REG - Playtech PLC - Final Results
27/02/2020 07:00
For best results when printing this announcement, please click on link below:
http://pdf.reuters.com/htmlnews/htmlnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20200227:nRSa3196Ea
RNS Number : 3196E Playtech PLC 27 February 2020
Playtech plc
("Playtech", or the "Company", or the "Group")
Results for the year ended 31 December 2019
Core B2B Gambling and Snaitech continue to drive Playtech;
€40 million buyback launched
Playtech (LSE: PTEC) today announces its results for the year ended 31
December 2019, together with a trading update for the period to 24 February
2020.
Financial summary(1,2)
FY 2019 FY 2018 Change Change (const.
(reported) currency)(4)
Revenue €1,508.4m €1,225.3m 23% 22%
Adjusted EBITDA(2) €383.1m €345.1m 11% 11%
Adjusted Net Profit(3) €133.6m €265.7m -50% -50%
Profit from continuing ops(3) €13.8m €134.1m -90% -90%
Adjusted diluted EPS 43.2 €c 73.9 €c -42% -42%
Reported diluted EPS from continuing operations 4.3 €c 39.7 €c -89% -90%
Total dividend per share(5) 18.1 €c 24.1 €c -25% n/a
Total shareholder return(6) €120.4m €115.7m 4% n/a
Group highlights
· Core B2B Gambling(7) revenue growth of 15% vs. 2018 driven by
Sports and Live Casino
· Snaitech had an outstanding 2019 with 24% growth in Underlying
Adjusted EBITDA on an annualised basis (EBITDA after excluding gambling tax
headwinds and 2018 World Cup impact)
· Asia remained broadly stable through H2 2019
· TradeTech restructuring underway and business under review
· Business rationalisation in progress with Casual Gaming now a
discontinued operation
· €350 million bond raised, convertible bond repaid on maturity;
revolving credit facility increased and extended including new Tier 1 lender
joining syndicate
· Shareholder returns up 4% vs. 2018 with new €40 million share
repurchase programme announced today and final dividend declared of 12 €c
per share
· Board strengthened with two new non-executive directors appointed in
2019; Chairman succession nearing completion
Divisional highlights
· B2B Gambling Division
- Core B2B Gambling revenue growth of 15% vs. 2018
- Strong growth of 56% in Sport revenue, aided by hardware sales
- SaaS offering showing strong momentum with over 50 new brands added
throughout 2019
- New agreement with Wplay in Colombia
- Continued success with existing customers including Caliente and GVC
- Increasing investment into US market
- Newly regulated market launches in 2019 include Sweden and Switzerland
- Strong pipeline including new structured agreements
· B2C Gambling Division
- Snaitech 2019 adjusted EBITDA of €162.4 million driven by strong growth
in online stakes of 31%
- Snaitech continues to take market share, achieving number one position in
total online revenue (betting and gaming) in Italy in H2 2019
- €55 million land sale agreed in 2019 subject to expected approval in
2020; €5 million received in 2019 with balance to be received on completion
which is expected in H1 2020
- Sun Bingo saw 19% revenue growth at constant currency from €33.7 million
in 2018 to €40.0 million in 2019; positive EBITDA contribution following
renegotiation of contract
· TradeTech Group
- Highly challenging conditions across the industry in most of 2019
- Revenue of €67.9 million (2018: €92.9 million) and Adjusted EBITDA of
€7.8 million (2018: €29.5 million) decreased significantly due to
challenging market conditions in 2019; impairment of intangible assets of
€90.1 million leading to a loss for the overall Group of €19.0 million
including the discontinued operation
Current trading
· Core B2B Gambling revenue for the first 55 days of 2020 was up 5%
on the same period in 2019 excluding acquisitions and hardware sales
· Snaitech has seen strong start to 2020; COVID-19 has negatively
impacted recent trading
· Asia revenue in February expected to be €7 million due to
negative impact of COVID-19
· TradeTech has had a good start to 2020 compared to 2019
Outlook
· Playtech started the year strongly against material headwinds
· However, in the last two weeks it has started to see a material
impact from changes in normal customer patterns due to COVID-19 which is
significantly affecting two of its largest markets
· Accordingly, results for 2020 are likely to be below existing
market expectations
Alan Jackson, Chairman of Playtech, commented:
"Our Core B2B Gambling business reported strong growth in 2019. In addition we
made further strategic progress by entering newly regulated markets, signing
new customers, expanding existing relationships and continuing to innovate
with new product launches. Together these are laying the foundations for our
future growth. In our B2C Gambling business, Snaitech had a fantastic 2019 and
continues to gain market share and reached the number one market share
position for online betting and gaming in Italy in H2 2019.
The strength of our diversified business model, focus on cash flows and strong
balance sheet has allowed Playtech to announce today further shareholder
returns with a new €40 million share buyback programme alongside our final
dividend.
Playtech has taken steps to improve its Corporate Governance with two new
non-executive directors appointed in 2019 and I will in due course be
announcing my successor as Chairman who will lead the Board during the next
phase of Playtech's exciting future."
- Ends -
For further information contact:
Playtech plc +44 (0) 20 3805 4822
Mor Weizer, Chief Executive Officer
Andrew Smith, Chief Financial Officer
c/o Headland
Chris McGinnis, Director of Investor Relations and Strategic Analysis +44 (0)1624 645954
James Newman, Director of Corporate Affairs
Headland (PR adviser to Playtech) +44 (0) 20 3805 4822
Lucy Legh, Susanna Voyle, Jack Gault
(1) FY 2018 numbers are restated to reflect the discontinued Casual Gaming
business for the purposes of comparison. Totals in tables throughout this
statement may not exactly equal the components of the total due to
rounding. Figures include adoption of IFRS 16, which increased FY 2019 EBITDA
by €23.2 million while simultaneously increasing FY 2019 amortisation by
€19.2 million and interest costs by €6.2 million. As a result, the impact
on net profit was not significant.
(2 )Adjusted numbers relate to certain non-cash and one-off items including
amortisation of intangibles on acquisitions, impairment of tangibles,
intangibles and right of use assets, professional costs on acquisitions,
finance costs on acquisitions, changes in deferred and contingent
consideration, employee stock option scheme charges, deferred tax on
acquisitions, unrealised changes in fair value of equity investments
recognised in the period statement of comprehensive income, non-cash accrued
bond interest, additional various non-cash charges, and in regard to the Sun
Bingo contract an adjustment is made for the first seven weeks of 2019 prior
to the renegotiation in February to show the effect as if the amendment to the
contract with News UK had been in place from the beginning of the 2019
financial year. The Board of Directors believes that the adjusted profit,
which includes realised fair value changes recognised in the statement of
comprehensive income in the period on equity investments disposed of in the
period, represents more closely the consistent trading performance of the
business. A full reconciliation between the actual and adjusted results is
provided in Note 10 of the financial statements. Given the fluctuations in
exchange rates in the period, the underlying results are presented in respect
of the above adjustments after excluding acquisitions and on a constant
currency basis, to best represent the trading performance and results of the
Group.
(3 )Adjusted Net Profit refers to Profit from continuing operations
attributable to the owners of the parent after the relevant adjustments as
detailed above. Reported Net Profit refers to Profit from continuing
operations attributable to the owners of the Parent before adjustments.
(4 )Constant currency numbers exclude the exchange rate impact on the results
by using previous period relevant exchange rate and exclude the total
cost/income of exchange rate differences recognised in the period.
(5) Total Dividend per share: Reduction in dividend reflects rebalancing of
shareholder distribution between dividend and share buybacks as announced to
the market in February 2019.
(6) 'Total shareholder returns' refers to full shareholder distributions,
including dividend and share buyback which have been approved for settlement
in H2 2019 and H1 2020. This is a better representation of the Group's
shareholder returns.
(7 )Core B2B Gambling refers to our B2B Gambling business excluding
unregulated Asia.
Presentation and live webcast
A presentation for analysts and investors will be held today at 11.00 am at
The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED.
The presentation will be webcast live and on demand at the following website:
https://www.investis-live.com/playtech/5e18b22d0a12d41100842883/gdg
(https://www.investis-live.com/playtech/5e18b22d0a12d41100842883/gdg)
The presentation will also be accessible via a live conference call:
Dial-in no for UK: 020 3936 2999
Dial-in for all other locations: +44 20 3936 2999
Conference password: 485183
There will also be a replay available for one week after the live webcast:
Dial-in no for UK: 020 3936 3001
Dial-in no for all other locations: + 44 20 3936 3001
Conference reference number: 739400
Forward looking statements
This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". By their nature, forward-looking statements
involve risk and uncertainty since they relate to future events and
circumstances. Actual results may, and often do, differ materially from any
forward-looking statements.
Any forward-looking statements in this announcement reflect Playtech's view
with respect to future events as at the date of this announcement. Save as
required by law or by the Listing Rules of the UK Listing Authority, Playtech
undertakes no obligation to publicly revise any forward-looking statements in
this announcement following any change in its expectations or to reflect
events or circumstances after the date of this announcement.
About Playtech
Founded in 1999 and premium listed on the Main Market of the London Stock
Exchange, Playtech is a technology leader in the gambling and financial
trading industries.
Playtech is the gambling industry's leading technology company delivering
business intelligence driven gambling software, services, content and platform
technology across the industry's most popular product verticals, including,
casino, live casino, sports betting, virtual sports, bingo and poker. It is
the pioneer of omni-channel gambling technology through its integrated
platform technology, Playtech ONE. Playtech ONE delivers data driven marketing
expertise, single wallet functionality, CRM and responsible gambling solutions
across one single platform across product verticals and across retail and
online.
Playtech partners with and invests in the leading brands in regulated and
newly regulated markets to deliver its data driven gambling technology across
the retail and online value chain. Playtech provides its technology on a B2B
basis to the industry's leading retail and online operators, land-based casino
groups and government sponsored entities such as lotteries. As of June 2018,
through the acquisition of Snaitech, Playtech directly owns and operates a
leading sports betting and gaming brand in online and retail in Italy, Snai.
Playtech's Financials Division, named TradeTech Group, is a technology leader
in the CFD and financial trading industry and operates both on a B2C and B2B
basis.
Playtech has in total c.6,000 employees across 21 countries and is
headquartered in the Isle of Man.
Chairman's statement
2019 was another important year in the development of Playtech. Management has
continued to focus on delivering a transformation of the business which
started in 2017, designed to secure long term growth and unlock shareholder
value.
The Group reported 23% revenue growth and 11% growth in adjusted EBITDA driven
by a strong performance in the Core B2B and B2C Gambling business and the
inclusion of a full year of Snaitech's results. The strength in this part of
the business was partially offset by the disappointing results of Asia and
TradeTech and management has started to take action in 2019 and will continue
to do so in 2020.
As the business continues to transition and deliver a well-diversified higher
quality revenue profile, I am pleased to report that the percentage of
regulated revenue rose to 88% compared to 80% in 2018.
In 2019 Core B2B Gambling revenues in regulated markets increased by 17%
compared to 2018. During 2019 Playtech continued to deliver on its B2B
strategy delivering new agreements with new licensees, growing our
relationships with existing customers, launching in new markets and developing
new tools and capabilities to assist our partners to grow in existing markets.
This progress in 2019 will secure B2B growth for the coming years.
Snaitech, our B2C business in Italy continues to go from strength to strength
delivering an outstanding full year performance. We are now starting to see
the benefits of leveraging Playtech's technological expertise and capabilities
across the Snaitech business. Underlying Adjusted EBITDA increased by 24% and
Snaitech continued to take market share, finishing the year as Italy's leading
online betting and gaming operator.
Management has taken decisive steps during the year to address the
underperforming and non-core parts of the Group and will continue to act in
2020 to deliver the most appropriate path to realise shareholder value. During
the year management took the decision to discontinue our Casual Gaming
operations, which will leave us with a more focused and profitable B2C
portfolio.
TradeTech had a challenging 2019 but the team has made several changes to the
business and starts 2020 in a stronger position. As we announced at our
interim results, we are reviewing the longer-term options for this business
and will update as the year progresses.
During 2019 Playtech continued to maintain an efficient balance sheet.
Following the issuance of our first public rated corporate bond in 2018,
Playtech successfully raised a further €350 million 7-year bond at 4.25% in
March 2019.
The Group's continued strong levels of cash generation allowed total
shareholder returns of €120 million in 2019 through dividends and share
buy-backs. This demonstrates Playtech's commitment to delivering high levels
of shareholder returns which has seen the Company return more than €1
billion to shareholders over the last 10 years. The continued levels of cash
generation mean the Board is able to announce a further €40 million share
buyback programme.
Looking into 2020, in due course we will announce my successor as Chairman.
With the scale of its technology, breadth of its offering and diversification
of model I am confident Playtech will be at the centre of the industry for
years to come.
Chief Executive Officer's review
Strategy update
Playtech believes that the industry as a whole has been in transition in
recent years. As further jurisdictions regulate, operators and suppliers have
had to adjust to higher taxation and greater oversight and legislation. In
addition, the increase in the number of regulated territories has also led to
more competition across the industry. Playtech believes that a balance between
regulated and unregulated markets is still beneficial as unregulated markets
remain high margin and highly cash generative. Playtech believes it is
essential to have a cornerstone presence in multiple regulated jurisdictions
to diversify its risks, particularly from a regulatory perspective. Playtech
has achieved this diversification through the strength of its B2B technology
business in various markets, its unique position in Italy with Snaitech and
through the success of its agreement with Caliente in Latin America.
Looking at the entirety of the group, Playtech has a four-pronged business:
· Core B2B Gambling
· B2C Gambling
· Asia
· TradeTech
Core B2B Gambling: Playtech's Core B2B Gambling technology business comprises
its B2B customers outside of Asia. The strategic focus of Playtech's Core B2B
Gambling business is on higher margin regulated opportunities with Sports,
Casino and Live Casino being of greatest importance. Playtech will continue to
support existing licensees with new technologies and better tools and provide
them with greater flexibility in running their businesses.
While Playtech's Core B2B business possesses a very strong set of assets, over
the past 18 months the Company has been adjusting to the evolving industry
landscape. The Company believes that a significant portion of its addressable
market has been untapped. It also believes that there are a number of
fast-growing markets with low online penetration where the market opportunity
is sizeable.
Playtech estimates that there are over 1,000 brands globally today that
previously did not use a single Playtech product or service. Playtech has been
strategically investing in R&D to evolve and improve its technology and
allow a faster and cheaper time to market for its licensees, in order to
access previously untapped commercial opportunities and markets.
Playtech has componentised the IMS platform, allowing it to offer a more agile
and flexible technology solution to licensees that previously would not have
been able to access the value-add data-driven services and capabilities, which
are Playtech's source of success.
This strategy has delivered more than 50 new brands through 2019. Playtech is
excited about extending its reach to new customers and to new markets for
existing customers in the coming years.
Playtech's intention to continue accessing opportunities includes new
customers in both existing regulated markets and newly regulated markets,
through structured agreements and joint ventures depending on commercial
suitability and market dynamics.
B2C Gambling: Playtech's B2C business comprises Snaitech in Italy, the HPYBET
B2C sport business in Germany and Austria, and white label operations such as
Sun Bingo.
Snaitech had an outstanding 2019 operational performance, which excluding the
Italian taxation headwinds, achieved impressive growth in adjusted EBITDA.
Snaitech achieved the leading market share position in total online revenue
(betting and gaming) in H2 2019, leveraging the strength of its brand and
retail presence in the initial months of the advertising ban in Italy.
Snaitech is an exciting part of the Group given the significant growth
achieved which is expected to continue in online. Playtech intends to continue
to leverage Snaitech's local expertise and powerful brand awareness to capture
market share in Italy going forward.
Asia: Playtech's B2B gambling activity in Asia is different and separate from
the rest of the Company. Playtech operates a different model whereby it
provides content and certain services to the market principally on a
distribution model basis. Operating in unregulated markets it is also higher
margin and more highly cash generative compared to other parts of the Group.
TradeTech: TradeTech had a disappointing 2019 performance but Playtech
continues to believe that TradeTech is an attractive asset and is currently
reviewing the strategic options for this business.
Strategic review of underperforming assets
Playtech is in the process of undertaking a strategic review of its
underperforming assets. The strategic review of the Casual Gaming business was
completed in 2019. It is now a discontinued operation and is expected to be
disposed of in the near future. An impairment loss of €23.7 million related
to Casual Gaming was recognised in 2019. TradeTech had a disappointing 2019
performance. Management is currently reviewing the strategic options for this
business and a €90.1 million impairment loss has been recognised in 2019.
Regulation
Regulation continued to be a major influence on the gambling industry
throughout 2019 with further markets regulating and the evolution of
regulation within individual existing markets.
Playtech is committed to raising industry standards and facilitating a fairer,
safer and more sustainable sector and continues to actively promote regulation
in existing, future and emerging markets. Effective regulation should
ultimately lead to a safer gambling experience. Starting from improving the
permanence of each market, to driving responsible decision making and
investment in safer gambling by operators, regulatory legislation should
improve consumer protection in our business of entertainment. Playtech's
commitment to safer gambling and its use of technology and data to support its
licensees in this area position the Group well to remain the leading platform
in regulated markets.
Regulated markets in the UK, Europe, Latin America and the US remain key to
our continued growth. The increase in regulated revenue is a result of the
continued progress Playtech has made on its strategic goals as well as the
continuing success of Snaitech in Italy. Further, expanding the relationship
with GVC has given Playtech access to additional global markets. The company
intends to increase its scale and distribution in these markets by leveraging
its range of products and services across the gambling value chain and its
global expertise to sign new licensees and expand its relationship with
existing licensees into further regulated and newly regulating markets.
UK
The UK remains a key regulated market for Playtech, where the strength of
Playtech ONE provides it with a strategic advantage and a cornerstone
presence. Playtech expects that its commitment to safer gambling and its use
of technology and data to support its licensees in this area will see it
remain the go-to platform for regulated markets. Playtech's ongoing
relationship with Tier 1 operators in the UK continues to deliver strong
results for the Group.
Significant regulatory developments in the UK during 2019 included the cut to
maximum stakes allowed at fixed-odds betting terminals (FOBTs) from £100 to
£2 and an increase in Remote Gaming Duty to 21% from 15% with both measures
in effect since 1 April 2019. The UK Gambling Commission also announced a ban,
effective from April 2020, on operators allowing consumers in the UK to use
credit cards to gamble. There is also an expectation that affordability checks
will be introduced in the future and the introduction of online stake limits
is currently being reviewed by the regulator
Europe
Regulated markets in Europe represent significant growth opportunities. The
Swedish market launched on 1 January 2019, followed by the Swiss market in
July. Playtech entered both markets and is well positioned to drive revenue
growth through 2020 and beyond.
In Italy, the Group's largest market by revenue due to the presence of
Snaitech, the Government introduced significant restrictions effective since
July 2019 on the online advertising of gambling products. Although smaller
operators, particularly those who operate online only, will likely find it
difficult to compete in the market, management believes Snaitech's retail
presence and the strength of its brand will see it benefit from the
advertising ban in relative terms. Further, the Government increased taxes
across retail and online sports betting as well as online gaming.
Looking forward, further markets will continue to regulate. For example, the
Netherlands is expected to issue licenses in 2020 ahead of regulating 2020,
Ukraine is expected to regulate in 2020, while Germany is expected to clarify
its regulatory picture in the near future. Playtech is well positioned to
enter each of these markets.
Latin America
Latin America remains a key growth territory for online gaming. Playtech
continues to explore deals across Latin America and will look to leverage the
success of its relationship with Caliente in Mexico where possible, having
already done so in 2019 in signing a major new agreement with Wplay, the
leading operator in Colombia.
In Brazil, sports betting legislation has been passed and is expected to be
implemented in the next few years. Given the population and its access to the
mobile channel, this could be an interesting opportunity in the future.
Further jurisdictions such as Peru, individual provinces of Argentina, and
Guatemala should provide opportunities for Playtech in the coming years.
US
Following the US Supreme Court's decision in 2018 to repeal PASPA, many states
have moved to legalise and regulate sports betting. Online casino, which was
not subject to PASPA and is allowed at the discretion of individual states,
continues to only be regulated in a few states.
Since the repeal of PASPA, numerous states including New Jersey, Colorado,
North Carolina, Michigan, Mississippi, Pennsylvania, Iowa and Indiana have
approved legislation to legalise sports betting. Many of these markets have
already launched, with others expected to launch in 2020. In total, 21 states
now offer or have introduced legislation to allow sports betting with further
states expected to pass legislation in 2020 and beyond. Playtech is increasing
its investment in the US market in 2020 including developing a Live Casino
facility in New Jersey.
Asia
Playtech's business in Asia is predominantly in China and Malaysia, which are
both unregulated markets. Our business in Asia continues to be materially
lower than previous years following a significant increase in competition in
China in 2018 from new market entrants, while Malaysia also remains
significantly lower than its previous highs.
Increased competition in China is likely to remain and has resulted in a
highly competitive pricing environment. Playtech has taken several actions to
secure its position in the market focusing on underlining the premium position
of its offering in the region. The company has also launched multiple new
games, focusing on branded content. Playtech began implementing an
incentivisation scheme to reward sub-licensees for promoting Playtech content
and generating higher volumes of business.
Playtech continues to monitor developments in Asia closely including the
negative impact of COVID-19 in February. While operating at a lower run rate
than before, Playtech's Asia business remains high margin and highly cash
generative.
Safer Gambling
As a technology specialist, Playtech's vision is to be the global leader in
safer products, data analytics and player engagement solutions - partnering
with our licensees to deliver safe and sustainable entertainment for the
benefit of all stakeholders. In 2019 we developed a new five-year Safer
Gambling and Responsible Business Strategy that underpins our commitment and
aspiration to sustainable business. We welcome the call for raising standards
and support the policies designed by regulators to create a safer, fairer and
more sustainable industry whilst supporting the long-term success of the
sector.
Playtech continues to invest in and deploy technology, data and engagement
solutions to help our licensees and the industry provide a safer gambling
journey and environment. In 2019 Playtech completed the integration of
BetBuddy into IMS and the Engagement 360 platform, implemented enhancements to
its front-end design and initiated deployment to licensees. We are combining
BetBuddy with our real time player engagement and messaging platform, Player
Journey, to help operators more effectively identify player risk and deliver
highly personalised messaging to empower players to make safer decisions.
Playtech has invested in research to better understand and assess how we can
use our data to extend our knowledge of sustainable product design, safety and
smart labelling. The initiative has included the development of safe game
design principles, our risk assessment framework and a new game labelling
project aimed at raising player awareness of slots volatility and promoting
safer gambling messaging. Playtech is leveraging partnerships with external
experts including City, University of London's Research Centre for Machine
Learning, to explore the relationship between game features, consumer
behaviour and potential harm.
We are sharing our research, data analytics expertise and insights with a wide
range of stakeholders including trade bodies, research organisations and
academics. We are committed to working in collaboration with operators and
partners to help raise and shape industry standards, share best practices and
explore the role that technology can play in helping to address the most
pressing challenges facing the gambling world today.
In 2020 Playtech will launch its 'Sustainable Success' five-year safer
gambling and sustainability strategy. The strategy will support our long-term
ambition to be the most trusted and innovative global leader in safer gambling
products, data analytics and player engagement solutions.
We are delighted to announce that as part of the sustainable success strategy
Playtech will be investing £5 million in five key areas with charity and
social enterprise partners that provide research, programmes and support to
promote 'healthy online living'. Building on work the Group has done in 2018
and 2019 Playtech will contribute expertise, research and financial support in
five areas including preventative education and research into digital
solutions and tools. The Group recognises that as the technology specialist
in the industry it has a duty to extend Playtech's expertise, experience and
technology to help build a sustainable, safe and 'entertainment first'
industry for the benefit of all stakeholders.
Gaming Division review
Gambling B2B
Operational momentum continued across B2B Gambling during 2019 with new
customer wins, new launches and further product enhancements.
Playtech signed over 50 new brands through 2019 including Grupo Solverde in
Portugal and Swiss Casinos in Switzerland. Following the extended and expanded
contract with GVC in early 2019, Playtech rolled out its products to many GVC
brands throughout the year. Countries launched include UK, Italy, Greece,
Belgium, Brazil, Georgia, Spain and Denmark.
In Casino, Playtech rolled out a new suite of games called Kingdoms Rise,
offering tailor-made jackpots and in-game tokens that players can use to
complement their own game play style. In addition to new product deliverables
such as in-game messaging, tokens and an interactive map as a navigation tool
for players, the Kingdoms Rise suite was used as a vehicle to demonstrate our
newly introduced Capped and Daily Jackpot configurations that can be networked
or localised.
Playtech's Live Casino business had a strong year through the continued
delivery of high-end progressive products and driving player engagement
through leading games, features and tools. The business continued to leverage
the broader Playtech offering through unrivalled cross-product jackpots and
cross-vertical tools such as the Engagement 360 platform. Playtech also
continued to increase its overall network capacity for its Live Casino
offering. Product innovations included the industry's first Live Slots game
with free spins introduced for the first time, as well as Quantum Blackjack,
the industry's first multiplier blackjack game.
Sport continued its strong operational performance in 2019 with new customer
wins, expanded business with existing customers as well as further product
enhancements. The results also included multiple hardware sales which extended
Playtech's scale and boosted revenue in the period.
PBS extended its agreement to supply GVC's Ladbrokes Coral retail business
with the software for its self-service betting terminals (SSBTs) throughout
the UK and also expanded its presence with GVC in Belgium. Latin America
remains a key growth region within B2B Sport. PBS signed a major new agreement
with Wplay in Colombia, including Sportsbook and Virtuals and also further
extended the contract with Sportium Colombia. Growth in Mexico continued with
PBS rolling out further retail bet entry points with Caliente and Sorteos
Torrefiel.
PBS continued to innovate in 2019. Bet Recommender, the AI algorithmic engine
which suggests relevant content to customers on the SSBT, was rolled out to
operators. Match Acca, which enables users to combine multiple markets within
the same event to create an accumulator bet with one specific price, continued
to grow in both retail and digital channels.
Bingo performance in 2019 was in line with expectations. The Bingo business
continued to work with existing customers such as Buzz Bingo who continue to
grow as a key partner. Buzz Bingo added 'Buzz Trivia', 'Buzz Live' and a
Playtech 'Casino' tab to their portfolio in 2019. Going forward, the division
will focus on growing in territories outside of the UK such as Italy and
Austria, as well as on omni-channel projects with Playtech's key Bingo
licensees who have a retail estate.
Poker remains an important part of the Playtech ONE offering, with a
continuously growing proposition through strategic investment in product.
Operating in both unregulated and regulated markets via EU liquidity sharing,
the business is well-positioned to maximise potential opportunities and
mitigate the impact of potential regulatory changes elsewhere. Playtech's
Poker business had strong results in Spain and Italy in 2019. From a product
perspective, Playtech developed a 5 card Omaha game and a Football Stars Speed
Poker game which offers a shared jackpot with the Sporting Legends casino
game.
