(SCEL) Sceptre Leisure

Sceptre Leisure plc

("Sceptre" or the "Company" or the "Group")

Interim Results for the six months ended 31 October 2011

Sceptre Leisure plc (AIM: SCEL), the AIM-listed leisure and gaming group, today announces its interim results for the six months ended 31 October 2011.

Financial performance

Key operational highlights

·      Business performing robustly

·      Significant new contract with Rileys

o  Four-year contract to supply entire estate

o  In excess of 400 gaming, skill with prizes (SWP) and amusement machines

o  Deal worth £2.5m over contract term

·      Contracts renewed and extended with existing customers

o  Marston's

o  Joseph Holt

o  De Vere Hotels

o  McManus Pub Company

·      Net debt reduced by £1.8m to £14.0m (2010: £15.8m)

·      Increased focus on cost control delivering further efficiencies

·      Agreement signed with Gauselmann Group and Blueprint Gaming to develop a digital pub offering

Ken Turner, Chief Executive of Sceptre Leisure plc, commented:

"Our business has continued to trade robustly, successfully extending existing and winning new contracts with major operators.  Our focus on reducing costs for operators while maintaining an industry-leading level of service has made our offering even more attractive and is helping us to continue being the leading operator of amusement and gaming machines in the licensed retail market.  We are confident that we can continue to grow our business organically and through acquisitions, should the right opportunities arise."

                                                                                                            15 December 2011

For further information, please contact:

Chairman's Statement

Sceptre is once again able to report another profitable start to the financial year, slightly ahead of the previous interim results.

This profitability has been achieved despite reduced income from our SWP (skill with prizes) machines and a reduction in sales to the registered members' club market.  The resilience displayed by our core business is based on the efforts of the Sceptre team and they should once again feel proud of their contribution to our continued success.

During the last six months, we have continued to win new business and extend existing contracts, culminating with the award in September 2011 of a four-year, sole-supply contract to provide amusement and gaming machines to Rileys pool and snooker halls nationwide.  This new contract will allow us to build on the good start reported to date as we enter the second half of our financial year, which is traditionally stronger due to seasonal income trends.

We have recently been able to announce an important strategic alliance which will allow Sceptre to strengthen its position in the digital games market over the coming months.  Our agreement with Gauselmann Group and Blueprint Gaming puts Sceptre in an enviable position as this new market develops.

Net debt has been reduced over the last twelve months, down to £14.0m from £15.8m a year ago.  Whilst this is a slight increase since April 2011, due to investment in our machine estate, we expect the trend of debt reduction to continue in the second half of the financial year.

Our strategic aim remains clear: to continue as the leading operator of amusement and gaming machines in the licensed retail market whilst increasing market share.  We will continue to move towards that goal by pursuing growth both through organic gains and selected acquisitions and we look forward to reporting continued success in both areas during the second half of the financial year.

Douglas Yates

Chairman

15 December 2011

Chief Executive's Review

I am pleased to report another period of profitable trading for Sceptre Leisure at the interim stage of the current financial year.  We have continued to develop our core machine rental business with the announcement of new contracts and the strengthening of relationships with existing customers.

Performance overview

Group income was £1.7m lower at £18.0m (2010: £19.7m) due to three principal factors: SWP machine income reductions and lower royalty charges on pub company contracts within Sceptre Leisure Solutions, and reduced sales to registered members' clubs by Lotteryking.  Whilst the reduced royalty income has no effect on profitability, the other loss of income has been mitigated by a programme of cost review and reduction such that our gross profit is slightly ahead of the same period last year.  Administrative and other costs have also been controlled, allowing us to report a profit before tax in line with the previous year.

Sceptre Leisure Solutions

Sceptre Leisure Solutions has successfully extended contracts with existing customers such as Marston's, Joseph Holt and De Vere Hotels.  In addition to this, it has also been awarded a new four year contract with Rileys to be the sole supplier to its 120 pool and snooker halls nationwide. Thissignificant contract will begin to deliver income and profit during the second half of the current financial year.  This has been achieved against a backdrop of economic turbulence in the UK economy and I would echo the Chairman's praise of our exceptional operations team.

However as reported above, Sceptre's income was adversely affected by two principal factors.

Firstly in November 2010 HMRC required that certain games should no longer be offered through the SWP terminals.  This withdrawal of content reduced the income from our estate of 3,000 SWP machines and resulted in an income reduction of £0.6m over the six months under review.  The revenue from these machines has now stabilised and we are adjusting our operating ratios and methodology accordingly to minimise the effect on gross margin.

