AWP supplier Sceptre Leisure is in "great financial health", according to chief executive Ken Turner, despite full-year profits being at the lower end of expectations.
For the year to 30 April, profit before tax was down 14% to £1.6m on revenue of £38.6m — down by almost 10% on last year. However, Sceptre stressed the comparison on last year was difficult as it had since sold its Fixed Odds Betting Terminals division, which contributed £2.5m to turnover.
Revenues were also hit by HMRC regulatory changes to Skills With Prizes games in April 2010, which saw income drop by £1m (20%). HMRC re-classified some SWP games as gambling, making them liable for higher tax rates and licence charges.
The company took "swift" action to deal with the changes to SWP rules through negotiation of new software licences and a cutting of jobs.
As a result of the SWP changes, Sceptre's weekly revenue per machine fell from an average of £29.98 to £23.82 over the past year.
Machine rental was further affected by pubcos moving away from charging royalties to tenants as part of machine contracts (a reduction of £1.3m compared to 2010).
"This reduction in royalty revenues had no effect on the division's profitability, as all charges recognised in revenue are passed on directly to the pub company as a cost of sale," said chief executive Ken Turner.
But Sceptre continued to increase its machine rental business in the core pub market, which makes up 70-75% of its business. It increased machine numbers to 19,000, including the acquisition of Surrey-based RV Smith (Leisure) Limited in November 2010 for £1.2m.
In the course of the year, it won new contracts with Punch Pub Company, SA Brains and The McManus Pub Company and renewed contracts with Joseph Holt, Daniel Thwaites and De Vere Hotels. It also reduced net debt from £15.9m to £13.4m.
Pub lottery sales increased 38% to £0.23m on last year and it sold 55m tickets. The lottery machines help pubs raise money for local charities. Tickets cost £1 with 50p going to the prize pot, 20p to charity and 15p each to Sceptre and the pub.
"Sceptre Leisure is in the best financial health I can ever remember," said Turner. "We are performing very strongly. Things like changes in HMRC regulations are just beyond our control."
The company is expecting an uplift in revenue when the football season restarts.
Turner added: "Trading conditions are not easy but through careful management and dedication we continue to progress towards our target to become the largest machine operator within the pub market.
"Sceptre has continued to reduce gearing over the course of the year, with net debt down to £13.4m from £15.9m, underlining the strong cash generation provided by our core business."