B2C Gambling
Snaitech
The acquisition of Snaitech has created an integrated gaming company across
retail and online and has given Playtech a cornerstone presence in the largest
gambling market in Europe. Playtech is utilising its omni-channel technology
stack to capture the online growth opportunity in Italy, where online market
penetration remains low at approximately 10% of the total market (Source:
H2GC).
Snaitech had an outstanding operational performance in 2019 against the
backdrop of substantial legislative headwinds in the form of taxation
increases across the entire Italian gambling industry. Underlying EBITDA grew
24% compared to annualised 2018 results when excluding the impact of the
taxation increases and the World Cup benefit from 2018 figures.
In 2018, the government in Italy approved an advertising ban for all forms of
gambling which took effect from 1 July 2019. We continue to expect Snaitech to
be relatively better positioned than online-only competitors given the
strength of its retail brand and presence. The effects and enforcement of the
advertising ban are being monitored closely since its introduction. Since the
introduction of the advertising ban Snaitech has gained market share and
become the number one player in overall online (betting and gaming) in H2
2019. Playtech expects Snaitech to continue to benefit from the advertising
ban going forward by further strengthening its market position in online.
Playtech is also closely monitoring the negative impact of COVID-19 in Italy.
TradeTech Group - Playtech's financial division
TradeTech had a challenging 2019 due to both record low volatility in Q1
together with difficult market conditions in September and October that
impacted all market making activities, including risk and execution, B2C and
its turnkey offering. TradeTech was also negatively impacted by the
introduction of European Securities and Markets Authority's ("ESMA") product
intervention measures.
TradeTech launched a new strategy for its B2C business in June which is
showing positive initial indications. Since launch KPIs have been strong
including higher first deposits, higher redeposit ratios, and higher customer
lifetime value (CLV). This resulted in improved revenues and EBITDA for the
B2C business in H2 following the launch of the new strategy.
The CFH business within TradeTech performed well in 2019 and continues to grow
by increasing customers and volumes and enters 2020 with a strong pipeline.
Following the challenging market movements in September and October, TradeTech
changed its approach to market risk, in order to deliver a more sustainable
and predictable revenue stream going forward. The nature of this business
means there will always be some exposure to market conditions and volatility
but TradeTech has changed its approach to cater for further diversification in
its risk book, and reduced the potential for a significant negative impact on
revenues in a specific period.
2020 has started strongly in all areas of the business. Our focus for 2020
will be on growth and sustainability of our revenues together with delivering
synergies by merging certain functions across the various TradeTech
businesses. TradeTech will also be aiming to optimise the efficiency of its
balance sheet in order to enable release of cash currently tied up in the
business.
Chief Financial Officer's review (1)
Overview
Playtech has delivered a strong financial performance driven by strength in
its regulated B2B Gambling and B2C Gambling businesses. Total
reported revenue increased by 23%, Adjusted EBITDA increased by 11%. On a
constant currency basis, revenue increased by 23%, Adjusted EBITDA increased
by 11%. Reported EBITDA increased by 16% to €335.3 million (2018: €289.9
million).
The growth in revenue and Adjusted EBITDA was driven by the inclusion of
Snaitech results for the entire period (only consolidated from 5 June in
2018), in addition to Snai underlying growth, as well as growth from our Core
B2B Regulated Gambling revenues. Regulated B2B Gambling revenue grew 16% on a
constant currency basis, while Unregulated B2B Gambling declined 27% at
constant currency largely driven by a 39% decline in revenues from Asia. 2019
Adjusted EBITDA includes the adoption of IFRS 16, which had the net impact of
increasing Adjusted EBITDA by €23.2 million.
Adjusted profit before tax from continuing operations decreased by 49% to
€133.0 million (2018: €259.8 million). Reported profit before tax from
continuing operations was €13.2 million, a 90% decrease compared to a
reported net profit of €128.1 million in 2018 and when including
discontinued operations and tax, the group suffered a net loss of €19.6
million for 2019. The Group's Adjusted profit before tax from continuing
operations fell despite Adjusted EBITDA growth, largely due to increased
depreciation, amortisation, interest costs and taxation following the Snaitech
acquisition as well as increased Group finance costs arising on bond loans in
addition to significant gains from dividends and disposal of the equity
investments in 2018. Impairment of intangible assets of the Markets and Alpha
CGUs amounting to €90.1 million and Casual CGU amounting to €23.7 million
(which has been recognised in the discontinued operations) are the main
reasons for the reported net loss in the year. This is more than the offset
the release of contingent consideration of Alpha amounting to €72.6 million.
Snaitech's adjusted EBITDA was €162.4 million in the year (2018: €93.0
million), the increase is mainly since 2019 includes a full year of Snai
activity, compared to 7 months in 2018, since its acquisition in June 2018. In
addition, Snaitech had a very strong performance with significant growth in
underlying Net Profit and Adjusted EBITDA, on a pro forma basis(2), when
excluding impact of increased taxation from legislative changes in 2019.
Driven by Snaitech and the Core B2B Gambling growth, regulated revenue
accounted for 88% of Group revenues in 2019 (2018: 80%).
During 2019, Playtech raised €350 million senior secured notes maturing in
2026. The proceeds from the notes were used to repay the €297 million
convertible bond which matured in November 2019, as well as for general
corporate purposes. Playtech continues to have a very strong balance sheet
with cash and cash equivalents of €671.5 million as at 31 December 2019.
Adjusted Gross cash, which excludes the cash held on behalf of clients,
progressive jackpot and security deposits, was €333.2 million at the end of
2019 (2018: €312.7 million). Owing to the Group's strong cash generation,
management will increase shareholder distributions versus 2018, split into a
dividend and share buyback.
Group Summary(3)
( )
Group Revenue 2019 2018 Change Constant Currency Change
€m €m
B2B Gambling 553.9 566.0 -2% -3%
B2C Gambling 900.5 578.1 56% 56%
Intercompany (13.9) (11.7) 19% 18%
Total Gambling 1,440.5 1,132.4 27% 27%
Financial 67.9 92.9 -27% -30%
Total Group Revenue 1,508.4 1,225.3 23% 22%
( )
2019 2018
€m €m
Total Group Revenue 1,508.4 1,225.3
Adjusted Costs 1,125.3 880.2
Adjusted EBITDA 383.1 345.1
Reconciliation from EBITDA to Adjusted EBITDA:
EBITDA 335.3 289.9
Employee stock option expenses 18.1 13.7
Professional fees on acquisitions 1.9 27.1
Cost of fundamental business reorganisation - 2.4
Additional consideration payable in respect of redemption liabilities 10.2 (2.4)
Amendment to contingent consideration 6.3 1.7
Effect from the amendment on the terms of Sun contract back dated 6.4 -
(Reversal)/provision for other receivables (0.2) 5.6
Impairment of investment in equity-accounted associates and non current assets 5.1 8.0
Gain from disposal of equity-accounted associates - (0.9)
Adjusted EBITDA 383.1 345.1
Adjusted EBITDA margin 25% 28%
Adjusted EBITDA on a constant currency basis 381.6 345.1
Adjusted EBITDA margin on a constant currency basis 25% 28%
EBITDA related to acquisitions at constant currency (154.7) (88.0)
Underlying Adjusted EBITDA on a constant currency basis 226.9 257.1
Underlying Adjusted EBITDA margin on a constant currency basis 15% 21%
Total Group revenue increased by 23% to €1,508.4 million (2018: €1,225.3
million) and by 22% on a constant currency basis, with underlying revenue,
after excluding acquisitions made in 2018 and 2019, and at constant currency,
decreasing by 6%.
Key adjusting items when arriving at Adjusted EBITDA include the removal of
additional consideration payable for the acquisition of BGT and the effect
from the amendment of the terms of the Sun contract which relates to our Sun
Bingo business, namely the amendment of our contract with News UK and the
impact on the statement of comprehensive income, assuming that this had been
in effect from the beginning of the year, which is discussed in detail below.
2019 EBITDA and Adjusted EBITDA include the adoption of IFRS 16, which had the
impact of increasing EBITDA by €23.2 million and Adjusted EBITDA by €23.2
million. This is the amount of rent expense under IFRS 16, less the amount of
capitalised development costs which related to rent in the method used before
the adoption of IFRS 16.(4). The table below shows the impact broken down by
division:
2019
€m
B2B Gambling 14.8
B2C Gambling - Snaitech 4.9
B2C Gambling - Other components 1.5
TradeTech 2.0
IFRS 16 impact on Group Adjusted EBITDA 23.2
B2B Gambling
2019 2018 Change Excluding one-offs
€m €m
B2B Gambling Revenue* 553.9 566.0 -2%
Research and development 80.9 80.3 1%
Operations 181.2 151.1 20%
Administrative 57.4 62.1 -8%
Sales and marketing 19.6 20.0 -2%
B2B Gambling Costs 339.1 313.5 8%
B2B Gambling Adjusted EBITDA 214.8 252.5 -15%
*To reflect the underlying activity of the B2B Gambling division, B2B revenues
include the software and services charges generated from the relevant B2C
activity with fellow group companies, which is then eliminated to show the
consolidated gambling division revenues.
B2B Gambling revenue
B2B Gambling revenue decreased by 2% largely due to a 38% decline in revenues
from Asia, which was offset by strong revenue growth of 17% in regulated
revenues, mainly in Sport, which enjoyed an increase in sales of hardware
amounting to €56.2 million. Within regulated revenues, revenue from rest of
the world increased by 32%, predominantly from Caliente with the UK and the
rest of Europe increasing by 17% and 14%, accordingly, mainly from Sport.
B2B Gambling Costs
Research and development ("R&D") costs include, among others, employee
related costs, dedicated teams direct expenses and proportional office and
expenses. Expensed R&D costs increased in 2019 by 1% to €80.9 million.
Capitalised development costs were 37% of total B2B Gambling R&D costs in
the period, compared to 37% in 2018. The adoption of IFRS 16 accounting
requirements, resulted in cost reduction of €2.7 million when compared to
2018, which is the amount of rent expense capitalised under IFRS 16, less
the amount of capitalised development costs which related to rent in the
method used before the adoption of IFRS 16.(4)
The operations cost line includes employee related costs and their direct
expenses, operational marketing cost, hosting, license fees paid to third
parties, branded content, terminal hardware cost & maintenance, feeds,
chat moderators and proportional office cost. Operations costs increased by
20% to €181.2 million in 2019. The increase is mainly due to cost of
hardware sold in Sports and when excluding this cost, operational costs would
have remained flat compared to 2018. When excluding the impact of IFRS 16,
which totaled €6.9 million, operations costs increased by 15% versus 2018
mainly due to a rise in employee related costs and brand and content fees.
Administrative costs decreased by 8% to €57.4 million mainly due to a
significant decrease in employee related costs through tighter internal cost
control. Excluding the impact of IFRS 16, which totaled €4.7 million,
administrative costs were flat versus 2018.
Sales and marketing cost mainly include employee related cost, their direct
expenses, marketing and exhibition costs. Sales and marketing cost decreased
by 2% to €19.6 million. The decrease is mainly due to a reduction in
exhibition costs. Excluding any impact of IFRS 16, which totaled €0.5
million, sales and marketing costs were flat versus 2018.
B2B Gambling Adjusted EBITDA
B2B Gambling Adjusted EBITDA decreased by 15% to €214.8 million (2018:
€252.5 million) mainly due to the fall in Casino revenues from Asia flowing
through to EBITDA, which was offset by growth in sale of hardware in sport and
growth in revenues from Europe (excluding the UK), and the Rest of the World
(excluding Asia).
B2C Gambling
2019 2018 Change
€m €m
Snaitech 829.7 511.9 62%
White label (incl. Sun Bingo) 51.1 52.1 -2%
Retail Sport B2C 19.7 14.1 40%
B2C Gambling Revenue 900.5 578.1 56%
Snaitech 667.3 418.9 59%
White label (incl. Sun Bingo) 41.2 76.0 -46%
Retail Sport B2C 31.6 20.2 56%
B2C Gambling Costs 740.1 515.1 44%
B2C Gambling EBITDA 160.4 63.0 155%
Snaitech
On a pro forma basis, when comparing Snaitech numbers as if it were part of
the Group for all 12 months in 2018, Snaitech revenues decreased by 7% to
€829.7 million (2018: €894.6 million), driven by an 14% decrease in
revenues from gaming machines. This decrease was driven by increases in
taxation on gambling activities in Italy, introduced in January 2019, which
negatively impacted revenue, partially offset by strong growth in online.
Total online revenues increased by 21% driven by a 28% increase in online
wagers, which is significant given the lack of football World Cup in 2019 when
comparing against 2018. Excluding the increase in taxation, total revenues
increased by 4%.
Snaitech operating costs for 2019 decreased by 9%, on a pro forma basis( 2),
to €667.3 million (2018: €734.9 million). The fall in operating costs was
largely due to the decrease in cost of services and the use of third party
assets, which mainly comprises the reduction in distribution costs as a direct
result of the reduction in revenues following the gaming taxation increase in
Italy. Higher marketing costs related to the football World Cup in 2018 were
also not required in 2019. Further, the impact of IFRS 16 totalled €4.9
million.
White label (including Sun Bingo)
Overall white label revenue decreased by 2%. This was driven by strong growth
from Sun Bingo, offset by declines from other white label brands which have
been significantly reduced as part of a housekeeping exercise where certain
brands have been consolidated or ceased operating. When excluding Sun Bingo,
white label costs fell by 52% versus 2018, largely due to the reduction in
operational and marketing expenditure relating to other white label
activity.
Adjusted Operating costs of the Sun Bingo activity decreased by 43% to €30.7
million (2018: €54.1 million) mainly due to the terms of the extended
contract signed in 2019. Making 2019 the first year in which the Sun Bingo
activity Adjusted EBITDA is positive with a €9.9 million profit (2018:
€20.4 million loss). Details of the extension can be found below.(5)
Other White label costs decreased by 52% with total adjusted EBITDA loss
decreasing by 97% to €0.01 million (2018: €3.4 million)
Retail Sport B2C
Retail Sport B2C revenues increased significantly from a low base, growing by
40% to €19.7 million (2018: €14.1 million). This was driven by an increase
in HPYBET franchise shops in 2019 and 2019 includes full year revenue compared
to 8 months for 2018.
Retail Sport B2C costs increased by 56% largely driven by an increase in the
number of HPYBET shops, increase in marketing costs and also includes full
year costs compared to last year. The impact of IFRS 16 on B2C Gambling
excluding Snaitech was €1.4 million in 2019 and the majority of this relates
to Retail Sport B2C.
TradeTech Group
TradeTech's revenue decreased by 27% in 2019. The decrease was driven by a
lack of market volatility during the first quarter of 2019, together with some
exceptional market-making movements during September and October 2019. Revenue
from TradeTech's B2C activity decreased 45% during the year, representing the
impact of the aforementioned market conditions and first full year of ESMA's
product intervention measures.
TradeTech's cost of operations decreased by 5% in 2019, representing increases
in R&D and sales and marketing costs, offset by reductions in operational
and general and administrative costs.
Below EBITDA items
Depreciation and amortisation
Depreciation increased in 2019 by 21% to €51.5 million (2018: €42.6
million), mainly due to the acquisition of Snaitech which added a full year
depreciation totaling €18.4 million in 2019, compared to only 7 months of
depreciation totaling €9.8 million in 2018. Excluding acquisitions,
underlying depreciation decreased by 4%.
Amortisation expense increased significantly by 74% to €106.1 million (2018:
€60.9 million), largely due to the acquisition of Snaitech and the €19.2
million impact of IFRS 16. Excluding the amortisation within acquisitions and
effect of IFRS16, amortisation increased by 26% to €51.5 million in line
with the increase in capitalsed development costs.
Finance costs and income
Adjusted finance costs increased by 31% to €53.0 million. The increase was
driven by a €14.3 million rise in accrued interest relating to bond loans,
of which €21.2 million relates to the interest on the €530 million bond
Playtech raised in October 2018 and €12.7 million relates to the €350
million bond raised in February 2019. Additionally, €2.5 million which
relates to Playtech's revolving credit facility and there was a €5.0 million
rise in bank fees due to the annualisation of Snaitech's bank fees. The impact
of IFRS 16 was a €6.2 million increase to finance costs. On a reported
basis, finance costs increased by 8% to €64.2 million (2018: €59.4
million).
Reported finance income increased by 79% to €83.3 million (2018: €46.6
million) while adjusted finance income decreased by 91% to €3.2 million
(2018: €36.4 million), driven by the 100% fall in dividend income given the
disposal of equity investments in Plus500 and GVC in 2018. This was partially
offset by a 33% increase in interest income to €3.2 million (2018: €2.4
million).
Tax
The Group's underlying adjusted current effective tax rate of 14% (2018:10%)
is impacted by the geographic mix of profits and reflects a combination of
higher headline rates of tax in the various jurisdictions in which the Group
operates when compared with the Isle of Man standard rate of corporation tax
of 0%.
The total adjusted tax charge in 2019 was €43.9 million (2018: €35.1
million) of which €27.0million (2018: €25.9million) relates to current tax
expense. The increase is mainly due to the profits being recognised in higher
taxing territories increasing Playtech's effective tax rate. Cash taxes paid
in the period are lower than the Income Statement taxes mainly due to the tax
loss carry forwards available in Italy.
Discontinued Operation
On 22 November 2019, the Group announced that it was reviewing its Casual and
Social Gaming Business. Prior to the year end the Board of Directors made the
decision to dispose of Casual and Social Gaming Business. Accordingly, Casual
and Social Gaming Business were classified as a disposal group held for sale
and as a discontinued operation. The Adjusted EBITDA loss, related to Casual,
has increased by 118% to €4.6 million (2018: €2.1 million). Adjusted net
loss increased by 136% to €8.5 million (2018: €3.6 million) and reported
net loss increased by 663% to €32.8 million (2018: €4.3 million) due to
the recognition of an impairment loss of €23.7 million. The impairment loss
has been applied to reduce the carrying amount of the intangible assets within
the disposal group.
Adjusted profit and Adjusted EPS
2019 2018
€m €m
Profit from continuing operations attributable to the owners of the parent 13.2 128.1
Amortisation of intangibles on acquisitions 58.1 47.2
Gain from the disposal of equity-accounted associates - (0.9)
Impairment of investment in associate and other non-current assets 5.1 8.0
Employee stock option expenses 18.1 13.7
Professional fees on acquisitions 1.9 27.1
Additional consideration payable in respect of redemption liabilities 10.2 (2.4)
Cost of fundamental business reorganisation - 2.4
Notional interest on convertible bonds 9.9 10.7
Deferred tax on acquisition (13.7) (9.8)
Movement in contingent consideration and redemption liability (80.1) (1.9)
Finance costs on acquisitions 1.5 8.5
Fair value change of equity investments 0.3 1.7
Tax relating to prior years 4.1 28.4
Gain on the early repayment of the bond - (8.4)
Amendment to contingent consideration 6.3 1.7
(Reversal)/provision for other receivables (0.2) 5.6
Effect from the amendments on the terms of Sun contract back dated 6.4 -
Impairment of right of use of asset 0.8 -
Impairment of tangible and intangible assets 91.1 -
Adjusted Profit for continuing operations 133.0 259.7
Adjusted basic EPS (in Euro cents) 44.1 82.4
Adjusted diluted EPS (in Euro cents) 43.2 73.9
Constant currency impact 0.2 4.6
Adjusted profit for the year attributable to owners of parent on constant 133.2 264.3
currency
Adjusted Net Profit on constant currency related to acquisitions (44.4) (35.6)
Underlying adjusted profit for the year - attributable to owners of the parent 88.8 228.7
Reported EPS from continuing activity decreased by 89%, in line with the
decrease in net profit. Adjusted diluted EPS decreased by 42% and the
underlying Adjusted diluted EPS on a constant currency basis excluding
acquisitions decreased by 56% compared to 2018. Adjusted diluted EPS is
calculated using a weighted average number of shares in issue during 2019 of
308.0 million, which includes a weighted average number of 301.8 million
equity shares.
Cashflow
Playtech continues to be cash generative and delivered operating cash flows of
€317.1 million from continuing operations, with adjusted cash conversion of
83%.
Cash conversion
2019 2018
€m €m
Adjusted EBITDA 383.1 345.1
Net cash provided by operating activities 317.1 384.9
Cash conversion 83% 112%
Change in jackpot balances (9.6) (4.2)
Change in client deposits and client equity (22.0) (70.1)
One-off tax payment 28.0 -
Dividends payable (0.3) (4.3)
Professional expenses on acquisitions 1.9 27.1
Finance costs on acquisitions 1.5 8.5
ADM security deposit (17.1) -
Adjusted net cash provided by operating activities 299.5 341.9
Adjusted cash conversion 78% 99%
Adjusted cash conversion is shown after adjusting for jackpots, security
deposits and client equity, payable dividend and professional and finance
costs on acquisitions. Adjusting the above cash fluctuations is essential in
order to truly reflect the quality of revenue and cash collection. This is
because the timing of cash inflows and outflows for jackpots, security
deposits, client equity and payable dividend only impacts the reported
operating cashflow and not EBITDA, while professional expenses and finance
costs relating to acquisitions are excluded from adjusted EBITDA but impact
operating cashflow.
The decrease in net cash provided by operating activities is largely due to
the fall in contribution from Asia, as well as the €28.0 million one-off
cash payment made to the Israeli government for the settlement of additional
tax relating to the Group's activities in Israel for the years 2008 to 2017
inclusive, which was provided for in 2018, this was offset by a decrease in
DSO to 51 days (2018: 58). Following the necessary adjustments, adjusted cash
conversion is 78% (2018:99%) which the Group believes is a true representation
of cash collection in the period.
The adjusted net cash provided by operating activities excluded the security
deposit repayment from Italy's online betting and gaming regulator (ADM) for
2019 and 2018. The adjusted net cash provided by operating activities includes
certain notable working capital movements: during 2019, the Group received
£30.0 million relating to amounts due in respect of the early settlement of
the marketing services agreement with Ladbrokes as disclosed in the 2016
annual report. This is offset by the payment in the period of amounts accrued
as payable under the Sun Bingo contract of £31.5 million.
Net cash outflows used in investing activities totaled €200.9 million in the
period compared to a net inflow of €49.2 million in 2018. The net inflow in
2018 is mainly due to €481.1 million from proceeds of disposing the
investments in Plus500 and GVC. Out of the net cash outflow in 2019, €47.3
million relates to consideration paid in relation to previous acquisitions of
subsidiaries, €61.4 million was used in the acquisition of property, plant
and equipment and a further €24.3 million on the acquisition of intangible
assets. A further €65.5 million (2018: €58.3 million) was spent on
capitalised development costs . €5 million was received during 2019 as part
of an agreement for the disposal of real estate located in Milan. An
additional €50 million to be received on completion, which is expected to be
in H1 2020, subject to certain conditions.
Net cash outflows used in financing activities totaled €69.3 million (2018:
€393.6 million) which included €297 million repayment of the convertible
bond, €65.1 million buyback of Playtech shares and dividends paid to owners
of the parents of €55.5 million totaling in €120.6 million of shareholders
return (2018: 113.3 million), payment of lease liability of €27.2 million,
which is following the adoption of IFRS 16 interest payments on loans and bank
borrowings totaled €29.5 million (2018: €22.1 million), with the increase
driven by the full year effect of the bond raised in 2018 and the bond raised
during the first half of 2019 as well as through the acquisition of Snaitech
in 2018 and dividend payed to minority shareholders of €4.4 million. These
outflows were net off by €345.7 million inflow from the issue of a bond net
of issue costs and €63.9 million proceeds from bank borrowings.
Balance sheet and financing
Cash
As at 31 December 2019, cash and cash equivalents amounted to €671.5 million
(31 December 2018: €622.2 million). Cash net of client funds, progressive
jackpot and security deposits amounted to €333.2 million (31 December 2018:
€312.7 million).
Financing
In March 2019 the Group raised €350 million 7-year senior secured fixed rate
notes (4.25% coupon, maturity 2026). The net proceeds of the bond were used to
fully repay the €297 million convertible bond which matured in H2 2019, and
for general corporate purposes, including payment of contingent consideration.
In November 2019 the group signed an amendment to its previous RCF, increasing
it to €317 million and extending its term to an additional 4 years, ending
in November 2023, with a one-year extension option. As at 31 December 2019 the
facility has a drawn amount of €63.9 million (2018: €0).
In October 2018 the Group raised a €530 million bond (3.75% coupon, maturity
2023), mainly to refinance the old Snaitech bonds which had less favorable
terms.
Total gross debt at the end of 2019 is €935.6 million (2018: €811.1
million) and €602.4 million (2018: €498.4 million) of net debt, after
deducting adjusted gross cash.
Contingent consideration
Contingent consideration and redemption liability decreased by
€97.7 million versus 31 December 2019 due to the payments of the CFH,
Rarestone and Quickspin liabilities and reduction of the expected final
payments relating to the acquisitions of Tradetech Alpha (ACM Group) and
HPYbet Austria GmbH offset by movement in Playtech BGT Sports and the addition
of contingent consideration resulting from the joint venture with Wplay. The
existing liability as at 31 December 2019 comprised the following:
Acquisition Contingent consideration and redemption liability as of 31.12.2019 Maximum payable earnout Payment date
ACM Group - €129.2 million Q3 2020
Playtech BGT Sports Ltd €36.9 million €95.0 million Q2 2020
HPYbet Austria GmbH - €15.0 million Q2 2021
Rarestone Gaming PTY Ltd €3.8 million €4.1 million €1.3 million Q4 2020
€2.5 million Q1 2021
Bet Buddy €1.4 million €1.4 million Q4 2020
GenWeb €2.5 million €2.5 million Q1 2020
Eyecon Limited - €26.4 million Q2 2021
WPlay €16.1million 21.2 million €16.1 million Q3 2020
€5.1 million Q1 2021
Other €0.4 million €0.4 million
Total €61.1 million €295.2 million
Shareholders return
In order to maximise the efficiency of shareholder returns the Board believes
returns should be balanced between dividends and share buybacks. It is the
Board's intention that the overall level of capital returned to shareholders
will continue to be progressive, in line with medium term earnings and cash
flows. The Board has approved a share repurchase programme of €40 million
and a final dividend declared of 12.0 €c per share. For shareholders wishing
to receive their dividends in Sterling, the last date for currency elections
is 8 May 2020.
Dividend timetable:
Ex-dividend date: Thursday 30 April 2020
Record date for dividend: Friday 1 May 2020
Currency election date: Friday 8 May 2020
Payment date: Friday 29 May 2020
Playtech has entered into an irrevocable, non-discretionary arrangement with
Goodbody Stockbrokers UC ("Goodbody") for Goodbody to repurchase shares on its
behalf of up to €40.0 million ("Maximum Repurchase Amount") on the London
Stock Exchange. The share repurchase programme will commence tomorrow (28
February 2020), subject to market conditions, and will end on the date on
which the Maximum Repurchase Amount is reached or the trading day immediately
preceding the date of the Company's annual general meeting to be held in 2020,
whichever is earliest. Goodbody will make their trading decisions in relation
to Playtech's ordinary shares independently of, and uninfluenced by, Playtech.