Secondly there has been an industry-wide move away from the traditional royalty-based model that has affected royalties charged and repaid as part of machine operating contracts.  During the period under review this has resulted in a reduction of £0.5m in both revenue and cost of sales when compared to the prior year.

Despite the above factors, our machine rental division is able to report increased profitability, contributing £1.4m (2010: £1.1m) of profit before tax during the six months under review.

Lotteryking

Trading within Lotteryking has been affected by a sharp downturn in activity within the registered members' club market.  Lottery ticket sales to this sector were 27% lower than the same period last year at £0.75m (2010: £1.0m) despite a larger machine estate.  This is due to reduced footfall within the clubs and a tightening of spend per visit.  We have taken actions to reduce the costs within this division and we believe that we now have a structure that will allow it to trade profitably and continue to contribute cash for the remainder of the year.

Kelly's Eye

Sales of our full catalogue of indoor gaming and consumables to pubs and through our online e-commerce sites continue to grow year-on-year.  Whilst this is not yet a significant contributor to Group revenues or profits, I remain confident that this will become an increasingly important sector for us.  We will continue to grow this side of the business whilst maintaining control of the costs associated with it.

Digital evolution

I am pleased to be able to report that we have signed an agreement with Gauselmann Group and Blueprint Gaming to develop a digital fruit machine, or amusement with prizes (AWP), offering for the licensed retail market.

Gauselmann is one of the largest manufacturers and operators of digital gaming machines in Europe. They have developed customised hardware specifically for the UK market and Sceptre will act as the sole supplier of their range of digital gaming machines to the UK pub market.  Blueprint Gaming has rapidly built a strong reputation in the digital gaming arena and will provide a full range of market-leading software and games content.

The digital market in pubs within the UK has been slow to develop due to a lack of suitable product.  However, the dynamics in the predominantly reel based supply side of the market are changing, creating growing demand for digital content and in turn an opportunity for successful digital product suppliers to succeed.  The Gauselmann Group has first-hand experience of such an evolution and was instrumental in managing the migration from reel based gaming to digital in their domestic market.

This is an important strategic alliance for Sceptre with the market leader in the digital arena.  The marketplace is beginning to evolve more quickly and our tie-up with the Gauselmann Group and Blueprint Gaming positions Sceptre at the forefront of this technology-led area at an exciting time for the industry.

Outlook

Our contract pipeline within the machine rentals division remains strong and our continued success at winning new business has driven our performance improvements over the six months under review.  We will continue to pursue organic growth over the remainder of the year and I am confident of our ability to progress further in this area.

Sceptre will also continue to explore and assess acquisition opportunities as the second strand of its growth strategy.  We remain keen to complete such transactions where both the price and the operational fit are right for us.

In summary, we have been able to report further progress towards our target of becoming the largest machine supplier to the UK licensed trade and I look forward to working with my team over the remainder of the financial year to bring Sceptre closer to that goal.

Ken Turner

Chief Executive Officer

15 December 2011

Financial Review

I would like briefly to review the main areas of financial activity during the period under review.

Revenue and profitability

Group revenue reduced by 8.7% to £18.0m (2010: £19.7m), driven by a combination of reduced income from SWP machines following legislative changes, a reduction in contract royalties charged and lower sales to registered members clubs from Lotteryking.

SWP income was considerably lower year-on-year with an average weekly income of £17.88 per machine, down from an average of £25.23 last year.  When taken across our 3,000-strong estate of SWP machines, this equates to an income shortfall of £0.6m in the period under review and directly affects gross margin.

Royalty income was also reduced year-on-year by £0.5m over the six-month period.  This figure is a pass-through charge and therefore does not have an effect on gross profit.

Finally, Lotteryking sales to registered members' clubs were £0.4m, or 25%, lower year-on-year.  This sector has been severely affected by the economic downturn.

The reduction in income caused by the factors above led to a programme of cost control across the Group.  As a result, we were able to maintain gross profit for the period under review, increasing operating profit by 7.2% to £1.3m (2010: £1.2m).

Finance costs

Net finance costs charged to income were £629,000, of which £634,000 was cash interest. The balance related to a non-cash interest rate swap gain of £5,000.  The derivative contract was a condition of the Group's banking agreements with Lloyds Banking Group and will continue to run alongside this facility until the end of the term loan in April 2014.

Earnings per share

Basic earnings per share increased to 0.8p (2010: 0.7p).

Exceptional costs

During the period, the Group incurred certain one-off restructuring costs.  These related to redundancy payments and provisions as a result of corporate restructuring and totalled £53,000 (2010: £49,000).  These costs are set out in note 10 to these interim results.

