Sportech revenue declines after challenging 2018

21 March 2019

London-listed Sportech has described 2018 as a challenging year for the business, which resulted in revenue declining 3.9%, though highlighted the success of cost control efforts that helped the business cut losses for the period.

Revenue for the 12 months ended December 31, 2018 fell to £63.7m (€73.6m/$83.9m), following declines from the Racing and Digital and Venues divisions.

Racing and Digital saw revenue decline 4.1% as a result of contract losses in the Canada and the US in late 2017, which were offset in part by higher digital revenue and an increased contribution from the in-stadium raffle technology Bump 50:50.

Over the year Sportech upgraded its proprietary Quantum System software to offer a range of lottery games to clients. Previously these were only available to a single customer through a legacy system. The range of pools and bet types supported by Quantum was also updated to include exotics offered by the likes of Pari-Mutuel Urbain, ZeTurf, and the Hong Kong and Macau Jockey Clubs.

Racing and Digital’s US footprint was expanded during the year, with new long-term contracts or contract extensions signed with 18 customers. This includes a new deal with Parx Racing in Philadelphia and a new client in Arizona Downs. Its European footprint was expanded with the addition of Norsk Rikstoto and OPAP as commingling customers. Bump 50:50, meanwhile, expanded its customer base to 75 clients by the end of 2018.

Looking to Venues, revenue was down 3.9% year-on-year to £30.4m. A slight increase in food and beverage revenue was offset by a decline in revenue from wagering, with Sportech blamed in lower VIP betting and a reduced number of track racing days in key markets such as New York, Florida and Pennsylvania. This was partially mitigated by a 25% increase in Triple Crown turnover.

Sportech noted that wagering was further affected by untaxed and unlicensed out-of-state advance deposit wagering competitors over the year, which contributed to a 7.0% year-on-year decline in handle.

The total revenue from each division amounted to £64.4m, though this was driven down by £665,000 in inter-divisional eliminations.

Executive chairman Richard McGuire described the year as “challenging”, with company focus affected in the early months of 2018 by a (since-abandoned) sale process and senior management changes. This was accompanied by a strategic review, which has prompted the business to implement a range of measures to better manage its cost base.

“Our new management's vigilance in controlling costs will be a critical continued focus, while challenging and changing previous assumptions, behaviours, and processes,” McGuire said. “We see this as a key component to shifting the group's market position, and to supporting the development of our entrepreneurial culture to quickly and adeptly explore new opportunities as they arise.”

As a result of the revenue decline, cost of sales fell 5.1% to £17.6m for the year, with marketing and distribution costs falling to £2.0m. Net operating expenses were down 3.4% at £37.6m.

This left adjusted earnings before interest, tax, depreciation and amortisation (EBTIDA) of £6.4m, down from £6.7m in FY2017. The company’s loss before interest and tax improved by 86.5% to £2.9m, compared to a prior year loss of £21.6m.

Sportech ultimately posted a net loss of £2.6m, down from £24.4m in 2017, as a result of a £1.9m contribution from its discontinued Dutch business, which was sold to RBP Luxembourg in April last year.

In the first quarter of 2019, Sportech has finalised its acquiring of igaming platform, as it looks to expand the range of products and services it offers to new and potential customers.

McGuire said the key focus for the year would be continuing to run the business in a cost-effective manner, while expanding the solutions it can provide to customers.

“Growth opportunities exist with the launch of new betting products and features and a resolute progress towards a future in US sports betting across both our business and our consumer-facing divisions,” he explained. “The acquisition of the Systems platform and talent show a clear focus on developing digital initiatives further, which supports our continued evolution to deliver growth and drive operational efficiency."