The share buyback programme will be conducted in accordance with Playtech's
general authority to repurchase ordinary shares as approved by shareholders at
its 2019 annual general meeting held on 15 May 2019 ("Buyback Authority"), the
parameters prescribed by the Market Abuse Regulation 596/2014/EU and the
applicable laws and regulations of the London Stock Exchange.
The maximum number of ordinary shares permitted to be repurchased by the
Company pursuant to the existing Buyback Authority is 25,683,102 ordinary
shares. Ordinary shares acquired by the Company will be held in treasury. The
purpose of the share repurchase programme is to reduce the Company's share
capital.
Details of any ordinary shares repurchased will be announced by Playtech via a
Regulatory Information Service following any repurchase.
(1) *Adjusted numbers relate to certain non-cash and one-off items including
amortisation of intangibles on acquisitions, impairment of tangibles,
intangibles and right of use assets, professional costs on acquisitions,
finance costs on acquisitions, changes in deferred and contingent
consideration, employee stock option scheme charges, deferred tax on
acquisitions, unrealised changes in fair value of equity investments
recognised in the period statement of comprehensive income, non-cash accrued
bond interest, additional various non-cash charges, and in regard to the Sun
Bingo contract an adjustment is made for the first seven weeks of H1 2019
prior to the renegotiation in February to show the effect as if the amendment
to the contract with News UK had been in place from the beginning of the 2019
financial year. The Board of Directors believes that the adjusted profit,
which includes realised fair value changes recognised in the statement of
comprehensive income in the period on equity investments disposed of in the
period, represents more closely the consistent trading performance of the
business. A full reconciliation between the actual and adjusted results is
provided in Note 10 of the financial statements. Given the fluctuations in
exchange rates in the period, the underlying results are presented in respect
of the above adjustments after excluding acquisitions and on a constant
currency basis, to best represent the trading performance and results of the
Group.
2 'Pro forma basis' denotes the basis that we are comparing Snaitech's
performance in 2019 with its performance for the full period of 2018, which
allows for a like for like comparison, rather than comparing the year with
only the period in 2018 after its consolidation to the Group from 5 June 2018.
3 Totals in tables throughout this statement may not exactly equal the
components of the total due to rounding.
4 Refer to Note 4 to the financial statements for details of IFRS 16.
5 An amendment to our contract with News UK to run Sun Bingo was agreed and
extended for a period of up to 15 years. Minimum guarantee cash payments will
continue until mid-2021 under terms of original contract. From a Statement of
Comprehensive Income perspective, the minimum guarantee payments will be
spread over life of the extended contract. The extended contract is a joint
commercial collaboration with no further minimum guarantees from mid-2021.
4 Adjusted Net Profit refers to the Profit Attributable to the owners of the
parent
Emerging risks, principal risks and uncertainties
§ Regulation - Licensing requirements (both Gambling and Financials
divisions)
Playtech holds several licences for its activities from regulators. The review
and/or loss of all or any of these licences may adversely impact on the
operations, revenues and/or reputation of the Group.
§ Regulation - Local Technical Regulatory Requirements (both Gambling and
Financials divisions)
Local regulators have their own specific requirements, which often vary on a
country to country basis. In addition, new requirements may be imposed. For
example, a requirement to locate significant technical infrastructure within
the relevant territory or to establish and maintain real-time data interfaces
with the regulator. Such conditions present operational challenges and may
prohibit the ability of licensees to offer the full range of the Group's
products.
§ Regulation - Data Protection (both Gambling and Financials divisions)
The EU General Data Protection Regulations (GDPR) came into force in May
2018. The GDPR applies to all organisations (whether acting as a data
controller or data processor) that process personal data of EU based data
subjects. In some circumstances, GDPR also applies to organisations that
process personal data and are established exclusively outside the EU.
Playtech must comply with the GDPR as well as many other legal and regulatory
obligations, including anti-money laundering, anti-bribery and corruption,
responsible gambling, and ePrivacy. Failure to comply with these obligations
could result in regulatory action, financial penalties, loss of licences to
operate in certain jurisdictions. It could also impact Playtech's products
and services and harm players, giving rise to significant liability.
To fully comply with GDPR, Playtech implements policies, procedures,
processes, controls, systems, security measures and training across the group,
to uphold all applicable legal, regulatory obligations and quality standards,
and continuously reviews them to ensure they remain up to date.
Prior to the introduction of a full GDPR compliance programme in 2018, data
protection reviews had commenced across EU-linked Playtech operations.
Playtech's focus is now on maturing and enhancing its data protection
programme. This will include increasing security and data protection
training and awareness and improving internal processes and controls across
all data processing departments.
GDPR will continue to challenge data controllers and processors across
Europe. Playtech is making constant improvements to remain compliant with
GDPR, and other applicable data processing regulations worldwide, as the
global data protection regulatory landscape continues to evolve.
§ Regulatory - Preventing Financial Crime (both Gambling and Financials
divisions)
Policymakers in the EU and at national levels have taken steps to strengthen
financial crime legislation covering Anti-Money Laundering (AML), such as the
5th AML(D), prevention of facilitation of tax evasion and Anti-Bribery and
Corruption (ABC). Non-compliance could result in investigations, prosecutions,
loss of licences and/or an adverse reputational impact.
§ Taxation - Changes to tax rules (both Gambling and Financials divisions)
Given the international environment in which the group operates, the business
is subject to continuously evolving rules and practices governing the taxation
of the digital economy in various jurisdictions. As such, it is imperative to
ensure compliance with all relevant tax regulations and requirements in each
jurisdiction that Playtech operates. Specifically, the risk of challenge by
tax authorities in respect of transfer pricing has increased significantly for
international groups that are IP rich. These risks could have a major impact
on the business, such impact could ultimately increase the group's underlying
effective tax rate and reduce profits available for distribution.
§ Mergers and Acquisitions (both Gambling and Financials divisions)
Playtech has made a number of acquisitions in the past. Such acquisitions may
not deliver the expected synergies and/or benefits and may diminish
shareholder value if not integrated effectively or the opportunity executed
successfully.
§ Key Employees (both Gambling and Financials divisions)
The Group's future success depends in large part on the continued service of a
broad leadership team including Executive Directors, senior managers and key
personnel. The development and retention of these employees, along with the
attraction and integration of new talent, cannot be guaranteed.
§ Cyber Crime and IT Security (both Gambling and Financials divisions)
System downtime or a security breach, whether through cyber and distributed
denial of service (DDoS) attacks or technology failure, could significantly
affect the services offered to our licensees.
§ Business Continuity Planning (both Gambling and Financials divisions)
Loss of revenue, reputational damage or breach of regulatory requirements may
occur as a result of a business or location disruptive event.
§ Economic Environment (both Gambling and Financials divisions)
A downturn in consumer discretionary spend or macroeconomic factors outside of
Playtech's control could result in reduced spend by consumers on gambling and
financial trading and the Group's revenues may fall. Playtech's customers and
licensees are geographically diverse, which should mitigate reliance on any
particular region. Management closely monitors business performance and if a
downturn were to occur, remedial action commensurate with the nature and scale
of the slowdown would be taken.
§ Global Diversification
As Playtech plc continues to operate across multiple locations, servicing our
clients in many markets across the globe. These operations bring with them
significant opportunities for growth, however, as is well understood, globally
diverse operations carry risk particularly as markets change.
§ Failure or disruption of supply chain
Inability to supply services due to failure or disruption in global supply
chains following large scale global events such as pandemics, political
unrest, climate control etc. The current Corona Virus (COVID-19) may present
potential risks to our supply chains should the situation worsen.
§ Large scale global events such as pandemics, political unrest, climate
control
Large scale global events such as pandemics, political unrest, climate control
etc, have the potential to affect Playtech's key business markets particularly
at live sporting events. The current Corona Virus (COVID-19) may present
potential risks to our key business generating markets such as Asia and Italy.
Additional risks relating to the Gambling division:
§ Regulation - Safer Gambling
Regulators, industry, charities and the public at large continue to scrutinise
and challenge the gaming and betting sector to make gambling and gaming
products safer, fairer and crime free. In addition, licensing requirements in
regulated markets are regularly being reviewed and updated to ensure that
companies in the sector provide a safe environment for consumers.
Additional risks relating to the Financials division:
§ Market exposure
The fair value of financial assets and financial liabilities could adversely
fluctuate due to movements in market prices of foreign exchange rates,
commodity prices, equity and index prices.
§ Regulatory - Capital Adequacy
The requirement to maintain adequate regulatory capital may affect the Group's
ability to conduct its business and may reduce profitability.
§ Counterparty risk
Extreme market movements in financial instruments over a very short period of
time could result in the Group's financial counterparties incurring losses in
excess of the funds in their account, and they may be unable to fund those
losses.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
Note Actual Adjusted Actual Adjusted
€'000 *€'000 €'000 *€'000
**Restated **Restated
Continuing operations
Revenue 9 1,508,448 1,508,448 1,225,307 1,225,307
Distribution costs before depreciation and amortisation (1,008,020) (1,001,118) (779,436) (774,422)
Administrative expenses before depreciation and amortisation (150,280) (114,010) (155,927) (105,736)
Impairment of financial assets (14,890) (10,254) - -
EBITDA 335,258 383,066 289,944 345,149
Depreciation and amortisation (215,740) (157,609) (150,735) (103,547)
Impairment of tangible and intangible assets (91,899) - - -
Finance income 12a 83,338 3,218 46,610 36,374
Finance cost 12b (64,178) (52,794) (59,435) (40,256)
Share of profit from joint ventures 18a 621 621 180 180
Share of profit/(loss) from associates 18b 1,020 1,020 (2,771) (2,771)
Unrealised fair value changes on equity investments 19 (270) - (1,738) -
Realised fair value changes on equity investments disposed 19 - - 65,691 65,691
Profit before taxation 48,150 177,522 187,746 300,820
Tax expenses 13 (34,304) (43,942) (53,652) (35,087)
Profit from continuing operations 13,846 133,580 134,094 265,733
Discontinued operation
Loss from discontinued operation, net of tax 8 (32,814) (8,450) (4,315) (3,584)
(Loss)/profit for the year - total (18,968) 125,130 129,779 262,149
Other comprehensive income:
Items that are or may be classified subsequently to profit or loss:
Exchange gains arising on translation of foreign operations 6,733 6,733 19,348 19,348
Items that will not be classified to profit or loss:
(Loss)/gain on re-measurement of employee termination indemnities (334) (334) 56 56
Total comprehensive (loss)/income for the year (12,569) 131,529 149,183 281,553
(Loss)/profit for the year attributable to:
Owners of the Company (19,571) 124,527 123,809 256,179
Non-controlling interest 603 603 5,970 5,970
(18,968) 125,130 129,779 262,149
Total comprehensive (loss)/income attributable to:
Owners of the Company (13,172) 130,926 144,412 276,782
Non-controlling interest 603 603 4,771 4,771
(12,569) 131,529 149,183 281,553
Earnings per share attributable to the ordinary equity holders of the parent
Profit or loss
Basic (cents) 14 (6.5) 41.3 39.3 81.3
Diluted (cents) 14 (6.4) 40.4 38.4 72.9
Profit or loss from continuing operations
Basic (cents) 14 4.4 44.1 40.7 82.4
Diluted (cents) 14 4.3 43.2 39.7 73.9
*Adjusted numbers relate to certain non-cash and one-off items including
amortisation of intangibles on acquisitions, impairment of tangibles,
intangibles and right of use assets, professional costs on acquisitions,
finance costs on acquisitions, changes in deferred and contingent
consideration, employee stock option scheme charges, deferred tax on
acquisitions, unrealised changes in fair value of equity investments
recognised in the period statement of comprehensive income, non-cash accrued
bond interest, additional various non-cash charges, and in regard to the Sun
Bingo contract an adjustment is made for the first seven weeks of H1 2019
prior to the renegotiation in February to show the effect as if the amendment
to the contract with News UK had been in place from the beginning of the 2019
financial year. The Board of Directors believes that the adjusted profit,
which includes realised fair value changes recognised in the statement of
comprehensive income in the period on equity investments disposed of in the
period, represents more closely the consistent trading performance of the
business. A full reconciliation between the actual and adjusted results is
provided in Note 10.
** Comparative information has been re‑presented due to a discontinued
operation, see Note 8.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Additional paid in capital Re-measurement of employee termination indemnities Retained earnings Employee benefit trust Convertible bond option reserve Put/Call options reserve Foreign exchange reserve Total attributable to equity holders of parent Non-controlling interest Total equity
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Balance at 1 January 2019 627,764 56 726,333 (17,863) 45,392 (30,820) (8,153) 1,342,709 7,797 1,350,506
Adjustment on the initial application of IFRS 16 - - (7,426) - - - - (7,426) - (7,426)
Adjusted balance at 1 January 2019 627,764 56 718,907 (17,863) 45,392 (30,820) (8,153) 1,335,283 7,797 1,343,080
Total comprehensive income for the period
(Loss)/profit for the year - - (19,571) - - - - (19,571) 603 (18,968)
Other comprehensive income/(loss) for the year - (334) - - - - 6,733 6,399 - 6,399
Total comprehensive income / (loss) for the year - (334) (19,571) - - - 6,733 (13,172) 603 (12,569)
Transactions with the owners of the Company
Contributions and distributions
Dividend paid - - (55,545) - - - - (55,545) (4,412) (59,957)
Exercise of options - - (1,803) 1,688 - - - (115) 43 (72)
Employee stock option scheme - - 18,102 - - - - 18,102 - 18,102
Redemption of convertible bond - - 45,392 - (45,392) - - - - -
Share buyback (26,810) - (38,322) - - - - (65,132) - (65,132)
Total contributions and distributions (26,810) - (32,176) 1,688 (45,392) - - (102,690) (4,369) (107,059)
Change in ownership interests
Acquisition of non-controlling interest - - (7,358) - - 14,444 - 7,086 (8,332) (1,246)
Total changes in ownership interests - - (7,358) - - 14,444 - 7,086 (8,332) (1,246)
Total transactions with owners of the Company (26,810) (39,534) 1,688 (45,392) 14,444 - (95,604) (12,701) (108,305)
Balance at 31 December 2019 600,954 (278) 659,802 (16,175) - (16,376) (1,420) 1,226,507 (4,301) 1,222,206
Adjusted balance at 1 January 2018 627,764 - 752,754 (21,644) 45,392 (31,293) (28,700) 1,344,273 14,179 1,358,452
Total comprehensive income for the year
Profit for the year - - 123,809 - - - - 123,809 5,970 129,779
Other comprehensive income/(loss) for the year - 56 - - - - 20,547 20,603 (1,199) 19,404
Total comprehensive income / (loss) for the year - 56 123,809 - - - 20,547 144,412 4,771 149,183
Transactions with the owners of the Company
Contributions and distributions
Dividend paid - - (113,288) - - - - (113,288) - (113,288)
Exercise of options - - (4,246) 3,781 - - - (465) - (465)
Employee stock option scheme - - 13,533 - - - - 13,533 191 13,724
Total Contributions and distributions - - (104,001) 3,781 - - - (100,220) 191 (100,029)
Changes in ownership interests
Acquisition of non-controlling interest - - (46,229) - - 473 - (45,756) (41,176) (86,932)
Non-controlling interest acquired on business combination - - - - - - - - 29,832 29,832
Total changes in ownership interests - - (46,229) - - 473 - (45,756) (11,344) (57,100)
Total transactions with owners of the Company - - (150,230) 3,781 - 473 - (145,976) (11,153) (157,129)
Balance at 31 December 2018 627,764 56 726,333 (17,863) 45,392 (30,820) (8,153) 1,342,709 7,797 1,350,506
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2019
2019 2018
Note €'000 €'000
NON-CURRENT ASSETS
Property, plant and equipment 16 375,905 410,088
Right of use assets 4 74,659 -
Intangible assets 17 1,499,869 1,644,133
Investments in associates and joint ventures 18 52,265 29,641
Investments held at fair value 19 1,130 1,400
Trade receivables 21 13,600
Other non-current assets 20 37,950 15,942
2,055,378 2,101,204
CURRENT ASSETS
Trade receivables 21 192,844 209,854
Other receivables 22 141,154 160,473
Cash and cash equivalents 23 671,540 622,197
1,005,538 992,524
Assets classified as held for sale 24 36,798 -
TOTAL ASSETS 3,097,714 3,093,728
EQUITY
Additional paid in capital 25 600,954 627,764
Re-measurement of employee termination indemnities (278) 56
Employee benefit trust 25 (16,175) (17,863)
Convertible bonds option reserve - 45,392
Put/Call options reserve (16,376) (30,820)
Foreign exchange reserve (1,420) (8,153)
Retained earnings 659,802 726,333
Equity attributable to equity holders of the parent 1,226,507 1,342,709
Non-controlling interest (4,301) 7,797
TOTAL EQUITY 1,222,206 1,350,506
NON CURRENT LIABILITIES
Loans and borrowings 26 64,396 206
Bonds 27 871,190 523,706
Lease liability 4 65,274 -
Deferred revenues 2,332 3,742
Deferred tax liability 31 78,338 73,392
Contingent consideration and redemption liability 29 2,520 110,523
Other non current liabilities 32 14,244 14,081
1,098,294 725,650
Liabilities directly associated with assets classified as held for sale 24 3,595 -
CURRENT LIABILITIES
Loans and borrowings 26 206 489
Bonds 27 - 287,149
Trade payables 30 62,420 73,585
Lease liability 4 25,515 -
Progressive operators' jackpots and security deposits 98,152 88,601
Client deposits 113,879 116,656
Client funds 126,309 104,200
Corporate, gaming and other taxes payable 33 120,307 144,905
Deferred revenues 6,857 3,875
Contingent consideration and redemption liability 29 58,605 48,316
Provisions for risks and charges 28 19,508 12,095
Other payables 32 141,861 137,701
773,619 1,017,572
TOTAL LIABILITIES 1,875,508 1,743,222
TOTAL EQUITY AND LIABILITIES 3,097,714 3,093,728
The financial information was approved by the Board and authorised for issue
on 26 February 2020.
Mor Weizer Andrew Smith
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
Note €'000 €'000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit for the year (18,968) 129,779
Adjustment to reconcile net income to net cash provided by operating 389,699 285,643
activities (see below)
Net taxes paid (49,793) (28,290)
Net cash provided by operating activities 320,938 387,132
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and deposits (paid)/repaid (1,424) 9,055
Acquisition of property, plant and equipment (61,384) (54,980)
Return on investment in joint ventures and associates 18a, 18b 699 1,027
Acquisition of intangible assets (24,320) (5,161)
Acquisition of subsidiaries (47,259) (362,753)
Cash of subsidiaries on acquisition 1,039 161,129
Capitalised development costs (65,529) (58,297)
Acquisition of associates and joint ventures 18b,18c (6,453) (1,830)
Proceeds from the sale of associates - 3,969
Acquisition of equity investments 19 - (37,890)
Proceeds from the sale of equity investments 19 - 447,194
Proceeds from sale of property, plant and equipment 973 788
Proceeds related to the asset held for sale 5,000 -
Return on equity investments 12a - 33,927
Acquisition of non-controlling interest (2,214) (86,932)
Net cash (used in)/from investing activities (200,872) 49,246
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to the holders of the parent (55,545) (113,288)
Dividends paid to non-controlling interests (4,412) -
Interest paid on bonds and bank borrowing (29,509) (22,137)
Exercise of options - (465)
Issue of bond loans, net of issue costs 27 345,672 523,417
Share buyback (65,132) -
Repayment of bond loans 27 (297,000) (580,605)
Repayment of loans and borrowings - (200,481)
Proceeds from loans and borrowings 63,906 -
Payment of lease liability (27,230) -
Net cash used in financing activities (69,250) (393,559)
INCREASE IN CASH AND CASH EQUIVALENTS 50,816 42,819
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 622,197 583,957
Exchange gain/(losses) on cash and cash equivalents 1,173 (4,579)
CASH AND CASH EQUIVALENTS AT END OF YEAR 674,186 622,197
Cash and cash equivalent consists of :
Cash and cash equivalent - continuing operations 23 671,540 622,197
Cash and cash equivalent treated as held for sale 24 2,646 -
674,186 622,197
2019 2018
€'000 €'000
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Income and expenses not affecting operating cash flows:
Depreciation on property, plant and equipment 51,585 42,688
Amortisation of intangible assets 148,506 110,178
Amortisation of right of use assets 22,096 -
Share of profit from joint ventures 18a (621) (180)
Share of (profit)/loss from equity accounted associates 18b (1,020) 2,771
Non- cash transaction (see below) - (74,938)
Impairment of other non-current assets 4,432 6,367
Impairment of investment in associates 18b 443 4,623
Impairment of right of use assets 4 827 -
Impairment of property, plant and equipment 16 895 -
Impairment of intangible assets 17 113,863 -
Changes in fair value of equity investments 270 1,738
Interest on bond loans and other interest expense 35,863 28,152
Interest on convertible bonds 9,851 10,685
Interest on lease liability 6,280 -
Income tax expense 35,339 53,643
Employee stock option plan expenses 18,102 13,724
Movement in contingent consideration and redemption liability (69,940) (7,443)
Return on equity investments - (33,927)
Exchange losses on cash and cash equivalents (1,173) 4,579
Other 90 72
Changes in operating assets and liabilities:
Change in trade receivables 2,442 (7,739)
Change in other receivables (5,901) 14,447
Change in trade payables (10,912) 18,217
Change in progressive, operators jackpot, security deposits 9,551 4,186
Change in client funds and deposits 22,046 70,083
Change in other payables (12,200) 26,347
Change in provisions for risks and charges 7,413 (1,183)
Change in deferred revenues 1,572 (1,447)
389,699 285,643
Acquisition of subsidiaries
2019 2018
Note €'000 €'000
Acquisitions in the year
A. Other acquisitions 34b 1,402 -
Acquisitions in previous years
A. Acquisition of Seabrize Marketing Limited - 20,000
B. Acquisition of Rarestone Gaming PTY Ltd 4,469 3,435
C. Acquisition of HPYBET Austria GmbH - 15,358
D. Acquisition of Snaitech SpA - 291,175
E. Acquisition of Piazza Hosting S.R.L. - 6,500
F. Acquisition of ACM Group 3,420 1,673
G. Acquisition of Consolidated Financial Holdings A/A 21,979 -
H. Acquisition of Quickspin AB 14,345 -
I. Other acquisitions 1,644 24,612
47,259 362,753
Cash of subsidiaries on acquisition
2019 2018
Note €'000 €'000
Acquisitions in the year
A. Acquisition of Areascom SpA 34a 324 -
B. Other acquisitions 715 -
Acquisitions in previous years
A. Acquisition of Seabrize Marketing Limited - 173
B. Acquisition of Rarestone Gaming PTY Ltd - 62
C. Acquisition of HPYBET Austria GmbH - 2,538
D. Acquisition of Snaitech SpA - 154,947
E. Acquisition of Piazza Hosting S.R.L. - 395
F. Other acquisitions - 3,014
1,039 161,129
Non-cash transaction
2019 2018
Note €'000 €'000
Profit on disposal of equity-accounted associates - (897)
Profit on disposal of equity investments 19 - (65,691)
Gain on early repayment of bond 27 - (8,350)
- (74,938)
NOTE 1 - GENERAL
Playtech plc (the 'Company') is a company domiciled in the Isle of Man. The
Company was incorporated in the British Virgin Islands as an offshore company
with limited liability.
Playtech and its subsidiaries ('the Group') develop unified software platforms
and provide services for the online and land based gambling industry,
targeting online and land based operators. Playtech's gaming applications -
online casino, online sport betting, poker, bingo, live gaming, land-based
kiosk networks, land base sport betting terminals land based terminal and
fixed-odds games - are fully inter-compatible and can be freely incorporated
as stand-alone applications, accessed and funded by the operators' players
through the same user account and managed by the operator by means of a
single, powerful management interface. Since June 2018, through the
acquisition of Snaitech, Playtech directly owns and operates a leading
sports betting and gaming brand in online and retail in Italy, Snai, in
addition to other online and retail B2C operations.
The Group's financial trading division, has four primary business models,
being:
· B2C retail Contracts for difference ("CFD"), through www.markets.com
where the group acts as the execution venue and the market-maker on a variety
of instruments which fall under the general categories of Foreign exchanges,
Commodities, Equities and indices;
· B2B clearing and execution services for other retail brokers and
professional clients, through CFH, where the group acts as a matched-principal
liquidity provider and straight through processes ("STPs") the trades to prime
brokers and clearing houses such as BNP, Jeffries, UBS, Citi etc;
· B2B clearing and execution for other retail brokers, where the group
acts as the execution venue and market-maker; and
· B2B technology and risk management services, where the group
provides platform, CRM, reporting and risk-management technology to the retail
broker market.
Where the Group acts as the execution venue, or provides execution services,
these activities are undertaken in entities regulated by the UK's Financial
Conduct Authority ("FCA"), the Australian Securities & Investments
Commission ("ASIC"), the Cyprus Securities and Exchange Commission ("CySEC"),
the British Virgin Islands' Financial Services Commission ("FSC"), and the
South African Financial Sector Conduct Authority ("FSCA")."
NOTE 2 - BASIS OF PREPARATION
These consolidated financial statements have been prepared in accordance with
the International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB) as adopted by the European
Union (EU).
Details of the Group's accounting policies are included in Note 5.
This is the first set of the Group's annual financial statements in which IFRS
16 Leases has been applied. The related changes to significant accounting
policies are described in Note 4.
The Board of Directors has 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 these financial statements.
NOTE 3 - FUNCTIONAL AND PRESENTATION CURRENCY
These consolidated financial statements are presented in Euro, which is the
parents's functional and presentation currency. The functional currency for
subsidiaries includes Euro and United States Dollar. All amounts have been
rounded to the nearest thousand, unless otherwise indicated.
NOTE 4 - CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
The Group has adopted IFRS 16 Leases and IFRIC 23 uncertainty over income tax
treatments with transition date 1 January 2019. Details of the impact these
two standards have had given below. Other new amended standards and
interpretations issued by IASB did not impact the Group as they are either not
relevant to the Group's activities or require accounting which is consistent
with the Group's current accounting policies.
IFRS 16 Leases ("IFRS 16")
As from 1 January 2019 (hereinafter: "the date of initial application") the
Group applies IFRS16 which replaced IAS 17, Leases ("IAS 17" or "the previous
standard").
The standard's instructions annul the existing requirement from lessees to
classify leases as operating or finance leases. Instead, for lessees, the new
standard presents a unified model for the accounting treatment of all leases
according to which the lessee has to recognise a right-of-use asset and a
lease liability in its financial statements for all the leases in which the
Group has a right to control identified assets for a specified period of time.
