Sportech to continue cutting costs as H1 losses widen

22 August 2019

Sportech will continue to focus on reducing costs and continuing its “digital transformation” in the second half of the year after its pre-tax loss widened on the back of flat sales in the six months through to the end of June.

On a constant-currency basis, the technology provider’s group revenue slipped by 1.8% to £32.6m (€35.5m/$39.4m) from £33.2m year-on-year. Sportech saw an increased contribution from its Racing and Digital division over the period, though this was offset by a decline from its Venues sports bar and advance deposit wagering business.

A 6.2% increase in Sportech’s Racing and Digital revenues to £17.9m in the six-month period was thanks to growth across lottery products, the Bump 50:50 in-stadium raffle technology and international business, providing welcome news after the same division’s revenue declined by 4.1% in H1 2018, due to contract losses in the Canada and the US.

Venues, however, reported a 10.0% drop in revenue to £15.0m. This was blamed on a weaker performance in its core Connecticut market, excerbated by the launch of legal wagering in neighbouring states. However, Sportech added, enforcement efforts to support its position as the exclusive ADW licensee in the state were due to begin from October, potentially helping shore up its position and reduce unlicensed competition.

Sportech also acknowledged that a “lack of US sports betting licensing remains a regional challenge”, and was proactively supporting legislative efforts to regulate the vertical.

Adjusted earnings before interest and deductions (EBITDA) fell from £3.9m to £3.4m, largely thanks to costs related to sports betting increasing from £500,000 to £900,000. In the first half of the year, the company developed proprietary sports betting platform Sportech IP, which has since been integrated with sports data specialist Sportradar. Marketing the solution to potential clients is now underway.

Cost of sales for the half year period rose to £9.8m, which coupled with the revenue decline saw gross profit fall from £24.0m to £22.8m. After operating costs of £24.2m were stripped out, this left an operating loss of £2.1m, with  pre-tax loss from continuing operations rising to £2.4m after finance costs. These losses saw Sportech record a £482,000 tax benefit, resulting in a net loss of £2.0m.

Corporate costs were slashed by 22% during the period, leaving chief executive Richard McGuire (pictured) confident that the company is managing its “year of transition” as it adopts “a clear focus on challenging the predominantly ‘industrial’ culture, whilst driving efficiencies and delivering a range of products that enhance user experience”.

He added: “Rigorous cost management remains a core focus for the group and the board expects to see further benefits going forward from the measures already taken.

“Further digitisation across existing and new business lines, the elimination of certain expensive strategies, the implementation of a lower operational cost base, and an enhanced global suite of products form the roadmap for H2, positioning the Group for 2020 and beyond.”

Sportech also highlighted a renewed “focus on accountability and tangible long-term growth delivery”, having reshuffled its management team in recent months.

In November, Andrew Gaughan resigned as chief executive just a week after Sportech issued a profits warning. McGuire was named as Gaughan’s full-time successor in July.

A month earlier, a number of staff from the newly acquired ilottery business Lot.to were appointed to key positions within the provider’s B2B division, including Andrew Lindley, who was named as group chief operating officer. Raj Sanjanwala was also installed as chief technology officer as part of the reshuffle.