period.

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.

Interim consolidated income statement
For the six months ended 30 June 2023

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.