Nonetheless, IFRS 16 includes two exceptions to the general model whereby a
lessee may elect to not apply the requirements for recognising a right-of-use
asset and a liability with respect to short-term leases of up to one year
and/or leases where the underlying asset has a low value. Accordingly, the
Group recognises amortisation expenses in respect of a right-of-use asset,
tests a right-of-use asset for impairment in accordance with IAS 36 Impairment
of Assets and recognises financing expenses on a lease liability. Therefore,
as from the date of initial application, lease payments relating to assets
leased under an operating lease, which were presented as part of general and
administrative expenses in the statement of comprehensive income, are
capitalized to assets and written down as amortisation expenses. Until the
date of application, the Group classified most of the leases in which it is
the lessee as operating leases, since it did not substantially bear all the
risks and rewards from the assets.
The Group elected to apply the standard using the modified retrospective
approach, and measure for most contracts the right of use asset as though the
standard had applied from the commencement date of the leases using the
incremental borrowing rate of the lessee at the date of initial application
calculated according to the average duration of the whole lease period, and
recognise a liability at the present value of the balance of future lease
payments discounted at its incremental borrowing rate with an adjustment to
the balance of retained earnings as at 1 January 2019 and without a
restatement of comparative data. For the remaining contracts, the Group
elected to measure the right of use of asset in an amount equal to the lease
liability. The Group measures the lease liability at the date of initial
application as the present value of the remaining lease payments. The discount
rate is the Group's incremental borrowing rate at that date for the remaining
contracts as well.
Furthermore, as part of the initial application of the standard, the Group has
chosen to apply the following expedients:
(1) Not separating non-lease components from lease components and instead
accounting for all the components as a single lease component;
(2) Relying on a previous definition and/or assessment of whether an
arrangement is a lease in accordance with current guidance with respect to
agreements that exist at the date of initial application;
(3) Relying on a previous assessment of whether a contract is onerous in
accordance with IAS 37, at the transition date, as an alternative to instead
of assessing impairment of right-of-use asset.
(4) Excluding initial direct costs from measurement of the right-of-use
asset at the date of initial application;
(5) Using hindsight when determining the lease term if the contract includes
an extension or termination option;
The table below presents the cumulative effects of the items affected by the
initial application on the statement of financial position as at 1 January
2019:
Assets €'000
Right of use asset 83,443
Total assets 83,443
Liabilities
Non current lease liability 63,641
Current lease liability 27,228
Total liabilities 90,869
Total adjustment on equity:
Retained earnings 7,426
In measurement of the lease liability, the Group discounted lease payments
using the nominal incremental borrowing rate at 1 January 2019. The discount
rates used to measure the lease liability range between 0.2% and 8.28%
(weighted average of 4.15%). This range is affected by differences in the
lease term, differences between asset groups, and so forth.
As a result of initially applying IFRS 16, the additional right-of-use asset
and lease liability recognised as at 31 December 2019 are €74.7 million and
€90.8 million respectively for continuing operations and €0.6 million and
€0.6 million for discontinued operations.
Also, under IFRS 16 the Group has recognised amortisation and interest costs,
instead of operating lease expense. During the year ended 31 December 2019,
the Group recognised €19.2 million of additional amortisation charges and
€6.2 million of additional interest costs from leases for continuing
operations and €0.3 million of additional amortisation charges and €0.1
million of additional interest costs from leases for discontinued operation.
The table below shows the impact on the EBITDA as a result of the
implementation of IFRS16.
2019 2018
€'000 €'000
Continuing operations
EBITDA reported 335,258 289,944
Impact of IFRS 16 (23,161) -
312,097 289,944
Set out below, are the carrying amount of the Group's right of use assets and
lease liability and the movement during the year:
Right of use assets Lease liability
Office rent Hosting costs Total Total
€'000 €'000 €'000 €'000
Continuing operations
As at 1 January 2019 77,496 5,076 82,572 90,040
On business combination (note 34a) 3,765 - 3,765 4,170
New contracts/extension 11,465 5,239 16,704 16,704
Reclassification of lease incentive - - (4,161) -
Retirement of contract (1,532) (30) (1,562) (1,956)
Amortisation charge (17,097) (4,735) (21,832) -
Impairment (827) - (827) -
Interest expense - - - 6,202
FX on lease liability - - - 2,628
Payments - - - (26,999)
As at 31 December 2019 73,270 5,550 74,659 90,789
The table below explains the difference between the operating lease
commitments that were disclosed under IAS 17 in the financial statements for
the year ended 31 December 2018 discounted at the incremental borrowing rate
at initial application, and the lease liability recognised in the statement of
financial position on the date of initial application.
€'000
Future Value of minimum lease payments as at 31 December 2018 160,277
Weighted average incremental borrowing rate as at 1 January 2019 4,15%
Discounted operating lease commitments as at 1 January 2019 132,253
Less:
Commitments relating to variable amounts of leases that are not under IFRS 16
Extension and termination not reasonably certain to be exercised and (22,460)
capitalized
Lease not recognised under IFRS16 (911)
Variable change (23,091)
Add:
Commitments relating to agreements which meet the definition of a lease as per 5,078
IFRS16 but not under IAS 17
Opening lease liability as at 1 January 2019 90,869
Presented hereunder are the main changes in accounting policies following the
application of IFRS 16 as from 1 January 1 2019:
(1) Determining whether an arrangement contains a lease
On the inception date of the lease, the Group determines whether the
arrangement is a lease or contains a lease, while examining if it conveys the
right to control the use of an identified asset for a period of time in
exchange for consideration. In its assessment of whether an arrangement
conveys the right to control the use of an identified asset, the Group
assesses whether it has the following two rights throughout the lease term:
(a) The right to obtain substantially all the economic benefits
from use of the identified asset; and
(b) The right to direct the identified asset's use.
For lease contracts that contain non-lease components, such as services or
maintenance, that are related to a lease component, the Group elected to
account for the contract as a single lease component without separating the
components.
(2) Leased assets and lease liabilities
Contracts that award the Group control over the use of a leased asset for a
period of time in exchange for consideration, are accounted for as leases.
Upon initial recognition, the Group recognises a liability at the present
value of the balance of future lease payments (these payments do not include
certain variable lease payments), and concurrently recognises a right of use
asset at the same amount of the lease liability, plus initial direct costs
incurred in respect of the lease.
Since the interest rate implicit in the Group's leases is not readily
determinable, the incremental borrowing rate of the lessee is used. Subsequent
to initial recognition, the right of use asset is accounted for using the cost
model and depreciated over the shorter of the lease term or useful life of the
asset.
The Group has elected to apply the practical expedient by which short-term
leases of up to one year and/or leases in which the underlying asset has a low
value, are accounted for such that lease payments are recognised in profit or
loss on a straight-line basis, over the lease term, without recognising an
asset and/or liability in the balance sheet.
(3) The lease terms
The lease term is the non-cancellable period of the lease plus periods covered
by an extension or termination option if it is reasonably certain that the
lessee will or will not exercise the option, respectively.
(4) Variable lease payments
Variable lease payments that depend on an index or a rate, are initially
measured using the index or rate existing at the commencement of the lease and
are included in the measurement of the lease liability. When the cash flows of
future lease payments change as the result of a change in an index or a rate,
the balance of the liability is adjusted against the right of use asset.
Other variable lease payments that are not included in the measurement of the
lease liability are recognised in profit or loss in the period in which the
event or condition that triggers payment occurs.
(5) Amortisation of right of use asset
After lease commencement, a right of use asset is measured on a cost basis
less accumulated amortization and accumulated impairment losses and is
adjusted for re-measurements of the lease liability. Amortization is
calculated on a straight-line basis over the useful life or contractual lease
period.
(6) Reassessment of lease liability
Upon the occurrence of a significant event or a significant change in
circumstances that is under the control of the Group and had an effect on the
decision whether it is reasonably certain that the Group will exercise an
option, which was not included before in the lease term, or will not exercise
an option, which was included before in the lease term, the Group re-measures
the lease liability according to the revised leased payments using a new
discount rate. The change in the carrying amount of the liability is
recognised against the right of use asset or recognised in profit or loss if
the carrying amount of the right of use asset was reduced to zero.
(7) Lease modifications
When a lease modification increases the scope of the lease by adding a right
to use one or more underlying assets, and the consideration for the lease
increased by an amount commensurate with the stand-alone price for the
increase in scope and any appropriate adjustments to that stand-alone price to
reflect the contract's circumstances, the Group accounts for the modification
as a separate lease.
In all other cases, on the initial date of the lease modification, the Group
allocates the consideration in the modified contract to the contract
components, determines the revised lease term and measures the lease liability
by discounting the revised lease payments using a revised discount rate.
For lease modifications that decrease the scope of the lease, the Group
recognises a decrease in the carrying amount of the right of use asset in
order to reflect the partial or full cancellation of the lease, and recognises
in profit or loss a profit/loss that equals the difference between the
decrease in the right of use asset and re-measurement of the lease liability.
For other lease modifications, the Group re-measures the lease liability
against the right of use asset.
(8) Subleases
In leases in which the Group subleases the underlying asset, the Group
examines whether the sublease is a finance lease or operating lease with
respect to the right of use received from the head lease. The Group examined
the subleases existing on the date of initial application based on the
remaining contractual terms at that date.
(9) Sale and leaseback
The Group applies the requirements of IFRS 15 to determine whether an asset
transfer is accounted for as a sale. If an asset transfer satisfies the
requirements of IFRS 15 to be accounted for as a sale, the Group measures the
right of use asset arising from the leaseback at the proportion of the
previous carrying amount that relates to the right of use retained by the
Group. Accordingly, the Group only recognises the amount of gain or loss that
relates to the rights transferred. If the asset transfer does not satisfy the
requirements of IFRS 15 to be accounted for as a sale, the Group continues to
recognise the transferred asset and recognises a financial liability in
accordance with IFRS 9, at an amount equal to the transferred proceeds.
IFRIC 23 uncertainty over income tax treatments ("IFRIC 23")
IFRIC 23 provides guidance on the accounting for current and deferred tax
liabilities and assets in circumstances in which there is uncertainty over
income tax treatments. The Interpretation requires:
· The Group to determine whether uncertain tax treatments should be
considered separately, or together as a group, based on which approach
provides better predictions of the resolution;
· The Group to determine if it is probable that the tax authorities
will accept the uncertain tax treatment; and
· If it is not probable that the uncertain tax treatment will be
accepted, measure the tax uncertainty based on the most likely amount or
expected value, depending on whichever method better predicts the resolution
of the uncertainty. This measurement is required to be based on the assumption
that each of the tax authorities will examine amounts they have a right to
examine and have full knowledge of all related information when making those
examinations.
The adoption of IFRIC 23 resulted in a €4.0 million increase in corporate
tax liabilities, relating to the Group's transfer pricing structure. No
adjustment at transition date, is charged in the current year. As such this
should be there was no material impact from the adoption on the transition
date
NOTE 5 - SIGNIFICANT ACCOUNTING POLICIES
The Group has consistently applied the following accounting policies to all
periods presented in the consolidated financial statements, except if
mentioned otherwise.
A. Basis of consolidation
i. Business combinations
The Group accounts for business combinations using the acquisition method when
control is transferred to the Group. The consideration transferred in the
acquisition is generally measured at fair value, as are the indefinable net
assets acquired. Any goodwill arises is tested annually for impairment. Any
gain on a bargain purchase is recognised in profit or loss immediately.
Transaction costs are expensed as incurred, except if related to the issue of
debt or equity securities.
The consideration transferred does not include amounts related to the
settlement of pre-existing relationships. Such amounts are generally
recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of
acquisition. If an obligation to pay contingent consideration that meets the
definition of a financial instrument is classified as equity, then it is not
remeasured and settlement is accounted for within equity. Otherwise, other
contingent consideration is remeasured at fair value at each reporting date
and subsequent changes in the fair value of the contingent consideration are
recognised in profit or loss.
ii. Subsidiaries
Subsidiaries are entities controlled by the Group. The Group 'controls' an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from the date on which
control commences until the date on which control ceases.
iii. Non-controlling interests (NCI)
NCI are measured initially at their proportionate share of the acquiree's
identifiable net assets at the date of acquisition. Changes in the Group's
interest in a subsidiary that do not result in a loss of control are accounted
for as equity transactions.
iv. Interest in equity accounted investees
Where the Group has the power to participate in (but not control) the
financial and operating policy decisions of another entity, it is classified
as an associate or structured agreement, as appropriate.
Associates are all entities over which the group has significant influence but
not control or joint control. This is generally the case where the group holds
between 20% and 50% of the voting rights. Investments in associates are
accounted for using the equity method of accounting.
A structured arrangement is an entity that has been designed so that voting or
similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights related to administrative tasks only
and the relevant activities are directed by means of contractual arrangements.
Equity accounted associates
Associates are initially recognised at cost. Subsequently associates are
accounted for using the equity method, where the Group's share of
post-acquisition profits or losses are recorded in the consolidated statement
of comprehensive income (except for losses in excess of the Group's investment
in the associate unless there is an obligation to make good those losses).
Profits and losses arising on transactions between the Group and its
associates are recognised only to the extent of unrelated investors' interests
in the associate. The investor's share in the associate's profits and losses
resulting from these transactions is eliminated against the carrying value of
the associate.
Any premium paid for an associate above the fair value of the Group's share of
the identifiable assets, liabilities and contingent liabilities acquired is
capitalised and included in the carrying amount of the associate. Where there
is objective evidence that the investment in an associate has been impaired
the carrying amount of the investment is tested for impairment in the same way
as other non-financial assets.
Structured arrangements
A structured entity is an entity that has been designed so that voting or
similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and
the relevant activities are directed by means of contractual arrangements.
Structured agreements are initially recognised at cost and subsequently is
considered for impairment. Where there is objective evidence that the
investment in a structured agreement has been impaired the carrying amount of
the investment is tested for impairment in the same way as other non-financial
assets.
Joint arrangements
The Group is a party to a joint arrangement when there is a contractual
arrangement that confers joint control over the relevant activities of the
arrangement to the Group and at least one other party. Joint control is
assessed under the same principles as control over subsidiaries.
The Group classifies its interests in joint arrangements as either:
Joint ventures - where the group has rights to only the net assets of the
joint arrangement; or
Joint operations - where the group has rights to both the assets and
obligations for the liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group
considers:
· The structure of the joint arrangement;
· The legal form of joint arrangements structured through a
separate vehicle;
· The contractual terms of the joint arrangement agreement; and
· Any other facts and circumstances (including any other
contractual arrangements).
The Group accounts for its interests in joint ventures in the same manner as
investment in equity accounted associates (i.e. using the equity method -
refer above).
Any premium paid for an investment in a joint venture above the fair value of
the Group's share of the identifiable assets, liabilities and contingent
liabilities acquired is capitalised and included in the carrying amount of the
investment in joint venture. Where there is objective evidence that the
investment in a joint venture has been impaired the carrying amount of the
investment is tested for impairment in the same way as other non-financial
assets.
The Group accounts for its interests in joint operations by recognising its
share of assets, liabilities, revenues and expenses in accordance with its
contractually conferred rights and obligations.
v. Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses
arising from intra-group transactions, are eliminated. Unrealised gains
arising from transactions with equity-accounted investees are eliminated
against the investment to the extent of the Group's interest in the investee.
Unrealised losses are eliminated in the same way as unrealised gains, but only
to the extent that there is no evidence of impairment.
B. Foreign currency
i. Foreign currency transactions
Transactions in foreign currencies are translated into the respective
functional currencies of Group companies at the exchange rates at the dates of
the transactions.
Monetary assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rate at the reporting
date. Non-monetary assets and liabilities that are measured at fair value in a
foreign currency are translated into the functional currency at the exchange
rate when the fair value was determined. Non-monetary items that are measured
based on historical cost in a foreign currency are translated at the exchange
rate at the date of the transaction. Foreign currency differences are
generally recognised in profit or loss and presented within finance costs.
ii. Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on acquisition, are translated into euro at the
exchange rates at the reporting date. Revenue and expenses of foreign
operations are translated into euro at the exchange rates at the dates of the
transactions.
Foreign currency differences are recognised in OCI and accumulated in the
translation reserve, except to the extent that the translation difference is
allocated to NCI.
C. Revenue recognition
The majority of the Group's revenue is derived from selling services with
revenue recognised at a point in time when services have been delivered to the
customer. Revenue comprises the fair value of the consideration received
or receivable for the supply of services in the ordinary course of the Group's
activities. Revenue is recognized when economic benefits are expected to flow
the Group, where economic benefits are not expected to flow, revenue is not
recognised. Specific criteria and performance obligations are described
below for each of the Group's material revenue streams
Type of Service Nature, timing of satisfaction of performance obligations and significant
payment terms
B2B royalty income Royalty income relates to licensed technology and the provision of certain
services provided via various distribution channels (online, mobile or
land-based interfaces).
Royalty income is based on the underlying gaming revenue earned by our
licensees based on the contractual terms in place. Revenue is recognized when
performance obligation is met which is when the gaming transaction occurs.
B2B fixed-fee income Fixed-fee income includes revenue derived from the provision of certain
services and licensed technology for which charges are based on a fixed-fee
and stepped according to the monthly usage of the service/technology. The
usage measurement is reset on a monthly basis.
The performance obligation is met and revenue is recognised once the
obligations under the contracts have been met. Where amounts are billed and
obligations are not met, revenue is deferred.
Amounts are billed on a monthly basis. Additional fees charged according to
the usage of the service/technology are billed and recognized in the month
that the services are provided.
B2B cost based revenue Cost based revenue is the total revenue charged to the licensee based on the
actual costs incurred from production and an additional percentage charged on
top as a margin.
Cost based revenues are recognised on delivery of the service.
B2B revenue received from the sale of hardware Revenue received from the sale of hardware is the total revenue charged to
customers upon the sale of each hardware product. The performance obligation
is met and revenue is recognized on delivery of the hardware by the customer.
B2C revenue In respect of B2C revenues, the Group acts as principal with the end customer,
with specific revenue policies as follows:
· The revenues from land based gaming machines are recognised net
of the winnings, jackpots and certain flat-rate gaming tax.
· The revenue from Online gaming (games of skill/casino/bingo) are
recognised net of the winnings, jackpots, bonuses and certain flat-rate gaming
tax.
· The revenues related to the acceptance of fixed odds bets are
considered financial instruments under IFRS 9 and are recognised net of
certain flat-rate gaming tax , winnings, bonuses and the fair value of open
bets.
· Revenues related to fixed odds bets are recognised at the
conclusion of the event.
· Poker revenues in the form of commission (i.e rake) is recognised
at the conclusion of each poker hand. The performance obligation is the
provision of the poker games to the players.
· All the revenues from gaming machines are recorded net of players
winnings and certain gaming taxes but inclusive of compensation payable to
managers, operators and platforms, as well as the concession fees payable to
the ADM.
Where the gaming tax incurred is directly measured by reference to the
individual customer transaction and related to the stake (described as
"Flat-rate tax" above), this is deducted from revenue.
Where the tax incurred is measured by reference to the Groups' net result from
betting and gaming activity this is not deducted from revenue and is
recognised as an expense.
Financial trading income Financial trading income represents gains (including commission) and losses
arising on client trading activity, primarily in contracts for difference on
shares, indexes, commodities and foreign exchange.
Open client positions are carried at fair market value and gains and losses
arising on this valuation are recognised in revenue as well as gains and
losses realised on positions that have closed.
The performance obligation is met in the accounting periods in which the
trading transaction occurs and is concluded.
Based on the services provided by the Group, excluding certain rebates
provided to customers in the financial division, no return, refund and other
similar obligations exist. Moreover, no warranties and related obligations
exist.
D. Share-based payments
Certain employees participate in the Group's share option plans. The fair
value of the equity settled options granted is charged to the consolidated
statement of comprehensive income on a straight-line basis over the vesting
period and the credit is taken to equity, based on the Group's estimate of
shares that will eventually vest. Fair value is determined by the
Black-Scholes and Binomial valuation model. Where equity settled share options
are settled in cash at the group's discretion the debit is taken to equity.
The Group has also granted awards to be distributed from the Group's Employee
Benefit Trust. The fair value of these awards is based on the market price at
the date of the grant, some of the grants have performance conditions. The
performance conditions are for the executive management and include targets
based on growth in earnings per share and total shareholder return over a
specific period compared to other competitors. The fair value of the awards
with performance condition was determined by the Monte Carlo Method.
E. Income tax
Income tax expense comprises current and deferred tax.
i. Current tax
Current tax comprises the expected tax payable or receivable on the taxable
income or loss for the year and any adjustment to the tax payable or
receivable in respect of previous years. The amount of current tax payable or
receivable is the best estimate of the tax amount expected to be paid or
received that reflects uncertainty related to income taxes, if any. It is
measured using tax rates enacted or substantively enacted at the reporting
date. Current tax also includes any tax arising from dividends. Current tax
assets and liabilities are offset only if certain criteria are met.
ii. Deferred tax
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences,
except:
§ When the deferred tax liability arises from the initial recognition of
goodwill or an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss
§ In respect of taxable temporary differences associated with investments in
subsidiaries, associates and interests in joint arrangements, when the timing
of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised for all deductible temporary differences,
the carry forward of unused tax credits and any unused tax losses. Deferred
tax assets are recognised to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences,
and the carry forward of unused tax credits and unused tax losses can be
utilised, except:
§ When the deferred tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss.
§ In respect of deductible temporary differences associated with investments
in subsidiaries, associates and interests in joint arrangements, deferred tax
assets are recognised only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can be
utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax
asset to be utilised. Unrecognised deferred tax assets are re-assessed at each
reporting date and are recognized to the extent that it has become probable
that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised
outside profit or loss. Deferred tax items are recognised in correlation to
the underlying transaction either in OCI or directly in equity.
Tax benefits acquired as part of a business combination, but not satisfying
the criteria for separate recognition at that date, are recognised
subsequently if new information about facts and circumstances change. The
adjustment is either treated as a reduction in goodwill (as long as it does
not exceed goodwill) if it was incurred during the measurement period or
recognised in profit or loss.
The Group offsets deferred tax assets and deferred tax liabilities if and only
if it has a legally enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to income taxes levied by the same taxation authority on
either the same taxable entity or different taxable entities which intend
either to settle current tax liabilities and assets on a net basis, or to
realise the assets and settle the liabilities simultaneously, in each future
period in which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
F. Property, plant and equipment
Property, plant and equipment are initially recognised at cost. Carrying
amounts are reviewed on each reporting date for impairment. Where the carrying
amount of an asset is greater than its estimated recoverable amount, it is
written down immediately to its recoverable amount.
Depreciation is calculated to write off the cost of fixed assets on a straight
line basis over the expected useful lives of the assets concerned. The
principal annual rates used for this purpose, which are consistent with those
of the previous years, are:
%
Computers and gaming machines 20-33
Office furniture and equipment 7-33
Freehold and leasehold buildings and improvements 3-20, or over the length of the lease
Motor vehicles 15
Land is not depreciated.
Subsequent expenditure is included in the asset carrying amount or recognised
as a separate asset, as appropriate, only when it is probable that future
economic benefits will flow to the Group and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to the income
statement of comprehensive income during the financial period in which they
are incurred.
Gains and losses on disposals are determined by comparing sale proceeds with
carrying amount and are included in the consolidated statement of
comprehensive income.
G. Intangible assets and goodwill
Externally acquired intangible assets
Externally acquired intangible assets are recognised at cost and subsequently
amortised on a straight line basis over their useful economic lives.
Intangible assets are recognised on business combinations if they are
separable from the acquired entity or give rise to other contractual legal
rights. The amounts described to such intangible are arrived at by using
appropriate valuation techniques.
Internally generated intangible assets (development costs)
Development costs that are directly attributable to the design and testing of
identifiable and unique software products controlled by the Group are
recognised as intangible assets where the following criteria are met:
· it is technically feasible to complete the software so that it
will be available for use
· management intends to complete the software and use or sell it
· there is an ability to use or sell the software
· it can be demonstrated how the software will generate probable
future economic benefits
· adequate technical, financial and other resources to complete the
development and to use or sell the software are available, and
· the expenditure attributable to the software during its
development can be reliably measured.
Directly attributable costs that are capitalised as part of the software
include employee costs and an appropriate portion of relevant overheads.
Capitalised development costs are recorded as intangible assets and amortised
from the point at which the asset is ready for use.
Amortisation is calculated at annual rates estimated to write off the costs of
the assets over their expected useful lives and is charged to operating
expenses from the point the asset is brought into use. The principal annual
rates used for this purpose, which are consistent with those of the previous
years, are:
%
Domain names Nil
Internally generated capitalised development costs 20-33
Technology IP 13-33
Customer lists In line with projected cash flows or 7-20
Affiliate contracts 5-12.5
Patents and licenses 10-33 or over the period of the license
Management believes that the useful life of the domain names and certain
trading licenses is indefinite. These assets are reviewed for impairment
annually.
Subsequent expenditure on capitalised intangible assets is capitalised only
where it clearly increases the economic benefits to be derived from the asset
to which it relates. All other expenditure, including that incurred in order
to maintain an intangible assets current level of performance, is expensed as
incurred.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
Group's interest in the fair value of identifiable assets, liabilities and
contingent liabilities acquired.
Cost comprises the fair value of assets given, and liabilities assumed and
equity instruments issued plus the amount of non-controlling interest in the
acquire plus, if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquire. Contingent
consideration, is included in the cost as its acquisition date fair value and,
in case of contingent consideration classified as a financial liability,
remeasured subsequently through profit or loss. For business combinations
completed on or after 1 January 2010, direct costs of acquisition are
recognised immediately as an expense.
Changes in the estimated value of contingent consideration arising on business
combinations completed by this date were treated as an adjustment to cost and,
in consequence, resulted in a change in the carrying value of goodwill.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated statement of comprehensive income.
H. Assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale
if their carrying amounts will be recovered principally through a sale
transaction rather than through continuing use. Non-current assets and
disposal groups classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Costs to sell are the
incremental costs directly attributable to the disposal of an asset (disposal
group), excluding finance costs and income tax expense.
The criteria for held for sale classification is regarded as met only when the
sale is highly probable and the asset or disposal group is available for
immediate sale in its present condition. Actions required to complete the sale
should indicate that it is unlikely that significant changes to the sale will
be made or that the decision to sell will be withdrawn. Management must be
committed to the plan to sell the asset and the sale expected to be completed
within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or
amortised once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as
current items in the statement of financial position.
A disposal group qualifies as discontinued operation if it is a component of
an entity that either has been disposed of, or is classified as held for sale,
and:
· Represents a separate major line of business or geographical area
of operations
· Is part of a single co-ordinated plan to dispose of a separate
major line of business or geographical area of operations;or
· Is a subsidiary acquired exclusively with a view to resale
I. Financial Instruments
(i) Recognition
Trade receivable and debt securities issued are initially recognised when they
are originated. All other financial assets and liabilities are initially
recognised when the Group becomes a party to the contractual provisions of the
instruments.
Financial assets
(ii) Classification
The Group classifies its financial assets in the following measurement
categories:
§ those to be measured subsequently at fair value (either through OCI or
through profit or loss), and
§ those to be measured at amortised cost.
The classification depends on the Group's business model for managing the
financial assets and the contractual terms of the cash flows.