Capital expenditure

Capital expenditure was £4.3m for the six months ended 31 October 2011, compared with £5.1m in the same period last year.  £0.8m of the total for the year to date was attributable to the contract win with Rileys, the machines for which were installed during October 2011.  This four-year contract will begin to contribute income during the second half of the current financial year.

Financing

Net debt reduced to £14.0m from £15.8m a year ago and was slightly increased from £13.4m at 30 April 2011.

Taxation

The effective rate of taxation in these interim statements is 27%, which is higher than the effective rate in the Group's 2011 Annual Report and Accounts of 12.5%.  The difference is attributable to the recognition of a gain on bargain purchase and a change in the deferred tax rate in the year ended 30 April 2011.

Mark White

Finance Director

15 December 2011

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Balance Sheet

Condensed Consolidated Balance Sheet (continued)

Condensed Consolidated Statement of Cash Flows

Condensed Consolidated Statement of Cash Flows (continued)

Condensed Consolidated Statement of Changes in Equity

Notes

1     Reporting entity

Sceptre Leisure plc is a company registered and resident in England and Wales.  The condensed consolidated interim financial statements of the Company as at and for the six months ended 31 October 2011 are unaudited and comprise the Company and its subsidiaries (together referred to as the "Group").

2     General information

These interim consolidated financial statements are for the six months ended 31 October 2011.  They have not been prepared in accordance with IAS 34, Interim Financial Reporting.  They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 April 2011.  These financial statements have been prepared under the historical cost convention, except for revaluation of financial instruments. 

These condensed consolidated interim financial statements were approved by the Board of Directors on 15 December 2011. 

3     Basis of preparation and accounting policies

The financial information set out in these Financial Statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The consolidated statement of financial position as at 30 April 2011 and the consolidated income statement, consolidated statement of cash flows and associated notes for the year then ended have been extracted from the Group's Financial Statements as at 30 April 2011. Those Financial Statements have received an unqualified report from the auditors and have been delivered to the Registrar of Companies.  The 2011 statutory accounts contained no statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

The Consolidated Interim Financial Statements for the period ended 31 October 2011 have not been audited or reviewed in accordance with International Standard on Review Engagement 2410 issued by the Auditing Practices Board.

These Consolidated Interim Financial Statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 30 April 2011.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 April 2011.

Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Accordingly, the lives of certain plant and machinery assets have been extended during the reporting period.  It is estimated that these changes will reduce the depreciation charge by £875,000 during the course of the current financial year.  Management will continue to review their estimates of assets' useful lives to ensure that they remain consistent with operational practice.

The Directors have prepared trading and cash flow forecasts for a period in excess of one year from the date of approval of these interim results. The forecasts make assumptions in respect of future trading conditions and in particular the Directors' estimates of growth in the number of machines placed. These forecasts have been sensitised to take into account current trading levels and known future machine number growth. The forecasts take into account the amended facilities agreed with Lloyds Banking Group on 28 June 2011, which comprise a working capital facility of £500,000 (due for renewal in June 2012) and a term loan which is due to be repaid by April 2014.  Taking into account a number of reasonably foreseeable sensitivies, the forecasts show that the Group will continue to meet its banking covenants and operate within currently available funding facilities for a period in excess of one year from the date of approval of these interim results.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's interim results.

4     Segmental information

The Board of Directors manages the Group in three business segments:

·    machine sales and rental;

·    the sale of lottery, indoor gaming and other products and;

·    the operation of lotteries on behalf of charities.

During the period under review, over 90% of the Group's activities related to machine sales and rental and therefore the remaining segments have been consolidated due to materiality.  All revenue reported in the period under review arose within the United Kingdom.

Segment performance is monitored monthly as part of the management reporting process.  The financial performance for each segment is analysed and consolidation adjustments to reach the Group results are shown separately.

5     Taxation

The taxation charge on the profit before taxation for the six months ended 31 October 2011 is calculated by reference to the Directors' best estimate of the effective annual tax rate for the full year of 27.0% (2011: 12.5%). The movement in the effective tax rate is due to the recognition of a gain on bargain purchase and a change in the deferred tax rate in the year ended 30 April 2011.

6     Earnings per share

The calculations of earnings per share are based on the following profits and number of shares:

7     Share capital and share premium

The Company had 56,989,585 shares in issue as at the balance sheet date.

8     Dividends

The directors do not propose the payment of an interim dividend (2010 interim dividend: nil; 2011 full year dividend: nil).

9 Net debt

10     Exceptional administrative expenses