Financial assets are not reclassified subsequent to their initial recognition
unless the Group changes its business model for managing financial assets, in
which case all affected financial assets are classified on the first day of
the first reporting period following the change in business model.
(iii) Measurement
At initial recognition, the Group measures a financial asset at its fair value
plus, in the case of a financial asset not at fair value through profit or
loss (FVTPL), transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets
carried at FVTPL are expensed in profit or loss. Changes in the fair value of
financial assets at FVTPL are recognised in the statement of comprehensive
income.
Financial assets measured at amortised cost arise principally through the
provision of services to customers (e.g. trade receivables), but also
incorporate other types of contractual monetary asset. They are initially
recognised at fair value plus transaction costs that are directly attributable
to their acquisition or issue and are subsequently carried at amortised cost
using the effective interest rate method, less provision for impairment.
Trade receivables are amounts due from customers for goods sold or services
performed in the ordinary course of business. They are generally due for
settlement within 365 days and are therefore all classified as current. Trade
receivables are recognised initially at the amount of consideration that is
unconditional. The group holds the trade receivables with the objective to
collect the contractual cash flows and therefore measures them subsequently at
amortised cost using the effective interest method.
Due to the short-term nature of the current receivables, their carrying amount
is considered to be the same as their fair value.
Other receivables consist of amounts generally arising from transactions
outside the usual operating activities of the group such as the proceeds from
disposal of investment. Due to the short-term nature of the other current
receivables, their carrying amount is considered to be the same as their fair
value. For the majority of the non-current receivables, the fair values are
also not significantly different to their carrying amounts.
(iv) Derecognition
The Group derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire, or it transfers the rights to
receive the contractual cash flows in a transaction in which substantially all
of the risks and rewards of ownership of the financial asset are transferred
or in which the Group neither transfers nor retains substantially all of the
risks and rewards of ownership and it does not retain control of the financial
asset.
The Group enters into transactions whereby it transfers assets recognised in
its statement of financial position, but retains either all or substantially
all of the risks and rewards of the transferred assets. In these cases, the
transferred assets are not derecognised.
(v) Impairment
The Group assessed all types of financial assets that are subject to the
expected credit loss model:
· trade receivables
· debt investments carried at amortised cost
· cash and cash equivalents
Whilst all categories are subject to the impairment requirements of IFRS 9,
the group assessed that the identified impairment loss was immaterial.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses which uses a lifetime expected loss allowance for all trade
receivables. Trade receivables have been grouped based on their days past due.
Based on their past days due and the historical credit losses with the period
before 31 December 2019 or 1 January 2019 respectively, the Group assessed
that the expected loss rate of the trade receivables is immaterial. The
historical credit losses assessed were adjusted to reflect current and
forward-looking information on macroeconomic factors affecting the ability of
the customers to settle the receivables. The Group has identified the GDP and
the unemployment rate of the countries in which it sells its goods and
services to be the most relevant factors, and accordingly adjusted the
historical loss rates based on expected changes in these factors.
The Group has therefore concluded that the expected loss rates for trade
receivables being estimated based on the contract assets, have probability of
loss close to zero and therefore the impact of the impairment is immaterial
for the group.
Financial liabilities
(iv) Classification and measurement
Financial liabilities are classified as measured at amortised cost or FVTPL. A
financial liability is classified as at FVTPL if it is classified as
held-for-trading, it is a derivative or it is designated as such on initial
recognition. Financial liabilities at FVTPL are measured at fair value and net
gains and losses, including any interest expense, are recognised in profit or
loss. Other financial liabilities are subsequently measured at amortised cost
using the effective interest method. Interest expense and foreign exchange
gains and losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
(vi) Derecognition
The Group derecognises a financial liability when its contractual obligations
are discharged or cancelled, or expire. The Group also derecognises a
financial liability when its terms are modified and the cash flows of the
modified liability are substantially different, in which case a new financial
liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying
amount extinguished and the consideration paid (including any non-cash assets
transferred or liabilities assumed) is recognised in profit or loss.
(vii) Offsetting
Financial assets and financial liabilities are offset and the net amount
presented in the statement of financial position when, and only when, the
Group currently has a legally enforceable right to set off the amounts and it
intends either to settle them on a net basis or to realise the asset and
settle the liability simultaneously.
J. Share capital
Ordinary shares are classified as equity and are stated at the proceeds
received net of direct issue costs.
K. Share buyback
The Group cannot hold treasury shares under the Company's memorandum and
article of association and therefore the shares are cancelled after the
buyback.
L. Employee Benefit Trust
Consideration paid/received for the purchase/sale of shares subsequently put
in the Employee Benefit Trust is recognised directly in equity. The cost of
treasury shares held is presented as a separate reserve (the "Employee Benefit
Trust reserve"). Any excess of the consideration received on the sale of
treasury shares over the weighted average cost of the shares sold is credited
to retained earnings.
M. Compound financial instruments
Compound financial instruments issued by the Group comprise convertible notes
denominated in euro that can be converted to ordinary shares at the option of
the holder, when the number of shares to be issued is fixed and does not vary
with changes in fair value.
The liability component of compound financial instruments is initially
recognised at the fair value of a similar liability that does not have an
equity conversion option. The equity component is initially recognised at the
difference between the fair value of the compound financial instrument as a
whole and the fair value of the liability component. Any directly attributable
transaction costs are allocated to the liability and equity components in
proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound
financial instrument is measured at amortised cost using the effective
interest method. The equity component of a compound financial instrument is
not remeasured.
Interest related to the financial liability is recognised in statement of
comprehensive income.
N. Dividends
Dividends are recognised when they become legally payable. In case of interim
dividends to equity shareholders, this is when declared by the Directors. In
case of final dividends, this is when approved by the shareholders at the AGM.
O. Impairment of non financial assets
At each reporting date, the Group reviews the carrying amounts of its
non-financial assets to determine whether there is any indication of
impairment. If any such indication exists, then the asset's recoverable amount
is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGUs. Goodwill arising from
a business combination is allocated to CGUs or groups of CGUs that are
expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use
and its fair value less costs to sell. Value in use is based on the estimated
future cash flows, discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and
the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU
exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first
to reduce the carrying amount of any goodwill allocated to the CGU, and then
to reduce the carrying amounts of the other assets in the CGU on a pro rata
basis.
P. Provisions
Provisions, which are liabilities of uncertain timing or amount, are
recognised when the Group has a present obligation as a result of past events,
if it is probable that an outflow of funds will be required to settle the
obligation and a reliable estimate of the amount of the obligation can be
made.
Q. Adjusted results
The Board of Directors believes that in order to best represent the trading
performance and results of the Group, the reported numbers should exclude
certain non-cash and one-off items including the below.
Management regularly uses the adjusted financial measures internally to
understand, manage and evaluate the business and make operating decisions.
These adjusted measures are among the primary factors management uses in
planning for and forecasting future periods. Furthermore, compensation of the
executives is based in part on the performance of the business based on these
adjusted measures.
Accordingly, these are the key performance metrics used by the Board of
Directors when assessing the Group's financial performance. Such exclusions
include:
· Material non-cash items, e.g. amortisation of intangibles on
acquisition, impairment of tangible and intangible assets, impairment of right
of use assets, change in fair value of equity investments in the statement of
comprehensive income and employee share option plan expenses. Management
regularly monitors the operating cash conversion to adjusted EBITDA. These
items are excluded to better analyse the underlying cash transactions of the
business.
· Material one-off items, e.g. in regard to the Sun Bingo contract
an adjustment is made for the first seven weeks of H1 2019 prior to the
renegotiation in February to show the effect as if the amendment to the
contract with News UK had been in place from the beginning of the 2019
financial year, professional services cost related to acquisitions, changes on
the deferred and contingent consideration and other exceptional projects. In
the last few years the Group has acquired new businesses on a regular basis,
however, the costs incurred due to these acquisitions are not considered to be
an ongoing trading cost and usually cannot be changed or influenced by
management.
Underlying adjusted results exclude the following items in order to present a
more accurate 'like for like' comparison over the comparable period:
· The impact of acquisitions made in the period or in the
comparable period and the directly related finance costs relating to the
acquisitions; and
· Currency fluctuations affecting the results in the period and the
comparable period.
As these are non-GAAP measures, they should not be considered as replacements
for IFRS measures. The Group's definition of these non-GAAP measures may not
be comparable to other similarly titled measures reported by other companies.
A full reconciliation of adjustments is included in note 10.
NOTE 6 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The areas
requiring the use of estimates and critical judgments that may potentially
have a significant impact on the Group's earnings and financial position are
detailed below.
Judgments
§ Structured agreements
IFRS 10 defines 'Structured entities' as the investee where voting rights are
not the dominant factor in assessing control. The definition involves judgment
and the identification of investor-investee relationship is required. The
following should be considered:
The purpose and design of such entities is key to determining which party
controls the entity:
§ The rights which investee holds
§ The rights held by other parties in the investee
§ Exposure to the majority of the risks and rewards from the entity
§ The decision making rights and the power over those activities that
significantly affect the structured entity's return
The definition of 'control' in the absent of shareholding rights is judgmental
and therefore difficult to determine. Exposure to the risk and rewards, as
well as decision making rights can be identified by the agreement between the
two parties, however, what is considered exposure to the 'majority' of the
risks and rewards and 'power' over the investees activities are also
judgmental areas. The Group has made judgements in respect of classifying
arrangements as structured agreements (see note 18).
§ Provision for loss from onerous contracts
Management considers the requirement for a creation of a provision from a
loss-making contract by forecasting the cash flow outcomes in the remain
period of the contract. The assessment of the cash flow outcomes includes the
probability of future changes in commercial terms and the steps taking to
mitigate the issues encountered with the contract.
§ Revenue from contracts with customers
As part of gambling activities may be physically located in casinos or in
public venues (e.g. betting shops, betting terminals and bingo halls) and
others may be played online. Depending on the type of game, players might
place a wager against the operator (the house) or against other players (e.g.
Poker).
In some jurisdictions, the operation of gambling activities is subject to a
number of regulations and certain regulations prescribe a percentage of all
amounts wagered that must be awarded as prizes to winners. However, in other
jurisdictions, the regulations do not prescribe a fixed percentage that must
be awarded to winner(s) and in such situations, the percentage could be left
to the operator's discretion or predefined as game rules, which are known to
the players in advance.
Therefore, the presentation of revenue depends on the nature of the gambling
activity. The point of recognition is determined once the service has been
provided or the bet concluded. Once the collection of payment from services
provided is reasonably assured and the amount and costs of revenues can be
reasonable measured, revenue is then recognised.
When the gambling contract or instrument meets the definition of a derivative,
it is accounted for as a financial instrument in accordance with IFRS 9
Financial Instruments: Recognition and Measurement. When the gambling contract
or instrument does not meet the definition of a derivative, the operator
assesses whether it acts as a principal or an agent. In online gaming Business
to Customer ("B2C") activity the operator acts as a principal, revenue is
recognized as the gross amount collected from the players net of bonuses and
progressive jackpot constibutions, which is commonly known in the industry as
Net Gaming Revenue ("NGR") with gaming taxes and other revenue driven costs
classified as an expense. In retail gaming B2C activity the operator is also
considered as a principal. Snaitech, being an operator in Italy, has a
franchisee business model, where Snaitech hold the concessions but
predominately does not own the betting shops. Revenue is recognized as NGR
less certain taxes, with the fee paid to the owners of the betting shops
classified as an expense.
B2C revenue is recognized at a point of time which is determined when the
relevant game or bet is settled and fully determined, based on the terms and
conditions published by the operator.
The business model of the business to business ("B2B") software and services
division is predominately a revenue share model which is based on royalties
from B2C gaming operators' revenues. This activity is considered to be an
agent and revenues are recognized as the net amount of royalties charged. The
majority of the B2B revenue is recognized at a point of time which is
determined when the gaming or betting activity used as the basis for the
revenue share is settled and fully determined, based on the terms and
conditions published by the operator. For the B2B and financial trading
revenue streams revenue is only recognized when collection is virtually
certain and the Group has determined it has a legally enforceable right to
collection.
§ Internally generated intangible assets
Expenditure on internally developed products is capitalised based on the
below:
§ adequate resources are available to complete and sell the product
§ the Group is able to sell the product
§ sale of the product will generate future economic benefits,
§ expenditure on the project can be measured reliably
Significant judgements relate to the assessment of whether projects will
result in future economic benefits. Management consider this on a project by
project basis after considering projections prepared, past industry experience
and advice of development teams. At 31 December 2019, the carrying amount of
capitalized development costs was €126.1 million (2018: €117.7 million)
§ Determining the lease term under IFRS 16
In order to determine the lease term, the Group takes into consideration the
period over which the lease is non-cancellable, including renewal options that
it is reasonably certain it will exercise and/or termination options that it
is reasonably certain it will not exercise. The possible effects are an
increase or decrease in the initial measurement of a right of use asset and
lease liability and in depreciation and financing expenses in subsequent
periods.
§ Determining whether an arrangement contains a lease
In order to determine whether an arrangement contains a lease, the Group
assesses whether the arrangement conveys the right to control the use of an
identified asset for a period of time in exchange for consideration, while
examining whether throughout the lease term it has the right to obtain
substantially all the economic benefits from use of the identified asset and
the right to direct the identified asset's use. The possible effects is the
recognition of right of use asset and lease liability or recognition of
current expenses.
§ Regulatory
The Group's subsidiaries, Safecap Investments Limited, Magnasale Trading
Limited, CFH Clearing Limited, TradeTech Alpha Limited, TradeTech Markets
(Australia) Pty Limited, TradeTech Markets (BVI) Limited, and TradeTech
Markets (South Africa) Pty Limited are regulated by the Financial Conduct
Authority, Australian Securities & Investments Commission, Cyprus
Securities and Exchange Commission, the Financial Services Commission, or the
Financial Sector Conduct Authority. The regulatory environment is regularly
changing and imposes significant demands of the resources of the subsidiaries.
As the subsidiaries' activities expand, offering new products and penetrating
new markets, these regulatory demands will inevitably increase. The increasing
complexity of the Group's operations require training and recruitment be
tailored to meet these regulatory demands and the costs of compliance are
expected to increase.
In addition to the above, the regulated subsidiaries manage their capital
resources on the basis of capital adequacy requirements as prescribed by each
of the regulators, together with their own assessments of other business risks
and sensitivities which may impact the business. Capital adequacy
requirements are monitored on a real-time basis, including a 'buffer' which is
deemed sufficient by management to ensure that capital requirements are not
breached at any time.
Classification as held for sale
The definition of asset held for sale involves a significant degree of
judgement given that in order for an asset to be classified as held for sale,
it must be available for immediate sale in its present condition, its sale
must be highly probable and it must genuinely be sold. The meaning of 'highly
probable' is highly judgmental and therefore IFRS5 sets out criteria for the
sale to be considered as a highly probable as follows:
§ Management must be committed to a plan to sell the asset;
§ An active program to find a buyer must be initiated;
§ The asset must be actively marketed for sale at a price that is reasonable
to its current fair value;
§ The sale must be completed within one year from the date of classification;
§ Significant changes to be made to the plan must be unlikely.
The Board has committed a plan to sell the Casual and Social Gaming Business
and has an active process of locating a buyer by actively market the sale
during 2019, the expectation of the sale to be completed within one year is
unknown and is based on management's expectations. In addition, there is no
specific definition of what is considered to be 'reasonable' price and the
determination of the asset's fair value is a matter of estimate.
Estimates and assumptions
§ Impairment of goodwill and other intangibles
The Group is required to test, on an annual basis, whether goodwill,
intangible assets not yet in use and indefinite life assets have suffered any
impairment. The Group is required to test other intangibles if events or
changes in circumstances indicate that their carrying amount may not be
recoverable. The recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of future cash
flows and the choice of a discount rate in order to calculate the present
value of the cash flows. Such estimates are based on management's experience
of the business, but actual outcomes may vary. More details including carrying
values are included in Note 17.
§ Deferred tax assets
Deferred tax assets are recognized with respect to the tax losses carryovers
and other significant temporary differences, to the extent that there is
likely to be sufficient future taxable income against which such losses and
temporary differences may be deducted in future periods. Directors are
required to make significant discretionary evaluation to determine the amount
of deferred tax assets that may be recognised. The directors need to estimate
the probable temporary effect and the amount of the future taxable income, as
well as the planning strategy for future taxes. More details included in Note
26.
§ Income taxes
The Group is subject to income tax in several jurisdictions and significant
judgement is required in determining the provision for income taxes. During
the ordinary course of business, there are transactions and calculations for
which the ultimate tax determination is uncertain. As a result, the Group
recognises tax liabilities based on estimates of whether additional taxes and
interest will be due.
These tax liabilities are recognised when, despite the company's belief that
its tax return positions are supportable, the company believes it is more
likely than not that a taxation authority would not accept its filing
position. In these cases, the Group records its tax balances based on either
the most likely amount or the expected value, which weights multiple potential
scenarios. The company believes that its accruals for tax liabilities are
adequate for all open audit years based on its assessment of many factors
including past experience and interpretations of tax law.
This assessment relies on estimates and assumptions and may involve a series
of complex judgments about future events. To the extent that the final tax
outcome of these matters is different than the amounts recorded, such
differences will impact income tax expense in the period in which such
determination is made. More details are included in Note 13.
§ Determination of fair value of intangible and tangible assets acquired on
business combinations
The fair value of the intangible assets acquired is based on the discounted
cash flows expected to be derived from the use of the asset. Further
information in relation to the determination of fair value of intangible
assets acquired is given in Notes 34 and 35. The fair value of the tangible
assets acquired on business combinations is determined through the methods of
value in use and market value as determined by an external, independent
property valuer.
§ Determination of the fair value of contingent consideration and redemption
liability
The fair value of contingent consideration and redemption liability is based
on the probability of expected cash flow outcomes and the assessment of
present values using appropriate discount rates. This can be based on actual
results or forecasts for future periods. Recognition of put/call options over
non-controlling interest is based on consideration of the ownership risks and
rewards of the shares relating to the option to determine whether the equity
is attributable to the non-controlling interest or the parent. The fair value
is based on the probability of expected cashflow outcomes based on
management's best estimates. This includes the interpretation of the
contractual terms of the contingent consideration arrangement with specific
reference to items of income or expense that may or may not be adjusted
against the measure used to derive the fair value of contingent consideration
(for example adjusted EBITDA) and discount rates applied. Further information
in relation to the determination of the fair value of contingent consideration
is given in Note 29.
§ Impairment of financial assets
Loss allowances for financial assets are based on assumptions about risk of
default and expected loss rates. The Group uses judgement in making these
assumptions and selecting the inputs to the impairment calculations based on
the Group's past history, existing market conditions as well as forward
looking estimates at the end of each reporting period. Where customers within
the financial trading division have not passed the necessary ongoing
regulatory requirements, consideration is given as to whether financial assets
relating to that customer should be impaired. The Group's exposure to various
risks associated with the financial instruments is disclosed in Note 38. The
maximum exposure to credit risk at the end of the reporting period is the
carrying amount of each class of financial assets mentioned in Note 38.
§ Determining the discount rate of a lease liability under IFRS 16
The Group discounts the lease payments using its incremental borrowing rate.
The possible effects of a change in the incremental borrowing rate are an
increase or decrease in the lease liability, right-of-use asset and
depreciation and financing expenses recognised.
The Group discounts the lease payments using its incremental borrowing rate
determined by the currency of each contract.
The possible effects of a +1% in the interest rates would be lower
amortisation €1.5m and higher interest expense by €0.6m respectively. The
possible effects of a -1% in the interest rates would be higher amortisation
by €2.0m and lower interest expense by €0.4m respectively.
§ Provision for risks and charges and potential liabilities
The Group ascertains a liability in the presence of legal disputes or lawsuits
underway when it believes it is probable that a financial outlay will take
place and when the amount of the losses which derive there from can be
reasonably estimated. The Group is subject to lawsuits regarding complex legal
problems, which are subject to a differing degree of uncertainty (also due to
a complex legislative framework), including the facts and the circumstances
inherent to each case, the jurisdiction and the different laws applicable.
Given the uncertainties inherent to these problems, it is difficult to predict
with certainty the outlay which will derive from these disputes and it is
therefore possible that the value of the provisions for legal proceedings and
disputes may vary depending on future developments in the proceedings
underway. The Group monitors the status of the disputes underway and consults
with its legal advisors and experts on legal and tax-related matters.
§ Fair value measurement
A number of assets and liabilities included in the Group's financial
statements require measurement at, and/or disclosure of, fair value.
The fair value measurement of the Group's financial and non-financial assets
and liabilities utilises market observable inputs and data as far as possible.
Inputs used in determining fair value measurements are categorised into
different levels based on how observable the inputs used in the valuation
technique utilised are (the 'fair value hierarchy'):
Level 1: Quoted prices in active markets for identical items (unadjusted)
Level 2: Observable direct or indirect inputs other than Level 1 inputs
Level 3: Unobservable inputs (i.e. not derived from market data).
The classification of an item into the above levels is based on the lowest
level of the inputs used that has a significant effect on the fair value
measurement of the item. Transfers of items between levels are recognised in
the period they occur.
NOTE 7 - SEGMENT INFORMATION
The Group's reportable segments are strategic business units that offer
different products and services.
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision maker has been identified as the management team including the Chief
Executive Officer and the Chief Financial Officer.
The operating segments identified are:
§ Gaming B2B: including Casino, Services, Sport, Bingo, Poker and Other
§ Gaming B2C: Snaitech, Sun Bingo and Casual (discontinued operations) &
Other B2C
§ Financial: including B2C and B2B CFD
The Group-wide profit measures are adjusted EBITDA and adjusted net profit
(see Note 10).
Management believes the adjusted profit measures represent more closely the
underlying trading performance of the business. No other differences exist
between the basis of preparation of the performance measures used by
management and the figures in the Group financial information.
There is no allocation of operating expenses, profit measures, assets and
liabilities to individual products within the gaming segments, as allocation
would be arbitrary.
Year ended 31 December 2019
Core B2B Asia B2B Total B2B B2C - continuing operations Intercompany Total Gaming Financial Total continued operations B2C - discontinued operations Total
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Revenue 440,023 113,892 553,915 900,475 (13,857) 1,440,533 67,915 1,508,448 17,005 1,525,453
Adjusted EBITDA 214,819 160,435 375,254 7,812 383,066 (4,573) 378,493
Adjusted profit attributable to the owners of the parent 89,982 47,818 137,800 (4,823) 132,977 (8,450) 124,527
Total assets 1,104,630 1,275,339 2,379,969 713,368 3,093,337 4,377 3,097,714
Total liabilities 761,261 857,829 1,619,090 252,823 1,871,913 3,595 1,875,508
Year ended 31 December 2018
Core B2B Asia B2B Total B2B B2C - continuing operations Intercompany Total Gaming Financial Total continued operations B2C - discontinued operations Total
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Revenue 383,432 182,590 566,022 578,078 (11,729) 1,132,371 92,936 1,225,307 15,136 1,240,443
Adjusted EBITDA 252,645 63,045 315,690 29,459 345,149 (2,100) 343,049
Adjusted profit attributable to the owners of the parent 136,490 5,864 142,354 117,409 259,763 (3,584) 256,179
Total assets 1,106,104 1,169,133 2,275,237 790,598 3,065,835 27,893 3,093,728
Total liabilities 1,096,605 293,547 1,390,152 323,411 1,713,563 29,659 1,743,222
Geographical analysis of non-current assets
The Group's information about its non-current assets by location of the
domicile are detailed below:
2019 2018
€'000 €'000
Italy 855,436 870,695
Isle of Man 448,881 539,944
Austria 179,709 176,621
UK 111,240 109,179
Cyprus 75,050 83,067
Sweden 71,641 70,157
British Virgin Islands 62,410 65,558
Denmark 42,137 42,738
Alderney 49,587 33,343
Gibraltar 39,248 33,413
Malta 25,969 21,043
Latvia 15,173 15,491
Ukraine 7,427 3,991
Estonia 8,657 7,313
Republic of Columbia 22,405 -
Australia 19,007 27,136
Rest of World 21,401 1,515
2,055,378 2,101,204
NOTE 8 - DISCONTINUED OPERATION
As identified in note 24, the Group has treated its Casual business as
discontinued in these results.
The results of the casual business for the year are presented below:
2019 2018
Actual Adjusted Actual Adjusted
€'000 €'000 €'000 €'000
Revenue 17,005 17,005 15,136 15,136
Distribution costs before depreciation and amortisation (21,290) (21,290) (17,058) (17,058)
Administrative expenses before depreciation and amortisation (290) (288) (178) (178)
EBITDA (4,575) (4,573) (2,100) (2,100)
Depreciation and amortisation (3,252) (2,567) (2,110) (1,362)
Impairment of intangible assets (23,686) - - -
Finance cost (266) (266) (115) (115)
Loss before taxation (31,779) (7,406) (4,325) (3,577)
Tax expenses (1,035) (1,044) 10 (7)
Loss from discontinued operations, net of tax (32,814) (8,450) (4,315) (3,584)
Prior to their transfer to a held for sale disposal group, all assets were
assessed for impairment. As part of this exercise, an impairment loss of
€23.7 million was recognised on intangible assets and the disposal group was
carried at the lower of its carrying amount prior to transfer and its fair
value less costs to sell. The impairment charge was included in discontinued
operations in the consolidated statement of comprehensive income.
Earnings per share from discontinued operations
Basic (cents) (10.9) (2.8) (1.4) (1.1)
Diluted (cents) (10.7) (2.8) (1.3) (1.0)
The net cash flows incurred by the casual segment, are as follows:
2019 2018
€'000 *€'000
Operating 3,809 2,248
Investing (3,931) (2,647)
Financing (229) -
Net cash (outflow)/inflow (351) 399
NOTE 9 - REVENUE FROM CONTRACTS WITH CUSTOMERS
The Group has disaggregated revenue into various categories in the following
table which is intended to:
· Depict how the nature, amount, timing and uncertainty of revenue and
cash flows are affected by recognition date; and
· Enable users to understand the relationship with revenue segment
information provided in the segmental information note.
Set out below is the disaggregation of the Group's revenue:
Geographical analysis of revenues by jurisdiction of licensee
Out of the total revenue, the revenues from B2B consist of royalty Income,
fixed- fee income, revenue received from the sale of hardware and cost based
revenue as described in Note 5 (Significant Accounting policies) policies,
paragraph C. Revenue recognition. The B2C revenues are described under B2C
Revenue policy and financial revenues under financial trading income.
For the year ended 31 December 2019
B2B B2C Intercompany Total Gaming Financial Continuing operations Discontinued operations Total
Primary Geographic Markets €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Italy 22,031 834,867 (7,802) 849,096 1,745 850,841 - 850,841
United Kingdom 204,252 45,678 (2,953) 246,977 33,229 280,206 - 280,206
Philippines 97,704 - - 97,704 40 97,744 - 97,744
Malta 40,229 - - 40,229 162 40,391 - 40,391
Mexico 29,748 - - 29,748 243 29,991 - 29,991
Spain 23,305 217 (23) 23,499 561 24,060 - 24,060
Greece 23,595 - - 23,595 (209) 23,386 - 23,386
Gibraltar 16,878 - - 16,878 22 16,900 - 16,900
Germany 2,120 14,572 (1,925) 14,767 1,371 16,138 - 16,138
Ireland 12,521 - - 12,521 203 12,724 - 12,724
Finland 9,265 - - 9,265 55 9,320 - 9,320
Austria 4,648 5,121 (1,149) 8,620 158 8,778 - 8,778
United Arab Emirates - - - - 7,185 7,185 - 7,185
Cyprus 1,147 - - 1,147 5,894 7,041 - 7,041
Curacao 6,986 - - 6,986 13 6,999 - 6,999
Rest of World 59,486 20 (5) 59,501 17,243 76,744 17,005 93,749
553,915 900,475 (13,857) 1,440,533 67,915 1,508,448 17,005 1,525,453
B2B B2C Intercompany Total Gaming Financial Continuing operations Discontinued operations Total
Product type €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Casino 250,967 - (6,385) 244,582 - 244,582 - 244,582
Services 91,589 - (2,734) 88,855 - 88,855 - 88,855
Sport 152,652 - (3,224) 149,428 - 149,428 - 149,428
Bingo 23,352 - (862) 22,490 - 22,490 - 22,490
Poker 8,434 - (491) 7,943 - 7,943 - 7,943
Other 26,921 - (161) 26,760 - 26,760 - 26,760
Total B2B 553,915 - (13,857) 540,058 - 540,058 540,058
Snaitech - 829,723 - 829,723 - 829,723 - 829,723
Sun Bingo - 40,633 - 40,633 - 40,633 - 40,633
B2C Sport and Other B2C - 30,119 - 30,119 - 30,119 17,005 47,124
Total B2C - 900,475 - 900,475 - 900,475 17,005 917,480
Financial - - - 67,915 67,915 - 67,915
553,915 900,475 (13,857) 1,440,533 67,915 1,508,448 17,005 1,525,453
B2B B2C Intercompany Total gaming Financial Continuing operations Discontinued operation Total
Timing of transfer of performance obligations €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
At satisfaction of the performance obligation 494,929 900,475 (13,857) 1,381,547 67,915 1,449,462 17,005 1,466,467
Hardware sale (at point of transaction) 56,153 - - 56,153 - 56,153 56,153
Over time 2,833 - - 2,833 - 2,833 2,833
553,915 900,475 (13,857) 1,440,533 67,915 1,508,448 17,005 1,525,453
For the year ended 31 December 2018
B2B B2C Intercompany Total Gaming Financial Continuing operations Discontinued Operations Total
Primary Geographic Markets €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Italy 23,366 519,117 (6,447) 536,036 3,686 539,722 - 539,722
UK 175,589 44,208 (3,581) 216,216 40,870 257,086 - 257,086
Philippines 170,062 - - 170,062 1 170,063 - 170,063
Malta 30,812 - - 30,812 220 31,032 - 31,032
Gibraltar 24,252 - - 24,252 186 24,438 - 24,438
Mexico 23,204 - - 23,204 663 23,867 - 23,867
Spain 21,652 555 (56) 22,151 1,398 23,549 - 23,549
Greece 13,427 - - 13,427 1,076 14,503 - 14,503
Germany 1,329 11,769 (1,237) 11,861 2,621 14,482 - 14,482
Finland 12,827 - - 12,827 141 12,968 - 12,968
Belgium 7,853 - - 7,853 3 7,856 - 7,856
Austria 4,856 2,259 (408) 6,707 361 7,068 - 7,068
Seychelles - - - - 6,974 6,974 - 6,974
Ireland 6,312 - - 6,312 446 6,758 - 6,758
Norway 5,849 - - 5,849 752 6,601 - 6,601
Rest of World 44,632 170 - 44,802 33,538 78,340 15,136 93,476
566,022 578,078 (11,729) 1,132,371 92,936 1,225,307 1,240,443
15,136
B2B B2C Intercompany Total Gaming Financial Continuing operations Discontinued Operations Total
Product type €'000 €'000 €'000 €'000 €'000 €'000
Casino 320,080 - (4,875) 315,205 - 315,205 - 315,205
Services 84,587 - (3,116) 81,471 - 81,471 - 81,471
Sport 98,051 - (2,410) 95,641 - 95,641 - 95,641
Bingo 26,359 - (884) 25,475 - 25,475 - 25,475
Poker 9,555 - (346) 9,209 - 9,209 - 9,209
Other 27,390 - (98) 27,292 - 27,292 - 27,292
Total B2B 566,022 - (11,729) 554,293 - 554,293 554,293
Snaitech - 511,907 - 511,907 - 511,907 - 511,907
Sun Bingo - 33,713 - 33,713 - 33,713 - 33,713
Casual, B2C Sport and Other B2C - 32,458 - 32,458 - 32,458 47,594
15,136
Total B2C - 578,078 - 578,078 - 578,078 15,136 593,214
Financial - - - - 92,936 92,936 - 92,936
566,022 578,078 (11,729) 1,132,371 92,936 1,225,307 1,240,443
15,136
B2B B2C Intercompany Total gaming Financial Continuing operations Discontinued operation Total
Timing of transfer of services €'000 €'000 €'000 €'000 €'000 €'000 €'000
At satisfaction of the performance obligation 561,322 578,078 (11,729) 1,127,671 92,936 1,220,607 15,136 1,235,743
Hardware sale (at point of transaction) 3,108 - - 3,108 - 3,108 - 3,108
Over time 1,592 - - 1,592 - 1,592 - 1,592
566,022 578,078 (11,729) 1,132,371 92,936 1,225,307 15,136 1,240,443
There were no changes in the Group's valuation processes, valuation
techniques, and types of inputs used in the fair value measurements during the
period.
The vast majority of the Group's B2B contracts are for the delivery of
services within the next 12 months.
In 2019, there were no licensees (2018: One licensee) who individually
accounted for more than 10% of the total gaming revenue and the total revenue
of the Group. Aggregate revenue from these licensees totalled €137.7 million
in 2018.
The Group's deferred income includes the set-up fees paid by the licensee in
the beginning of the contract. The fees cover the whole period of the contract
(on average a period 36 months). The revenue is recognized on a monthly
basis until the completion of the services provided. There are included in
deferred income and total €9.2 million (2018: €7.6 million).
During the year, the Group earned non-recurring market-making revenue and
EBITDA of $5.5 million through its trading contract with AMC (Mauritius) plc
which is ultimately own by the shareholders of ACM Group Limited, for which
the Group acquired technology, intellectual property and certain customer
assets on 10 October 2017.
NOTE 10 - ADJUSTED ITEMS
Management has presented the performance measures Adjusted EBITDA and Adjusted
profit because it monitors performance at a consolidation level and believes
that these measures are relevant to an understanding of the Group's financial
performance. The definitions of adjusted items and underlying adjusted results
are disclose in note 5.
As these are not a defined performance measure in IFRS, the Group's definition
of adjusted items may not be comparable with similarly titled performance
measures or disclosures by other entities.
The following tables give a full reconciliation between adjusted and actual
results:
2019 2018
€'000 €'000
Revenue 1,508,448 1,225,307
Constant currency impact (9,332) -
Revenue on constant currency basis 1,499,116 1,225,307
Revenue related to acquisitions on a constant currency basis (828,154) (512,646)
Underlying revenue 670,962 712,661
Distribution costs before depreciation and amortisation 1,008,020 779,436
Employee stock option expenses (6,902) (5,014)
Adjusted distribution costs before depreciation and amortisation 1,001,118 774,422
Administrative expenses before depreciation and amortisation 150,280 155,927
Employee stock option expenses (11,200) (8,710)
Professional fees on acquisitions (1,926) (27,102)
Additional consideration payable in respect of redemption liabilities (10,180) 2,391
Cost of fundamental business reorganization (14) (2,396)
Impairment of investment in equity-accounted associates (443) (8,001)
Gain from the disposal of equity-accounted associates - 897
Amendment to contingent consideration (6,286) (1,705)
Reversal/(provision) for other receivables 204 (5,565)
Effect from the amendments on the terms of Sun contract back dated (6,425) -
Total adjusted items (36,270) (50,191)
Adjusted administrative expenses before depreciation and amortisation 114,010 105,736
Depreciation of property, plant and equipment - distribution costs 45,953 36,734
Depreciation of property, plant and equipment - administrative costs 5,566 5,898
Amortisation of intangible assets - distribution costs 145,002 108,103
Amortisation of the right of use assets - distribution costs 13,933 -
Amortisation of the right of use assets - administrative costs 5,286 -
Total depreciation and amortization 215,740 150,735
Amortisation of intangibles on acquisitions - distribution costs (58,131) (47,188)
Adjusted depreciation and amortisation 157,609 103,547
EBITDA 335,258 289,944
Employee stock option expenses 18,102 13,724
Professional fees on acquisitions 1,926 27,102
Additional consideration payable in resspect of redemption liabilities 10,180 (2,391)
Cost of fundamental business reorganization 14 2,396
Impairment of investment in equity-accounted associates and other non current 5,079 8,001
assets
Gain from the disposal of equity-accounted associates - (897)
Amendment to contingent consideration 6,286 1,705
(Reversal)/provision for other receivables (204) 5,565
Effect from the amendments on the terms of Sun contract back dated 6,425 -
Adjusted EBITDA 383,066 345,149
Constant currency impact (1,504) -
Adjusted EBITDA on constant currency basis 381,562 345,149
EBITDA related to acquisitions on constant currency basis (154,699) (87,958)
Underlying adjusted EBITDA 226,863 257,191
Profit from continuing operations attributable to owners of the parent 13,243 128,124
Amortisation of intangibles on acquisitions 58,131 47,188
Gain from the disposal of equity-accounted associates - (897)
Impairment of investment in associate and other non-current assets 5,079 8,001
Employee stock option expenses 18,102 13,724
Professional fees on acquisitions 1,926 27,102
Additional consideration payable in respect of redemption liabilities 10,180 (2,391)
Cost of fundamental business reorganisation 14 2,396
Notional interest on convertible bonds 9,851 10,685
Deferred tax on acquisition (13,704) (9,845)
Movement in contingent consideration and redemption liability (80,120) (1,887)
Finance costs on acquisitions 1,532 8,494
Fair value change of equity investments 270 1,738
Tax relating to prior years (refer to note 13) 4,067 28,410
Gain on the early repayment of the bond - (8,350)
Amendment to contingent consideration 6,286 1,705
(Reversal)/provision for other receivables (204) 5,565
Effect from the amendments on the terms of Sun contract back dated 6,425 -
Impairment of right of use assets 827 -
Impairment of property, plant and equipment 896 -
Impairment of intangible assets 90,176 -
Adjusted profit from continuing operations attributable to the owners of the 132,977 259,762
parent
Constant currency impact 292 4,505
Adjusted profit for the year from continuing operations - attributable to 133,269 264,267
owners of the parent on constant currency basis
Adjusted net profit related to acquisitions on constant currency basis (44,497) (35,568)
Underlying adjusted profit for the year - attributable to owners of the parent 88,772 228,699
Loss from discontinued operations attributable to owners of the parent (32,814) (4,315)
Amortisation of intangibles on acquisitions 685 748
Impairment of intangible assets 23,686 -
Deferred tax on acquisition (7) (17)
Adjusted profit from discontinued operations attributable to the owners of the (8,450) (3,584)
parent
Total adjusted profit attributable to the owners of the parent 124,527 256,178
NOTE 11 - EBITDA
EBITDA is stated after charging:
2019 2018
€'000 €'000
Directors compensation
Short-term benefits of directors 3,136 2,899
Share-based benefits of directors 40 1,320
Bonuses to executive directors 2,040 717
5,216 4,936
Auditor's remuneration
Group audit and parent company (BDO) 1,379 572
Audit of subsidiaries (BDO) 775 634
Audit of subsidiaries (non-BDO) 450 758
Total audit fees 2,604 1,964
Non-audit services provided by parent company auditor and its international
member firms
Corporate finance services related to acquisitions - 2,264
Other non-audit services 314 407
Tax advisory services 267 192
Total non-audit fees 581 2,863
Development costs (net of capitalised development costs of €65.5 million 92,821 87,290
(2018: €58.3 million)
NOTE 12 - FINANCING INCOME AND COSTS
2019 2018
€'000 €'000
A. Finance income
Interest received 3,218 2,446
Dividends received from equity investments - 33,927
Finance income - Movement in contingent consideration and redemption liability 80,120 1,887
Gain on early repayment of bond loans (Note 26) - 8,350
83,338 46,610
B. Finance cost
Exchange differences (1,030) (4,504)
Notional interest on convertible bonds (9,851) (10,685)
Nominal interest on convertible bonds (1,359) (1,485)
Interest on bond loan (33,849) (19,518)
Interest on lease liability (6,202) -
Bank facility fees (3,306) (13,642)
Bank charges and interest paid (8,581) (9,601)
(64,178) (59,435)
Net financing cost (19,160) (12,825)
NOTE 13 - INCOME TAX EXPENSES
2019 2018
€'000 €'000
Current tax expense 27,314 29,938
Deferred tax (Note 31) 2,923 (4,696)
Tax for prior years 4,067 28,410
Total tax charge 34,304 53,652
The tax charge for the year can be reconciled to accounting profit as follows:
2019 2018
€'000 €'000
Profit before tax 48,150 187,746
Tax at effective rate in Isle of Man - -
Income tax on profits of subsidiary operations 27,314 29,938
Deferred tax 2,923 (4,696)
Tax for prior years 4,067 28,410
Total tax charge 34,304 53,652
The Group's policy is to manage, control and operate Group companies only in
the countries in which they are registered. The international tax laws and
practices in respect of the digital economy continue to evolve in many
jurisdictions where the Group has significant assets or people presence. The
Group's international presence means that it is possible that the amount of
tax that will eventually become payable may differ from the amount provided in
the financial statements.
The Group's underlying adjusted current effective tax rate of 14% (2018:10%)
is impacted by the geographic mix of profits and reflects a combination of
higher headline rates of tax in the various jurisdictions in which the Group
operates when compared with the Isle of Man standard rate of corporation tax
of 0%.
During 2018, the Group recognized an overseas tax of €28.4 million which
relates to the settlement of open enquiries with tax authorities.
The deferred tax is due to the reversal of temporary differences arising on
the identification of the intangible assets acquired in the current and prior
years. Refer to Note 31 for more detailed information in respect of deferred
taxes.
NOTE 14 - EARNINGS PER SHARE
Earnings per share have been calculated using the weighted average number of
shares in issue during the relevant financial periods. The weighted average
number of equity shares in issue and the earnings, being profit after tax is
as follows:
2019 2018
Actual Adjusted Actual Adjusted
€'000 €'000 €'000 €'000
(Loss)/profit attributable to owners of the Company (19,571) 124,527 123,809 256,179
Interest expense on convertible bond - - 12,170 1,485
(Loss)/Profit attributable to the owners of the Company - diluted (19,571) 124,527 135,979 257,664
Basic (cents) (6.5) 41.3 39.3 81.3
Diluted (cents) (6.4) 40.4 38.4 72.9
2019 2018
Actual Adjusted Actual Adjusted
€'000 €'000 €'000 €'000
Profit attributable to the owners of the Company from continuing operations 13,243 132,976 128,124 259,763
Interest expense on convertible bond - - 12,170 1,485
Profit attributable to the owners of the Company from continuing operations- 13,243 132,976 140,294 261,248
diluted
Basic (cents) 4.4 44.1 40.7 82.4
Diluted (cents) 4.3 43.2 39.7 73.9
Earnings per share for discontinued operations is disclosed in note 8.
2019 2018
Actual Adjusted Actual Adjusted
Number Number Number Number
Denominator - basic
Weighted average number of equity shares 301,790,246 301,790,246 315,066,252 315,066,252
Denominator - diluted
Weighted average number of equity shares 301,790,246 301,790,246 315,066,252 315,066,252
Weighted average number of option shares 6,258,364 6,258,364 3,420,264 3,420,264
Weighted average number of convertible bonds - - 35,194,994 35,194,994
Weighted average number of shares 308,048,610 308,048,610 353,681,510 353,681,510
NOTE 15 - EMPLOYEE BENEFITS
Total staff costs comprise the following:
2019 2018
€'000 €'000
Salaries and personnel-related costs 329,098 289,035
Employee stock option costs 18,102 13,724
347,200 302,759
Average number of personnel:
Distribution 5,382 4,741
General and administration 666 562
6,048 5,303
The Group has the following employee share option plans ("ESOP") for the
granting of non-transferable options to certain employees:
§ Playtech 2005 Share Option Plan ("the Plan") and Israeli plans, options
granted under the plans vest on the first day on which they become exercisable
which is typically between one to four years after grant date.
§ GTS 2010 Company Share Option Plan ("CSOP"), options granted under the plan
vest on the first day on which they become exercisable which is three years
after grant date.
§ Long Term Incentive Plan 2012 ("LTIP"), awards (options, conditional awards
or a forfeitable share award) granted under the plan vest on the first day on
which they become exercisable which is typically between eighteen to thirty
six months after grant date.
The overall term of the ESOP is ten years. These options are settled in equity
once exercised. Option prices are denominated in GBP.
During 2012, the Group amended some of the rules of the equity based Plan.
The amendments allow the Group, at the employees consent, to settle fully
vested and exercisable options for cash instead of issuing shares.
During 2019 the Group granted:
· 620,429 nil cost awards subject to relative TSR vs constituents
of the FTSE250 excluding investment trusts index and relative TSR vs
constituents of a Sector comparator group of 11 sector peer companies. The
fair value per share according to the Monte Carlo simulation is between £1.93
and £2.13.
Inputs used:
Expected life (years) Share price at grant date Dividend yield Risk free rate Projection period (years) Volatility
3 £4.224 4.96% 0.85% 2.84 34%
· 3,998,179 nil cost awards out of which some are subject to
relative TSR vs constituents of the FTSE250 excluding investment trusts index,
relative TSR vs constituents of a Sector comparator group of 11 sector peer
companies, Individual conditions relating to business area performance and
EBITDA performance condition. The fair value per share according to the Monte
Carlo simulation is between £2.22 and £3.91.
Inputs used (where applicable):
Expected life (years) Share price at grant date Dividend yield Risk free rate Projection period (years) Volatility
2.62 - 3 £4.491 4.66% 0.48% 2.46 36%
· 1,900,000 nil cost awards subject to the volume weighted average
price of shares exceeding the share price target set out, over a period of 30
consecutive business days. The fair value per share according to the Monte
Carlo simulation is between £0.24 and £1.1.
Inputs used:
Share price at grant date Dividend yield Risk free rate Projection period (years) Volatility
£3.88 4.22% 0.54% 3 -5 30.9%
The Group granted 2,985,462 nil cost awards in 2018 at fair value per share of
£5.35 in 2018.
At 31 December 2019, options under these schemes were outstanding over:
2019 2018
Number Number
Shares vested between 18 April 2012 and 18 April 2013 at an exercise price of 18,000 18,000
£5.12 per share
Shares vested between 26 August 2012 and 26 August 2013 at an exercise price 30,500 30,500
of £4.16 per share
Shares vested on 10 March 2014 at an exercise price of £3.5225 per share 25,700 25,700
Shares vested on 1 March 2018 at nil cost 102,844 102,844
Shares vested between 1 September 2016 and 1 March 2018 at nil cost 100,596 159,158
Shares vested on 1 March 2019 at nil cost 31,972 246,728
Shares vested between 1 September 2017 and 1 March 2019 at nil cost 202,161 319,742
Shares vested on 21 December 2019 at nil cost 91,446 86,205
Shares vested between 1 October 2017 and 1 April 2019 at nil cost 33,372 29,562
Shares will vest on 1 March 2020 at nil cost 522,992 1,115,570
Shares vested On 1 September 2019 at nil cost 16,703 16,703
Shares will vest On 1 March 2021 at nil cost 2,729,622 2,867,209
Shares will vest between 1 March 2021 and 1 March 2022 4,565,881 -
Shares will vest by December 19 2024 1,900,000 -
10,371,789 5,017,921
Total number of shares exercisable as of 31 December 2019 is 636,591 (2018:
458,156).
The following table illustrates the number and weighted average exercise
prices of shares options for the ESOP.
2019 2018 2019 2018
Number of options Number of options Weighted average exercise price Weighted average exercise price
Outstanding at the beginning of the year 5,017,921 2,858,578 £0.06 £0.13
Granted 6,518,608 2,985,462 Nil Nil
Forfeited (952,116) (351,166) £0.00 £0.08
Exercised (212,624) (474,953) £0.00 £0.09
Outstanding at the end of the year 10,371,789 5,017,921 £0.03 £0.06
Included in the number options exercised during the year are 12,410 options
(2018: 14,387) where a cash alternative was received.
The weighted average share price at the date of exercise of options was
£4.166 (2018: £6.912).
Share options outstanding at the end of the year have the following exercise
prices:
Expiry date Exercise price 2019 2018
Number Number
Between 18 April 2020 and 26 August 2020 Between £4.16 and £5.12 48,500 48,500
10 March 2021 £3.5225 25,700 25,700
21 December 2025 Nil 203,440 262,002
Between 21 December 2026 and 31 December 2026 Nil 346,766 652,675
Between 1 March 2027 and 28 June 2027 Nil 516,485 1,126,440
23 July 2028 Nil 2,765,017 2,902,604
1 March 2029 Nil 4,565,881 -
19 December 2029 Nil 1,900,000 -
10,371,789 5,017,921
Tradetech ESOP
In addition, the Group has the following employee share option plans ("ESOP")
for the granting of non-transferable options to certain employees:
§ TradeFX 2009 Global Share Option Plan ("the First Plan"), options granted
under the first plan vest on the first day on which they become exercisable
which is typically between one to four years after grant date.
§ Tradetech Performance Share Plan 2017 ("the Second Plan"), options granted
under the second plan vest three years after grant date, according to
performance targets in the years 2017 and 2018.
The overall term of the ESOP is ten years. These options are settled in equity
once exercised. Option prices are either denominated in USD, depending on the
option grant terms.
Total number of share options exercisable as of 31 December 2019 is 6,000
(2018: 7,500).
2019 2018
Number Number
Shares vested between 1 December 2015 and 31 December 2018 at an exercise 4,000 4,250
price of $70 per share
Shares vested between 1 January 2019 and 31 December 2019 at an exercise price 2,000 3,250
of $70 per share
6,000 7,500
Shares vesting between 1 January 2019 and 1 September 2020 at an exercise 2,000 5,500
price of $70 per share
Shares will vest between June 2020 November 2020 at nil cost 7,898 7,898
9,898 13,398
15,898 20,898
The following table illustrates the number and weighted average exercise
prices of shares options for the ESOP:
2019 2018 2019 2018
Number of options Number of options Weighted average exercise price Weighted average exercise price
Outstanding at the beginning of the year 20,898 161,809 $ 43.54 $ 66.64
Granted through the year - - - -
Forfeited (5,000) (133,436) $70.00 $70.00
Exercised - (7,475) - $ 11.2
Outstanding at the end of the year 15,898 20,898 $35.23 $ 43.54
Included in the number of options exercised during the year is 0 (2018: 6,100)
where a cash alternative was received. The weighted average share price at the
date of exercise of options in 2018 was $9.67.
Share options outstanding at the end of the year have the following exercise
prices:
2019 2018
Number Number
Share options to be expired between 1 December 2024 and 10 March 2025 at an 8,000 13,000
exercise price of $70 per share
Share options to be expired between June 2027 and November 2027 at nil cost 7,898 7,898
15,898 20,898
NOTE 16 - PROPERTY, PLANT AND EQUIPMENT
Computer software and hardware Gaming machines Office furniture and equipment Buildings, leasehold buildings and improvements Total
€'000 €'000 €'000 €'000 €'000
Cost
At 1 January 2019 106,222 63,365 25,263 330,840 525,690
Additions 18,173 28,472 6,596 8,261 61,502
Acquired through business - 359 91 9 459
combinations
Disposals (979) (14,151) (2,354) (550) (18,034)
Write offs (14,953) (3,217) (755) (230) (19,155)
Reclassifications (22) 167 1,741 (1,886) -
Transfer to inventory - (24,280) - - (24,280)
Transfer to assets classified as held for sale (Note 24) (238) - (193) (33,260) (33,691)
Foreign exchange movements 42 2 (123) 2 (77)
At 31 December 2019 108,245 50,717 30,266 303,186 492,414
Accumulated depreciation
At 1 January 2019 77,432 14,565 9,976 13,629 115,602
Charge 16,664 21,007 5,630 8,284 51,585
Impairment 13 - 9 873 895
Disposals (949) (13,964) (1,855) (190) (16,958)
Write offs (14,948) (3,212) (729) (161) (19,050)
Reclassifications (38) 44 392 (398) -
Transfer to inventory - (14,418) - - (14,418)
Transfer to assets classified as held for sale (Note 24) (187) (171) (828) (1,186)
Foreign exchange movements 21 1 17 - 39
At 31 December 2019 78,008 4,023 13,269 21,209 116,509
Net Book Value
At 31 December 2019 30,237 46,694 16,997 281,977 375,905
Computer software and hardware Gaming machines Office furniture and equipment Buildings and leasehold buildings and improvements Total
€'000 €'000 €'000 €'000 €'000
Cost
At 1 January 2018 97,307 27,036 14,944 35,401 174,688
Additions 17,469 24,103 5,674 7,734 54,980
Acquired through business 771 21,539 7,647 288,633 318,590
combinations
Disposals (794) (8,088) (1,585) (903) (11,370)
Write offs (8,577) (1,227) (602) (864) (11,270)
Reclassifications - - (838) 838 -
Foreign exchange movements 46 2 23 1 72
At 31 December 2018 106,222 63,365 25,263 330,840 525,690
Accumulated depreciation
At 1 January 2018 69,306 8,691 7,958 8,717 94,672
Charge 17,415 15,163 4,348 5,762 42,688
Disposals (794) (8,063) (1,334) (412) (10,603)
Write offs (8,526) (1,227) (580) (865) (11,198)
Reclassifications - - (427) 427 -
Foreign exchange movements 31 1 11 - 43
At 31 December 2018 77,432 14,565 9,976 13,629 115,602
Net Book Value
At 31 December 2018 28,790 48,800 15,287 317,211 410,088
NOTE 17 - INTANGIBLE ASSETS
Patents, domain names & license Technology IP Development costs Customer Goodwill Total
list & Affiliates
€'000 €'000 €'000 €'000 €'000 €'000
Cost
As of 1 January 2019 199,136 106,226 264,690 631,625 961,110 2,162,787
Additions 18,884 975 65,495 250 4,261 89,865
Write offs (636) (1,106) (10,922) - (14) (12,678)
Reclassifications 743 - (743) - - -
Transfer to assets classified as held for sale (Note 24) (2,925) (4,650) (10,816) (526) (15,572) (34,489)
Assets acquired on business combinations 10 - - - 18,452 18,462
Foreign exchange movements 722 402 504 2,142 6,530 10,300
As of 31 December 2019 215,934 101,847 308,208 633,491 974,767 2,234,247
Accumulated amortisation
As of 1 January 2019 42,044 57,676 146,997 271,937 - 518,654
Charge 35,497 11,727 49,600 51,730 - 148,554
Impairment - 840 6,951 324 105,748 113,863
Transfer to assets classified as held for sale (Note 24) (2,925) (4,650) (10,773) (526) (15,572) (34,446)
Write offs (636) (1,106) (10,922) - - (12,664)
Foreign exchange Movements 156 197 248 798 (982) 417
As of 31 December 2019 74,136 64,684 182,101 324,263 89,194 734,378
Net Book Value
As of 31 December 2019 141,798 37,163 126,107 309,228 885,573 1,499,869
Impairment relating to casuals see note 8.
Patents, domain names & License Technology IP Development costs Customer Goodwill Total
list & Affiliates
€'000 €'000 €'000 €'000 €'000 €'000
Cost
As of 1 January 2018 74,580 100,753 208,266 396,595 679,576 1,459,770
Additions 5,161 - 58,297 - - 63,458
Write offs - - (2,850) - - (2,850)
Assets acquired on business combinations 117,960 4,593 - 230,520 268,121 621,194
Foreign exchange movements 1,435 880 977 4,510 13,413 21,215
As of 31 December 2018 199,136 106,226 264,690 631,625 961,110 2,162,787
Accumulated amortisation
As of 1 January 2018 27,721 41,415 112,462 226,940 - 408,538
Charge 14,010 15,865 36,906 43,397 - 110,178
Write offs - - (2,850) - - (2,850)
Foreign exchange Movements 313 396 479 1,600 - 2,788
As of 31 December 2018 42,044 57,676 146,997 271,937 - 518,654
Net Book Value
As of 31 December 2018 157,092 48,550 117,693 359,688 961,110 1,644,133
In accordance with IAS 36, the Group regularly monitors the carrying value of
its intangible assets, including goodwill. Goodwill is allocated to fifteen
(2018: fifteen) cash generating units ("CGU"). Management determines which of
those CGU's are significant in relation to the total carrying value of
goodwill as follows:
· Carrying value exceeds 10% of total goodwill; or
· Significant acquisitions during the year; or
· Significant contingent consideration exists at the reporting
date.
Based on the above criteria in respect of the goodwill, management has
concluded that the following are significant:
· Markets, with a carrying value of $188.5 million, €168.0
million (2018: $265.3 million, €232.0 million)
· Services, with a carrying value of €110.1 million (2018:
€110.1 million);
· Sport, with a carrying value of €132.5 million (2018: €132.5
million);
· Casino product, with a carrying value of €51.7 million (2018:
€51.7 million);
· Tradetech Alpha, with a carrying value of €47.2 million (2018:
€65.6 million);
· Sports B2C, with carrying amount of €30.1 million (2018:
€28.1 million);
· Snaitech, with carrying amount of €229.5 million (2018: €211
million);
The recoverable amounts of all the CGUs have been determined from value in use
calculations based on cash flow projections from formally approved budgets
covering one year period to 31 December 2020 in addition to 2-5 years
forecasts, where management have applied an annual growth rate of between 5%
and 41% based on the underlying economic environment in which the CGU
operates. Beyond this period, management has applied an annual growth rate of
between 0 - 2%. Management has included appropriate capital expenditure
requirements to support the forecast growth and assumed the maintenance of the
current licences or anticipated licence grants in 2020-21. Management has
applied discount rates to the cash flow projections between 11.67% and 22.62%
(2018: between 10.24% and 21.48%).
In 2019, the results of the review indicated that there was an impairment of
goodwill in two of the Group's CGU's, Tradetech Markets and Tradetech Alpha,
with total impairment of €91.1 million (2018: Nil) which has been charged to
the statement of comprehensive income.
The recoverable amount of the Markets GCU of €239.6 million as at 31
December 2019 has been determined using cashflow forecasts that include annual
revenue growth rates of between 10% and 15% over the 2-5 year forecast period.
The pre-tax discount rate applied to cash flow projections is 10.98%. As a
result of this analysis, management has recognised an impairment charge of
€69.3 million in the current year against goodwill.
The recoverable amount of the Tradetech Alpha GCU of €64.1 million as at 31
December 2019 has been determined using cashflow forecasts that include annual
revenue growth rates of between 5% and 10% over the 2-5 year forecast period.
The pre-tax discount rate applied to cash flow projections is 10.98% As a
result of this analysis, management has recognised an impairment charge of
€20.7 million in the current year against goodwill.
The circumstances leading to the impairment are driven from increasing
regulatory changes within the industry which require certain strategic changes
to the business model, together with a continued shift in behaviors and
conditions of the financial markets.
Sports B2C CGU is a significant CGU for the group. The recoverable amount of
the Sports B2C CGU has been determined using cashflow forecasts that include
annual revenue growth rates of between 15% and 41% over the 2-5 year forecast
period. The recoverable amount would equal the carrying amount of the CGU if
the annual revenue growth rate was steady at 11.2% or the discount rate
applied was higher than 22.52%.
The recoverable amount of the Poker CGU has been determined using cashflow
forecasts that include annual revenue growth rates of 5% over the 2-5 year
forecast period. The recoverable amount would equal the carrying amount of the
CGU if the annual revenue growth rate was lower by 0.34% or the discount rate
applied was higher by 0.53%.
Management has also reviewed the key assumptions and forecasts for the
customer lists, brands and affiliates, applying the above same key
assumptions. The results of the reviews indicated there was no impairment of
the intangible assets at 31 December 2019.
NOTE 18 - INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
2019 2018
€'000 €'000
A. Investment in joint ventures 22,405 408
B. Investment in associates 13,075 12,448
C. Investment in structured agreements 16,785 16,785
52,265 29,641
A. Investment in joint ventures
During the year, the Group entered into a long term structured agreement with
Aquila Global Group SAS ("Wplay"), which is a leading gaming and betting brand
in Columbia. Under the agreement the Group will become Wplay's strategic
technology partner delivering its omni-channel products together with
operational and marketing services across the leading brand's retail and
online operations. The Group has no holding in Wplay but it has joint control
over operations so the investment is measured using the equity method. The
results for the period, total assets and total liabilities are immaterial.
The Group has joint venture in International Terminal Leasing ("ITL"), however
the carrying amount is Nil as the Group recovered the full amount of the
initial investment. Any future profits are recognized directly to the
statement of comprehensive income.
Movements in the carrying value of the investment during the year are as
follows:
€'000
Investment in joint venture at 1 January 2019 408
Investment during the year 22,405
Share of profit in joint venture 621
Return of investment (653)
Subsidiary acquired in steps (Note 34b) (376)
Investment in joint venture at 31 December 2019 22,405
B. Investment in equity accounted associates
Investment in BGO
In August 2014, the Group acquired 33.33% of the shares of BGO Limited, a
company incorporated in Alderney, for a total consideration of £10 million
(€12.5 million). In 2015 the Group invested additional £0.7 million (€0.9
million).
The purpose of this investment is to further enhance BGO gaming applications
on the Group's platform and to enable BGO to further invest in its successful
brands and grow into international markets. At the reporting date the Group's
NBV of investment in BGO totals €8.4 million (2018: €7.6 million).
Aggregated amounts relating to BGO Limited are as follows:
2019 2018
€'000 €'000
Total non-current assets - -
Total current assets 11,445 16,711
Total non-current liabilities (3,045) (42)
Total current liabilities (6,794) (3,339)
Revenues 27,257 33,520
Profit/(loss) and total comprehensive income 1,906 (836)
Other individually immaterial investments
At the reporting date the Group's NBV of the other investments totals €5.3
million (2018: €4.8 million).
Total associates:
€'000
Investment in associates at 1 January 2019 12,448
Additional investment in associates in the year 96
Share of profit 1,020
Return of investment (46)
Impairment of equity accounted associates (443)
Investment in associates at 31 December 2019 13,075
C. Investment in structured agreements
During 2014 the group has entered into a long term structured agreement with
Turística Akalli, S. A. de C.V ("Akalli|"), the owner of Tecnologia en
Entretenimiento Caliplay, S. de R.L. de C.V ("Caliplay"), which is a leading
betting and gaming operator operates of the "Caliente" brand in Mexico. Under
the agreement the Group will become Caliplay's strategic technology partner
delivering its omni-channel products together with operational and marketing
services across the leading brand's retail and online operations. The group
has no holdings in Caliplay and the investment in the structured agreement is
measured using the equity method
Movement in structured agreements:
€'000
Investment in structured agreements at 1 January 2019 16,785
Additional investment in structured agreements in the year -
Investment in structured agreements at 31 December 2019 16,785
NOTE 19 - INVESTMENT HELD AT FAIR VALUE
2019 2018
€'000 €'000
Investment in equity investments at 1 January 1,400 381,346
Additions during the period - 37,890
Reclassification on acquisition of Snaitech - (37,890)
Proceeds from the disposal during the period - (447,194)
Realised fair value changes on disposal recognised in the statement of - 65,691
comprehensive income
Unrealised fair value changes on disposal recognised in the statement of (270) (1,738)
comprehensive income
Translation gain - 3,295
Investment in equity investments at 31 December 1,130 1,400
As part of the takeover of Ladbrokes Coral plc ("Ladbrokes") by GVC Holdings
plc ("GVC"), the Group exchange its shares in Ladbrokes for €205million of
GVC shares and cash consideration of €32million. The Group subsequently sold
these GVC shares for net proceeds of €254 million. In addition, the Group
sold the shares in Plus500 Limited for net proceeds of €193 million.
As a result of these transactions, during the year ended 31 December 2018, the
Group realised a gain on disposal of €65.7million being the net of the fair
value movements from 1 January 2018 to the date of disposal.
Additions during the year ended 31 December 2018 relate to purchase of shares
in Snaitech prior taking the control on 5 June. Upon taking control, these
shares formed part of the cost of investment.
During the year, the Group received £30.0 million (€33.4 million) relating
to amounts due in respect of the early settlement of the marketing services
agreement with Ladbrokes as disclosed in the 2016 annual report.
2019 2018
€'000 €'000
Equity investments include the following:
Quoted:
Equity securities- Asia 1,130 1,400
1,130 1,400
The fair value of quoted investments is based on published market prices
(level one).
The maximum exposure of the equity investments to credit risk at the reporting
date is the carrying value of the financial assets classified as equity
investments.
NOTE 20 - OTHER NON-CURRENT ASSETS
2019 2018
€'000 €'000
Rent and car lease deposits 3,767 3,155
Guarantee for gaming licenses 3,080 2,713
Deferred tax (Note 31) 1,571 1,794
Related parties (Note 36) 3,727 -
Prepaid costs relating to Sun Bingo contract 16,699 -
Other 9,106 8,280
37,950 15,942
NOTE 21 - TRADE RECEIVABLES
2019 2018
€'000 €'000
Trade receivables 252,232 255,527
Less: provision for impairment of trade receivables (Note 38a) (55,528) (52,950)
196,704 202,557
Related parties (Note 36) 9,740 7,277
Trade receivables - net 206,444 209,854
Split to:
Non current assets 13,600 -
Current assets 192,844 209,854
206,444 209,854
NOTE 22 - OTHER RECEIVABLES
2019 2018
€'000 €'000
Prepaid expenses 41,961 25,029
VAT and other taxes 12,472 19,533
Advances to suppliers 1,200 1,275
Proceeds from disposal of investment (Note 19) - 33,390
Related parties (Note 36) 845 4,000
Security deposits for regulators 33,888 35,365
Prepaid costs relating to Sun Bingo contract 11,016 -
Other receivables 39,772 41,881
141,154 160,473
NOTE 23 - CASH AND CASH EQUIVALENTS
2019 2018
€'000 €'000
Cash at bank 638,924 586,878
Cash at brokers 22,718 26,860
Deposits 9,898 8,459
671,540 622,197
The Group held cash balances on behalf of operators in respect of operators'
jackpot games and poker and casino operations and client funds with respect to
B2C, CFD and client deposits in respect of liquidity and clearing activity
which is included in the current liabilities.
2019 2018
€'000 €'000
Funds attributed to jackpots 74,166 63,714
Security deposits 23,986 24,887
Client deposits 113,879 116,656
Client funds 126,309 104,200
338,340 309,457
NOTE 24 - ASSETS HELD FOR SALE
2019 2018
€'000 €'000
Assets
A. Property, plant and equipment 32,417 -
B. Casuals CGU 4,381 -
36,798 -
A. On 14 May 2019, the Group entered into a preliminary sale and purchase
agreement for the disposal of real estate located in Milan ("Area Sud" and
"Area Nord"). Based on the agreement: (1) the purchaser is obliged to purchase
the Area Sud for total consideration of €19 million and undertakes to
purchase the Area Nord under certain conditions for total consideration of
€36 million, (2) the purchaser is obliged to purchase the Area Nord if the
municipality approves the conversion project, (3) if the reconversion will not
be approved by the municipality by 31 March 2020, the purchaser is required to
buy the Area Sud after deducting the €5 million already paid on the sign off
of the preliminary agreement (4) in any case the purchaser still has the
option to buy the Area Nord for the remaining of €36 million by 31 March
2020 unless extended by the buyer. Accordingly, the affected real estate has
been classified as held for sale. Control of the land is anticipated to
transfer on completion at which point the sale of land will be recognised.
At the date of the transfer to the assets classified as held for sale, an
impairment review has been performed to the subject asset. No impairment has
been recognised as the recoverable amount is higher than the carrying amount.
At the reporting date, the technical committee has preliminary approved the
conversation project and the final approval is expected from the Municipality
to complete the sale.
B. On 22 November the Group announced that it was reviewing its Casual and
Social Gaming Business. Prior to the year end the Board of Directors made the
decision to dispose of the Casual and Social Gaming Businesses. Accordingly,
casual and social gaming business were classified as a disposal group held for
sale and as a discontinued operation. Efforts to sell the disposal group have
started and a sale is expected by the end of 2020.
The major class of assets and liabilities of the disposal group classified as
held for sale as at 31 December, are as follows:
2019
€'000
Assets
Property, plant and equipment 89
Right of use of assets 584
Intangible assets 43
Other non current assets 50
Trade receivables 851
Other receivables 118
Cash and cash equivalent 2,646
Asset classified as held for sale 4,381
Liabilities
Trade payables 321
Tax liabilities 251
Lease liability 613
Other payables 2,410
Liabilities directly associated with asset classified as held for sale 3,595
NOTE 25 - SHAREHOLDERS' EQUITY
A. Share Capital
Share capital is comprised of no par value shares as follows:
2019 2018
Number of Shares Number of Shares
Authorised* N/A N/A
Issued and paid up 303,791,693 317,344,603
The Group has no authorised share capital but is authorized under its
memorandum and article of association to issue up to 1,000,000,000 shares of
no par value.
During 2019 the Group has cancelled 13,552,910 shares as part of share buy
back for a total consideration of € 65,131,871.
B. Employee Benefit Trust
In 2014 the Group established an Employee Benefit Trust by acquiring 5,517,241
shares for a total consideration of €48.5 million. During the year 200,214
shares (2018: 459,983) were issued as a settlement for employee share option
exercises with a cost of €1.7 million (2018: €3.8 million), and as of 31
December 2019, a balance of 1,925,366 (2018: 2,125,580) shares remains in the
trust with a cost of €16.2 million (2018: €17.9 million).
C. Share options exercised
During the year 212,624 (2018: 474,953) share options were exercised. The
Group cash-settled 12,410 share options during the year (2018: 14,387).
D. Distribution of Dividend
In June 2019, the Group distributed €37,159,079 as a final dividend for the
year ended 31 December 2018 (12.0 € cents per share).
In October 2019, the Group distributed € 18,866,968 as an interim dividend
in respect of the period ended 30 June 2019 (6.1 € cents per share). A
number of shareholders waived their rights to receive dividends amounting to
€480.890.
E. Reserves
The following describes the nature and purpose of each reserve within owner's
equity:
Reserve Description and purpose
Additional paid in capital Share premium (i.e. amount subscribed for share capital in excess of nominal
value)
Employee Benefit Trust Cost of own shares held in treasury by the trust
Put/Call options reserve reserve Fair value of put options as part of business acquisition
Foreign exchange reserve Gains/losses arising on retranslating the net assets of overseas operations
Convertible bond option reserve Amount of proceeds on issue of convertible debt relating to the equity
component (i.e. option to convert the debt into share capital)
Retained earnings Cumulative net gains and losses recognised in the consolidated statement of
comprehensive income
F. Non controlling interest
The Group acquired additional interest in a number of subsidiaries in 2019;
Consolidated Financial Statements A/S, ECM Holdings Limited and Sunfox Games
GmbH. The total carrying amount of the subsidiaries net assets in the Group's
consolidated financial statements on the date of acquisition was
€49.4million.
2019
€'000
Carrying amount of Non-controlling interest acquired 8,332
Consideration paid to Non-controlling interest (1,246)
Increase in equity attributable to holders of the parent 7,086
NOTE 26 - LOANS AND BORROWINGS
The main credit facility of the Group is a revolving credit facility of
€317.0 million available until November 2023 with option for extension for
one year. Interest payable on the loan is based on a margin on Euro Libor
rates. As at the reporting date the credit facility drawn amounted to €64.4
million (2018: Nil).
NOTE 27 - BONDS
Convertible bonds Snai bond 2018 Bond 2019 Bond Total
€'000 €'000 €'000 €'000 €'000
As of 1 January 2018 276,464 - - - 276,464
On business combinations - 588,955 - - 588,955
Issue of bond - - 523,417 - 523,417
Repayment of bond - (580,605) - - (580,605)
Notional interest expenses on convertible bonds 10,685 - - - 10,685
Notional interest expenses on other bonds - - 289 - 289
Gain on early repayment of bond - (8,350) - (8,350)
As at 31 December 2018 287,149 - 523,706 - 810,855
Issue of bond - - - 345,672 345,672
Notional interest expenses on convertible bonds 9,851 - - - 9,851
Notional interest expenses on other bonds 1,315 497 1,812
Repayment of bond (297,000) - - - (297,000)
As at 31 December 2019 - - 525,021 346,169 871,190
Convertible bonds
On 12 November 2014 the Group issued €297.0 million of senior, unsecured
convertible bonds due November 2019 and convertible into fully paid Ordinary
Shares of Playtech plc (the "Bonds"). The net proceeds of issuing the Bonds,
after deducting commissions and other direct costs of issue, totaled €291.1
million.
The Bonds were issued at par and redeemed on 19 November 2019 at their
principal amount.
Bonds
(a) Snai bond
Through the acquisition of Snaitech in 2018, the Group obtained bond loans.
This debt was recognised at acquisition at the fair value based on the market
prices of the loan notes. The bonds were issued on 7 November 2016, with a
fixed rate tranche of €320 million (6.375% coupon, maturity 2021) and a
floating rate tranche of €250 million (three months Euribor floored at 0%
plus a spread of 6%, maturity 2021). Following the acquisition by Playtech,
the change of control clause within the bonds required the issuer to offer a
repayment opportunity. The early redemption procedure applied in accordance
with the "change of control offer" and these bonds were fully repaid by
Playtech in 2018. Total amount paid was €581 million which gave rise to a
gain on the redemption of €8.4 million which has been recognised in
statement of comprehensive income under finance income in the year ended 31
December 2018.
(b) 2018 Bond
On 12 October 2018, the Group issued €530 million of senior secured notes
('2018 Bond') due on October 2023. The net proceeds of issuing the 2018 Bond
after deducting commissions and other direct costs of issue totalled €523.4
million. Commissions and other direct costs of issue have been offset against
the principal balance and are amortized over the period of the bond.
The issue price of Notes is 100% of their principal amount. The 2018 Bond bear
interest from 12 October 2018 at the rate of 3.75% per annum payable
semi-annually in arrears on 12 April and 12 October in each year commencing on
12 April 2019.
The fair value of the bond at 31 December 2019 was €552 million (31 December
2018: €516 million).
(c) 2019 Bond
On 7 March 2019, the Group issued €350 million of senior secured notes
('2019 Bond') due on March 2026. The net proceeds of issuing the 2019 Bond
after deducting commissions and other direct costs of issue totalled €345.7
million. Commissions and other direct costs of issue have been offset against
the principal balance and are amortized over the period of the bond.
The issue price of 2019 Bond is 100% of their principal amount. The 2019 Bond
will bear interest from 7 March 2019 at the rate of 4.25% per cent per annum
payable semi-annually in arrears on 7 September and 7 March in each year
commencing on 7 September 2019.
The fair value of the bond at 31 December 2019 was €373 million.
NOTE 28 - PROVISIONS FOR RISKS AND CHARGES
Other provisions Provisions for tax disputes, litigations, contractual risks Total provisions
€'000 €'000 €'000
As of 1 January 2018 - - -
On acquisitions 1,917 11,339 13,256
Charged to the statement of comprehensive income 309 1,530 1,839
Utilised / realised in the year (773) (2,227) (3,000)
31 December 2018 1,453 10,642 12,095
On acquisitions - 318 318
Charged to the statement of comprehensive income 492 7,029 7,521
Utilised / realized in the year - (426) (426)
31 December 2019 1,945 17,563 19,508
Provision for tax disputes, litigations, contractual risks
The Group is subject to proceedings regarding complex legal matters, which are
subject to a differing degree of uncertainty (also due to a complex
legislative framework), including the facts and the circumstances inherent to
each case, the jurisdiction and the different laws applicable. Given the
uncertainties inherent to these problems, it is difficult to predict with
certainty the outlay which will derive from these disputes and it is therefore
possible that the value of the provisions for legal proceedings and disputes
may vary further to future developments in the proceedings underway. The Group
monitors the status of the disputes underway and consults with its advisors
and experts on legal and tax-related matters.
NOTE 29 -CONTINGENT CONSIDERATION AND REDEMPTION LIABILITY
2019 2018
€'000 €'000
Non-current contingent consideration consists:
Acquisition of ACM Group - 71,344
Acquisition of Eyecon Limited - 1,355
Acquisition of Rarestone Gaming PTY Ltd 2,520 2,188
Acquisition of HPYBET Austria GmbH - 10,085
Other acquisitions - 3,789
2,520 88,761
Non-current redemption liability consists:
Acquisition of Playtech BGT Sports Limited - 20,742
Acquisition of ECM Systems Holdings Limited - 839
Other acquisitions - 181
- 21,762
Total non-current contingent consideration and redemption liability 2,520 110,523
Current contingent consideration consists:
Acquisition of ACM Group - 2,403
Acquisition of Quickspin AB - 14,536
Acquisition of Playtech BGT Sports Limited 5,000 5,000
Acquisition of Rarestone Gaming PTY Ltd 1,284 2,932
Interest in Wplay 16,050 -
Other acquisitions 4,318 1,599
26,652 26,470
Current redemption liability consists:
Acquisition of Consolidated Financial Holdings A/S - 21,846
Acquisition of Playtech BGT Sports Limited 31,860 -
Other acquisitions 93 -
31,953 21,846
Total current contingent consideration and redemption liability 58,605 48,316
On 1 October 2017, the Group acquired technology, Intellectual property and
certain customer assets (together "the assets") from ACM Group Limited. The
Group paid total cash consideration of €4.2 million ($5.0 million) and
additional consideration capped at €122.7 million ($145.0 million) in cash
will be payable based on 2017, 2018 and 2019 EBITDA multiple and is payable
annually over the term. Following the completion of the 2019 results, which
were negatively impacted by increasing regulation within the industry, record
low volatility during the first quarter of the year, and exceptional market
making movements in September and October 2019, the directors calculate that
there is no further consideration payable and so the contingent consideration
liability (2018: $84.4 million) was released to the statement of comprehensive
income.
During the year, the Group exercised its option to acquire the remaining
24.14% of Consolidated Financial Holdings A/S for a total consideration of
$24.5 million. As a result of this acquisition, the put/call option reserve
decreased by €13.6 million.
The maximum contingent consideration and redemption liability payable is as
follows:
2019 2018
€'000 €'000
Acquisition of ACM Group 129,295 126,706
Acquisition of Quickspin AB - 14,637
Acquisition of Eyecon Limited 26,456 27,825
Acquisition of Rarestone Gaming PTY Ltd 4,143 8,476
Acquisition of HPYBET Austria GmbH 15,000 15,000
Acquisition of Playtech BGT Sports 95,000 95,000
Acquisition of Consolidated Financial Holdings A/S - 63,890
Interest in Wplay 21,285 -
Other acquisitions 4,015 6,434
295,194 357,968
Non-cash items
At 1 January 2019 Investing cash flows Other acquisitions Other changes At 31 December 2019
€'000 €'000 €'000 €'000 €'000
Contingent consideration 115,231 (23,878) 16,050 (78,231) 29,172
Redemption liabilities 43,608 (21,979) - 10,324 31,953
Total liabilities 158,839 (45,857) 16,050 (67,907) 61,125
Non-cash items
At 1 January 2019
Investing cash flows
Other acquisitions
Other changes
At 31 December 2019
€'000
€'000
€'000
€'000
€'000
Contingent consideration
115,231
(23,878)
16,050
(78,231)
29,172
Redemption liabilities
43,608
(21,979)
-
10,324
31,953
Total liabilities
158,839
(45,857)
16,050
(67,907)
61,125
Non-cash items
At 1 January 2018 Investing cash flows Acquisition of subsidiary Other changes At 31 December 2018
€'000 €'000 €'000 €'000 €'000
Contingent consideration 107,886 (11,958) 18,497 806 115,231
Redemption liabilities 49,786 - - (6,178) 43,608
Total liabilities 157,672 (11,958) 18,497 (5,372) 158,839
Non-cash items
At 1 January 2018
Investing cash flows
Acquisition of subsidiary
Other changes
At 31 December 2018
€'000
€'000
€'000
€'000
€'000
Contingent consideration
107,886
(11,958)
18,497
806
115,231
Redemption liabilities
49,786
-
-
(6,178)
43,608
Total liabilities
157,672
(11,958)
18,497
(5,372)
158,839
NOTE 30 - TRADE PAYABLES
2019 2018
€'000 €'000
Suppliers 52,219 63,829
Customer liabilities 10,124 9,127
Other 77 629
62,420 73,585
NOTE 31 - DEFERRED TAX LIABILITY
The deferred tax liability is due to temporary differences on the acquisition
of certain businesses and offset by the losses in Snai.
The movement on the deferred tax liability is as shown below:
2019 2018
€'000 €'000
At the beginning of the year 71,598 28,508
Transferred to asset classified as held for sale 1,028 -
Arising on the acquisitions during the year (Note 34a) 1,125 47,278
Reversal of temporary differences, recognised in the consolidated statement of 2,923 (4,572)
comprehensive income
Foreign exchange movements 93 384
At the end of the year 76,767 71,598
Split to:
Deferred tax liability on acquisitions 91,665 103,534
Deferred tax asset (set off with deferred tax liability) (13,327) (30,142)
Deferred tax asset (Note 20) (1,571) (1,794)
76,767 71,598
Deferred tax assets and tax are offset only when there was a legal enforceable
right to set off, according to IAS 12. On 31 December 2019, the Directors
continued to recognised deferred tax assets arising from temporary differences
and tax losses carryforward. The recognition is based on the business plan
projections of future positive results.
NOTE 32 - OTHER PAYABLES
2019 2018
€'000 €'000
Non current liabilities
Payroll and related expenses 9,247 6,671
Non current guarantee deposits 839 1,585
Other 4,158 5,825
14,244 14,081
Current liabilities
Payroll and related expenses 66,056 62,403
Accrued expenses 46,318 46,686
Related parties (Note 36) 77 76
VAT payable 4,954 11,976
Interest payable 10,346 6,008
Other payables 14,110 10,552
141,861 137,701
NOTE 33 - CORPORATE, GAMING AND OTHER TAXES PAYABLE
2019 2018
€'000 €'000
Income tax payable 22,019 39,751
Gambling tax 98,288 105,154
120,307 144,905
NOTE 34 - ACQUISITIONS DURING THE YEAR
A. Acquisition of Areascom SpA
On 28 January 2019, the Group acquired 100% of Areascom SpA ("Areascom") for a
total cash consideration of €Nil, and as part of this transaction
recapitalised the business by injecting €15.5 million equity capital.
The Group paid total cash consideration of €Nil.
Details of the fair value of identifiable assets and liabilities acquired,
purchase consideration and goodwill, are as follows:
Fair value on acquisition
€'000
Property, plant and equipment 459
Right of use assets 3,765
Other non-current assets 209
Trade and other receivables 55
Cash and cash equivalent 324
Deferred tax liability (1,125)
Tax liability (203)
Other non current liabilities (4,337)
Lease liability (4,170)
Trade payables and other payables (12,502)
Net identified liabilities (17,525)
Goodwill 17,525
Fair value of consideration -
€'000
Cash consideration -
Cash purchased 324
Net cash receivable 324
The main factor leading to the recognition of goodwill is the high synergies
and further strategic aspects. The acquisition forms part of the Snaitech CGU
and in accordance with IAS36, the Group will regularly monitor the carrying
value of its interest in Areascom.
Management has not disclosed Areascom contribution to the Group profit since
the acquisition nor has the impact the acquisition would have had on the
Group's revenue and profits if it had occurred on 1 January 2019 been
disclosed, because the amounts are not material.
B. Other acquisition
During the year, the Group acquired of the shares of various companies for a
total cash consideration of €1.4 million. One of these acquired in steps,
additional 50% acquired in the year and previous consideration of €0.1
million paid to acquire the previously 50% interest in joint venture. A fair
value movement was required on the conversion to a subsidiary of €0.1
million.
NOTE 35 - ACQUISITIONS IN PREVIOUS YEAR
A. Acquisition of Seabrize Marketing Limited (ex. Easydock Investments
Limited)
On 1 March 2018, the Group acquired 100% of the shares of Seabrize Marketing
Limited ("Seabrize"), a provider of marketing services to online gaming
operators.
The Group paid total cash consideration of €12.0 million and maximum
additional consideration capped at €10.0 million in cash was payable in 2019
if the performance of the business in the period from acquisition date until
31 December 2018 meets or exceeds Group's expectations. During November 2018,
the contingent consideration was settled at €8.0 million which also accorded
to management's best estimate of the amount payable at acquisition.
B. Acquisition of Rarestone Gaming PTY Ltd (ex. Studio 88 Pty Ltd)
On 26 March 2018, the Group acquired 100% of the shares of Rarestone Gaming
PTY Ltd which creates content and online games.
The Group paid total cash consideration of €3.4 million (US$4.2 million) and
maximum additional consideration capped at €7.3 million (US$9.0 million) in
cash will be payable in 2019, 2020 and 2021 based on launch date of the games
and royalty income from the subject games.
C. Acquisition of HPYBET Austria GmbH (ex. Destres GmbH)
On 1 April 2018, the Group acquired 100% of the shares of Destres GmbH
("Destres") which operates betting shops in Austria.
The Group paid total cash consideration of €15.4 million and maximum
additional consideration capped at €15 million in cash will be payable based
on a multiple of the 2020 Adjusted EBITDA.
D. Acquisition of Snaitech SpA
On 5 June 2018, the Group acquired 70.6% of the shares of Snaitech S.p.A.
("Snaitech"), the leading operator on the Italian retail betting market and
one of the main players on the gaming machines market.
Up to 5 June 2018, the Group had also separately acquired approximately 9% of
Snaitech's issued share capital through market purchases. On 26(th) July 2018,
the Group completed the acquisitions of an additional 15.1% of Snaitech's
shares through a mandatory tender offer and additional purchase of shares in
the market. On 3(rd) of August 2018, the Group completed the acquisition of
100% of Snaitech and delisted the company from the Borsa Italia.
E. Acquisition of Piazza Hosting Services S.R.L.
On 30 November 2018, the Group acquired 100% of the shares of Piazza Hosting
Services S.R.L. ("Piazza"), which provides hosting services.
The Group paid total consideration of €6.5 million.
F. Other acquisitions
In the prior period, the Group acquired 100% of the shares of various
companies. The Group paid total cash consideration of €13.1 million and
additional consideration will be payable based on 2019 and 2021 EBITDA
multiple. Also, the Group signed an Asset Purchase Agreement to which the
Group acquired 100% of the business for a total consideration of €7.3
million.
NOTE 36 - RELATED PARTIES
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party's
making of financial or operational decisions, or if both parties are
controlled by the same third party. Also, a party is considered to be related
if a member of the key management personnel has the ability to control the
other party.
The joint ventures and the structured agreements are associates of the Group
by virtue of the Group's significant influence over those arrangements.
During the year ended 31 December 2019, group companies entered into the
following transactions with related parties who are not members of the Group:
The following are the aggregate transactions arose with related parties:
2019 2018
€'000 €'000
Revenue
Structured agreements and associates 34,769 29,453
Share of profit in joint venture 621 180
Share of profit/(loss) from associates 1,020 (2,771)
Operating expenses
Structured agreements and associates 1,016 1,221
Interest income
Structured agreements and associates 1,310 225
The following are the balances with related parties:
2019 2018
€'000 €'000
Structured agreements and associates 14,312 11,277
Total current and non current related parties receivable 14,312 11,277
Structured agreements and associates 77 76
Total current related parties payable 77 76
The details of key management compensation (being the remuneration of the
directors) are set out in Note 11.
NOTE 37 - SUBSIDIARIES
Details of the Group's principal subsidiaries as at the end of the year are set out below:
Name Country of incorporation Proportion of voting rights and ordinary share capital held Nature of business
Playtech Software Limited Isle of Man 100% Main trading company of the Group, owns the intellectual property rights and
licenses the software to customers.
OU Playtech (Estonia) Estonia 100% Designs, develops and manufactures online software
Techplay Marketing Limited Israel 100% Marketing and advertising
Video B Holding Limited British Virgin Islands 100% Trading company for the Videobet software, owns the intellectual property
rights of Videobet and licenses it to customers.
OU Videobet Estonia 100% Develops software for fixed odds betting terminals and casino machines (as
opposed to online software)
Playtech Bulgaria Bulgaria 100% Designs, develops and manufactures online software
PTVB Management Limited Isle of Man 100% Management
Playtech Services (Cyprus) Limited Cyprus 100% Activates the ipoker Network in regulated markets. Owns the intellectual
property of GTS, Ash and Geneity businesses
VB (Video) Cyprus Limited Cyprus 100% Trading company for the Videobet product to Romanian companies
Techplay S.A. Software Limited Israel 100% Develops online software
Technology Trading IOM Limited Isle of Man Owns the intellectual property rights of Virtue Fusion business
100%
Gaming Technology Solutions Limited UK 100% Holding company of VS Gaming and VS Technology
Virtue Fusion (Alderney) Limited Alderney 100% Online bingo and casino software provider
Intelligent Gaming Systems Limited UK 100% Casino management systems to land based businesses
VF 2011 Limited Alderney 100% Holds license in Alderney for online gaming and Bingo B2C operations
PT Turnkey Services Limited British Virgin Islands 100% Holding company of the Turnkey Services group
PT Turnkey EU Services Limited Cyprus 100% Turnkey services for EU online gaming operators
PT Entertenimiento Online EAD Bulgaria 100% Poker & Bingo network for Spain
PT Marketing Services Limited British Virgin Islands 100% Marketing services to online gaming operators
PT Operational Services Limited British Virgin Islands 100% Operational & hosting services to online gaming operators
Paragon International Customer Care Limited British Virgin Island & branch office in the Philippines 100% English Customer support, chat, fraud, finance, dedicated employees services
to parent company
CSMS Limited Bulgaria 100% Consulting and online technical support, data mining processing and
advertising services to parent company
S-Tech Limited British Virgin Islands & branch office in the Philippines 100% Live games services to Asia
PT Network Management Limited British Virgin Islands 100% Manages the ipoker network
Playtech Mobile (Cyprus) Limited Cyprus 100% Holds the IP of Mobenga AB
Mobenga AB Limited Sweden 100% Mobile sportsbook betting platform developer
Factime Limited Cyprus 100% Holding company of Juego
PokerStrategy Ltd. Gibraltar 100% Operates poker community business
Videobet Interactive Sweden AB Sweden 100% Trading company for the Aristocrat Lotteries VLT's
V.B. Video (Italia) S.r.l. Italy 100% Trading company for the Aristocrat Lotteries VLT's
PT Entertainment Services LTD Antigua 100% Holding gaming license in the UK
Tradetech Markets Limited Isle of Man 100% Owns the intellectual property rights and marketing and technology contracts
of the financial division
Safecap Limited Cyprus 100% Primary trading company of the Financial division. Licensed investment firm
and regulated by Cysec
TradeFXIL limited Israel 100% Financial division sales, client retention, R&D and marketing
ICCS BG Bulgaria 100% Financial division back office customer support
Magnasale Limited Cyprus 100% Financial division. Licensed and regulated investment firm
Stronglogic Services Limited Cyprus 100% Maintains the financial division marketing function for EU operations
Yoyo Games Limited UK 100% Casual game development technology
Quickspin AB Sweden 100% Owns video slots intellectual property
Best Gaming Technology GmbH Austria 90% Trading company for sports betting
Playtech BGT Sports Limited Cyprus 90% Owns sports betting intellectual property solutions and trading company for
sports betting
ECM Systems Ltd UK 100% Owns bingo software intellectual property and bingo hardware
Consolidated Financial Holdings AS Denmark 100% Owns the intellectual property which provides brokerage services, liquidity
and risk management tool
CFH Clearing Limited UK 100% Primary trading company of CFH Group
Eyecon Limited Alderney 100% Develops and provides online gaming slots
Tradetech Alpha Limited UK 100% Regulated FCA broker providing trading, risk management and liquidity
solutions
Rarestone Gaming PTY Ltd Australia 100% Development company
HPYBET Austria GmbH GmbH Austria 90% Operating shops in Austria
Snaitech SPA Italy 100% Italian retail betting market and gaming machine market
NOTE 38 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group has exposure to the following arising from financial instruments:
· Credit risk
· Liquidity risk
· Market risk
There have been no substantive changes in the Group's exposure to financial
instrument risks, its objectives, policies and processes for managing those
risks or the methods used to measure them from previous periods unless
otherwise stated in this note.
(i) Principal financial instruments of the Group, from which financial
instrument risks arises, are as follows:
· Trade receivables and other receivables
· Cash and cash equivalents
· Investments in equity securities
· Trade and other payables
· Bonds
(ii) Financial instrument by category
The following table shows the carrying amounts and fair values of financial
assets and financial liabilities, including their levels in the fair value
hierarchy.
Measurement Category Carrying amount Fair value
2019 2018 Level 1 Level 2 Level 3
€'000 €'000 €'000 €'000 €'000
Non-current financial assets
Equity securities FVTPL 1,130 1,400 1,130 - -
Current financial assets
Trade receivables Amortised cost 206,444 209,854 - - -
Other receivables Amortised cost 141,154 160,473 - - -
Cash and cash equivalents Amortised cost 671,540 622,197 - - -
Non current liabilities
Bonds Amortised cost 871,190 523,706 - - -
Loans and borrowings Amortised cost 64,396 206 - - -
Contingent consideration and redemption liability FVTPL 2,520 110,523 - - 2,520
Current liabilities
Bonds Amortised cost - 287,149 - - -
Trade payables Amortised cost 62,420 73,585 - - -
Other payables Amortised cost 141,861 137,701 - - -
Contingent consideration and redemption liability FVTPL 58,605 48,316 - - 58,605
The fair value of the contingent consideration and redemption liability is
calculated by discounting the estimated cash flows. The valuation model
considers the present value of the expected future payments, discounted using
a risk adjusted discount rate.
The carrying amount does not materially differ from the fair value of the
financial assets and liabilities.
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority for designing and
operating processes that ensure the effective implementation of the objectives
and policies to the Group's finance function. The overall objective of the
Board is to set policies that seek to reduce risk as far as possible without
unduly affecting the Group's competitiveness and flexibility.
Further details regarding these policies are set out below:
A. Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivable's from
customers.
The carrying amounts of financial assets represent the maximum credit
exposure.
Cash and cash equivalents
Wherever possible and commercially practical the Group invests cash with major
financial institutions that have a rating of at least A- as defined by
Standard & Poors. While the majority of money is held in line with the
above policy, a small amount is held at various institutions with no rating.
The Group also holds small deposits in Cypriot and Spanish financial
institutions, as required by the respective gaming regulators that have a
rating below A-. The Group holds approximately 31% of its funds (2018: 13%) in
financial institutions below A- rate and 2% in payment methods with no rating
(2018:2%).
Total Financial institutions with A- and above rating Financial institutions below A- rating and no rating
€'000 €'000 €'000
At 31 December 2019 671,540 450,464 221,076
At 31 December 2018 622,197 527,698 94,499
Trade receivables
The Group's exposure to credit risk is influenced mainly by the individual
characteristics of each customer. However, management also considers the
factors that may influence the credit risk of its customer base, including the
default risk associated with the industry, country in which customers operate.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses which uses a lifetime expected loss allowance for all trade
receivables. To measure the expected credit losses, trade receivables have
been grouped based on shared credit risk characteristics and the days past
due. The expected loss rates are based on the payment profiles of sales over a
period of 90 days month before 31 December 2019 or 1 January 2019 respectively
and the corresponding historical credit losses experienced within this period.
On that basis, no loss allowance as at 31 December 2019 and 1 January 2019 (on
adoption of IFRS 9) was determined other than the provision for bad debts for
trade receivables.
Financial division credit risk
The financial division has no credit risk to clients since all accounts have
an automatic margin call, which relates to a guaranteed stop such that the
client's maximum loss is covered by the deposit. The Group has risk management
and monitoring processes for clients' accounts and this is achieved via margin
calling and close-out process.
The carrying amounts of financial assets represent the maximum credit
exposure.
31 December 2019 Total Not past due 1-2 months overdue More than 2 months past due
€'000 €'000 €'000 €'000
Expected credit loss rate 21% 8% 5% 59%
Gross carrying amount 261,972 171,686 20,251 70,035
Provision for bad debts (55,528) (13,437) (931) (41,160)
Loss allowance 206,444 158,249 19,320 28,875
31 December 2018 Total Not past due 1-2 months overdue More than 2 months past due
€'000 €'000 €'000 €'000
Expected credit loss rate 20% 1% 0% 71%
Gross carrying amount 262,804 164,410 26,997 71,397
Provision for bad debts (52,950) (2,262) - (50,688)
Loss allowance 209,854 162,148 26,997 20,709
Trade receivables and contract assets are written off where there is no
reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a debtor to
engage in a repayment plan with the group, and a failure to make contractual
payments for a period of greater than 120 days past due.
Impairment losses on trade receivables and contract assets are presented as
net impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line item.
The movement in the allowance for impairment in respect of trade receivables
during the year was as follows:
2019 2018
€'000 €'000
Balance 1 January 52,950 1,430
Charged to statement of comprehensive income 6,293 4,764
Provision acquired through business combination 472 50,126
Utilised (4,187) (3,370)
Balance 31 December 55,528 52,950
B. Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting
the obligations associated with its financial liabilities that are settled by
delivering cash or another financial assets. The Group's approach to managing
the liquidity is to ensure, as far as possible, that it will have sufficient
liquidity to meet its liabilities when they are due, under both normal and
stressed conditions, without incurring unacceptable losses of risking damage
the Group's reputation.
Financial division exposure to liquidity risk
Positions can be closed at any time by clients and can also be closed by the
Group, in accordance with the Group's margining rules. If after closing a
position a client is in surplus, then the amount owing is repayable on demand
by the Group. When client positions are closed, any corresponding positions
relating to the hedged position (if applicable) are closed with brokers.
Liquidity risk arises if the Group encounters difficulty in meeting
obligations which arise following profitable positions being closed by
clients. This risk is managed through the Group holding client funds in
separately segregated accounts whereby cash is transferred to or from the
segregated accounts on a daily basis to ensure that no material mismatch
arises between the aggregate of client deposits and the fair value of open
positions, and segregated cash. Through this risk management process, the
Group considers liquidity risk to be low.
2019 2018
€'000 €'000
Client deposits 132,849 138,418
Open positions (6,540) (34,218)
Client funds 126,309 104,200
CFH trades on a matched principal basis and financial instruments are used to
hedge all client positions. The management of market risk in respect of
matching of derivatives is through automated tools, together with active
monitoring and management by senior personnel under the supervision of its
directors. CFH's liquidity obligations are monitored daily and it is
adequately capitalised with a steady revenue stream to meet its day to day
obligations. CFH client deposits balance as at 31 December 2019 was €113.9
million (2018: €116.6 million).
The following are the remaining contractual maturities of financial
liabilities (representing undiscounted contractual cash flows) at the
reporting date:
Total Within 1 year 1-5 years More than 5 years
€'000 €'000 €'000 €'000
2019
Trade payables 62,420 62,420 - -
Progressive and other operators' jackpots 98,152 98,152 - -
Client deposits 113,879 113,879 - -
Client funds 126,309 126,309 - -
Contingent consideration and redemption liability 61,125 58,605 2,520 -
Other payables 156,105 141,861 14,244 -
Loans and borrowings 64,602 206 - 64,396
Bonds 871,190 - 525,021 346,169
Provisions for risks and charges 19,508 19,508 - -
Lease liability 90,789 25,515 40,040 25,234
1,664,079 646,455 581,825 435,799
2018
Trade payables 73,585 73,585 - -
Progressive and other operators' jackpots 88,601 88,601 - -
Client deposits 116,656 116,656 - -
Client funds 104,200 104,200 - -
Contingent consideration and redemption liability 158,839 48,316 98,097 12,426
Other payables 165,861 151,781 14,080 -
Loans and borrowings 695 489 206 -
Bonds 810,855 287,149 - 523,706
Provisions for risks and charges 12,095 12,095 - -
1,531,387 882,872 112,383 536,132
As disclosed in Note 25, the Group has a revolving credit facility (RCF) that
contains financial covenant. Under the agreement, the covenant is monitored on
a regular basis by the finance department and regularly reported to management
to ensure compliance to the agreement.
As at 31 December 2019, the Group has met the financial covenants of the RCF
which are as follows:
· Leverage: Net Debt/Adjusted EBITDA 3:1 (2018: 3:1)
· Interest cover: Interest/Adjusted EBITDA 4:1 (2018: 5:1)
C . Market risk
Market risk changes in line with fluctuations in market prices, such as
foreign exchange rates, interest rates and equities prices, will affect the
Group's income or the value of its holding of financial instruments.
The objective of market risk management is to manage and control market risk
exposures within acceptable parameters while optimizing the return.
Financial division exposure to market risk
In the financial trading division, the Group has exposure to market risk to
the extent that it has open positions. The Group's exposure to market risk at
any point in time depends primarily on short-term market conditions and client
activities during the trading day. The exposure at each reporting date is
therefore not considered representative of the market risk exposure faced by
the Group over the year.
The Group's exposure to market risk is mainly determined by the clients' open
position. The most significant market risk faced by the Group on the CFD
products it offers changes in line with market changes and the volume of
clients' transactions.
Currency risk
Currency risk is the risk that the value of financial instruments will
fluctuate due to changes in foreign exchange rates.
Foreign exchange risk arises because the Group has operations located in
various parts of the world. However, the functional currency of those
operations is the same as the Group's primary functional currency (Euro) and
the Group is not substantially exposed to fluctuations in exchange rates in
respect of assets held overseas.
Foreign exchange risk also arises when Group operations are entered into, and
when the Group holds cash balances, in currencies denominated in a currency
other than the functional currency.
In EUR In USD In GBP In other currencies Total
€'000 €'000 €'000 €'000 €'000
Cash and cash equivalents 321,207 230,249 75,075 45,009 671,540
Client funds (118,209) (167,541) (23,394) (29,196) (338,340)
Cash and cash equivalents less client funds 202,998 62,708 51,681 15,813 333,200
The Group's cash balances are mostly denominated in EUR and USD. Despite the
fact that the Group has large amounts in USD, those balances are hedged by the
fact that these balances are client's money.
The Group's policy is not to enter into any currency hedging transactions.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. The Group's income and
operating cash flows are substantially independent of changes in market
interest changes. The management monitors interest rate fluctuations on a
continuous basis and acts accordingly.
Where the Group has generated a significant amount of cash, it will invest in
higher earning interest deposit accounts. These deposit accounts are short
term and the Group is not unduly exposed to market interest rate fluctuations.
Equity price risk
The Group's is exposed to market risk by way of holding some investments in
other companies on a short term basis (Note 18). Variations in market value
over the life of these investments will have an immaterial impact on the
balance sheet and the statement of comprehensive income.
NOTE 39 - CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
Non-cash items
At 1 January 2019 Financing cash flows Acquisition of subsidiary (note 34a) Other changes At 31 December 2019
€'000 €'000 €'000 €'000 €'000
Loans and borrowings (Note 26) 695 63,907 - - 64,602
Convertible bond (Note 27) 287,323 (297,000) - 9,677 -
2018 Bond (Note 27) 528,062 (9,938) - 11,254 529,378
2019 Bond (Note 27) - 338,235 - 12,649 350,884
Lease liability - (26,999) 4,170 113,618 90,789
Total liabilities 816,080 68,205 4,170 147,198 1,035,653
Non-cash items
At 1 January 2019
Financing cash flows
Acquisition of subsidiary (note 34a)
Other changes
At 31 December 2019
€'000
€'000
€'000
€'000
€'000
Loans and borrowings (Note 26)
695
63,907
-
-
64,602
Convertible bond (Note 27)
287,323
(297,000)
-
9,677
-
2018 Bond (Note 27)
528,062
(9,938)
-
11,254
529,378
2019 Bond (Note 27)
-
338,235
-
12,649
350,884
Lease liability
-
(26,999)
4,170
113,618
90,789
Total liabilities
816,080
68,205
4,170
147,198
1,035,653
Non-cash items
At 1 January 2018 Financing cash flows Acquisition of subsidiary (note 29) Other changes At 31 December 2018
€'000 €'000 €'000 €'000 €'000
Loans and borrowings (Note 26) 200,000 (200,481) 1,176 - 695
Convertible bond (Note 27) 276,638 (1,485) - 12,170 287,323
Snai bond (Note 27) - (580,605) 588,955 (8,350) -
Bond (Note 27) - 523,417 - 4,645 528,062
Total liabilities 476,638 (259,154) 590,131 8,465 816,080
Non-cash items
At 1 January 2018
Financing cash flows
Acquisition of subsidiary (note 29)
Other changes
At 31 December 2018
€'000
€'000
€'000
€'000
€'000
Loans and borrowings (Note 26)
200,000
(200,481)
1,176
-
695
Convertible bond (Note 27)
276,638
(1,485)
-
12,170
287,323
Snai bond (Note 27)
-
(580,605)
588,955
(8,350)
-
Bond (Note 27)
-
523,417
-
4,645
528,062
Total liabilities
476,638
(259,154)
590,131
8,465
816,080
NOTE 40 - CONTINGENT LIABILITIES AND PROVISION FOR RISKS AND CHARGES
As part of the Board's ongoing regulatory compliance process, the Board
continues to monitor legal and regulatory developments and their potential
impact on the Group.
The Group is involved in proceedings before civil and administrative courts,
and other legal actions related to the regular course of business. Based on
the information currently available, and taking into the existing provisions
for risks, the Group considers that such proceedings and actions will not
result in any material adverse effects upon the financial statements. All the
provisions were subject to a review and estimate by the Board of directors
based on the information available at the date of preparation of these
financial statements and supported by updated legal opinions from independent
professionals. These provisions are believed, as a whole, to be adequate to
the risks and charges that the Group is reasonably expected to effectively
address.
The Group is subject to proceedings regarding complex legal matters, which are
subject to a differing degree of uncertainty (also due to a complex
legislative framework), including the facts and the circumstances inherent to
each case, the jurisdiction and the different laws applicable. Given the
uncertainties inherent to these problems, it is difficult to predict with
certainty the outlay which will derive from these disputes and it is therefore
possible that the value of the provisions for legal proceedings and disputes
may vary further to future developments in the proceedings underway. The Group
monitors the status of the disputes underway and consults with its advisors
and experts on legal and tax-related matters.
The Group is subject to corporate income tax in jurisdictions in which its
companies are incorporated and registered. Judgment is required to interpret
international tax laws relating to ecommerce in order to identify and value
provisions in relation to corporate income taxes. The principal risks relating
to the Group's tax liabilities, and the sustainability of the underlying
effective tax rate, arise from domestic and international tax laws and
practices in the e-commerce environment continuing to evolve, including the
corporate tax rates in jurisdictions where the Group has significant assets or
people presence. The Group is basing its tax provisions on current (and
enacted but not yet implemented) tax rules and practices, together with advice
received from professional advisers, and believes that its accruals for tax
liabilities are adequate for all open enquiry years based on its assessment of
many factors including past experience and interpretations of tax law. The
Group constantly monitors changes in legislation and update its accruals
accordingly.
Management is not aware of any other contingencies that may have a significant
impact on the financial position of the Group.
NOTE 41 - EVENTS AFTER THE REPORTING DATE
On 13 January 2020, the Group acquired an additional 40% of Statscore for a
total consideration of €6.5 million. As a result of this transaction,
Statscore became a subsidiary of the Group with 85% shareholding. Statscore is
a Polish sports data provider. Management have not yet performed the purchase
price allocation exercise required under IFRS3.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
. END FR QDLBLBLLBBBFRecent news on Playtech
See all newsREG - Playtech PLC - FY25 Trading Update
AnnouncementREG - Playtech PLC - Appointment of Joint Corporate Broker
AnnouncementREG - Playtech PLC - Transaction in Own Shares
AnnouncementREG - Playtech PLC - Transaction in Own Shares
AnnouncementREG - Playtech PLC - Transaction in Own Shares
Announcement