REG - Playtech PLC - Results for the year ended 31 December 2017 <Origin Href="QuoteRef">PTEC.L</Origin> - Part 2
22/02/2018 07:05
- Part 2: For the preceding part double click ID:nRSV6181Fa
34.5 24.3 42%
Travel, exhibition and marketing costs 17.3 14.4 20%
Adjusted operating expenses excluding revenue-driven costs 385.2 352.8
* 2016 comparable numbers were reclassified to reflect year on year on a like
for like basis
Research and development ("R&D") cost comprises of employee related costs,
dedicated teams, their direct expenses and proportional office cost. Research
and development cost decreased 2% in 2017 to €80.7 mainly as a result from
increased capitalisation of development costs. In B2B gaming capitalised
development cost as a percentage of total R&D cost increased from 26% to
35%. The development cost grew by 50% year on year with 25% of this growth
coming from rent capitalisation introduced for the first time in 2017. On a
like for like basis, excluding acquisitions and excluding office rent cost,
the percentage has increased from 26% to 29%. This underlying increase in
capitalised cost of 7% derives from the development of the GPAS and
Marketplace projects as well as from a change done to the cost mode during
2017.
Operations cost includes mainly employee related cost 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 cost increased by 14%
from €146.7 million to €166.8 million in 2017. The main reason for the
increase is the cost of terminals hardware which is in line with the increase
in revenue from the sale of terminal hardware, increase in BGT terminal
maintenance and feeds cost, as the cost for 2016 included only 6 months of BGT
cost, from the date of its acquisition. Excluding acquisitions operations cost
increased slightly by 1% where the increase in terminal hardware cost was
offset by the reduction in the employee related cost.
Administrative cost increased by 19% mainly due to increase in employee
related cost, legal fees, and compliance related cost.
Sales and marketing cost mainly include employee related cost, their direct
expenses, marketing and exhibition costs. Sales and marketing cost increased
by 42% to €17.6 million where most of the increase relates to acquisitions.
Excluding acquisitions S&M cost increased by only 3%.
The 62% increase in B2C Gaming cost from €59.9 million in 2016 to €96.9
million in 2017 mainly relates to the additional cost of the Sun Bingo
contract which was launched in September 2016. The B2C costs comprises brand
fees, gaming taxes, operational marketing cost, employee related cost and
processing fees. These fees are typically calculated as a share of the
licensee revenue generated.
Cost of operations in the Financials division increased by €7.7 million in
2017. However, 2017 includes the full year of operational costs for CFH
(2016 included only one month) and three months of operational costs for
Alpha. Excluding acquisitions, operational costs in the Financials division
decreased by €8.3 million, which is reflective of the aforementioned
underlying cost optimisation undertaken during 2016 to ensure an efficient,
robust and sustainable business mode,
Depreciation, amortisation, finance income, financial cost and tax
Depreciation increased in 2017 by 32% to €26.5 million. Excluding
acquisitions, depreciation increased 10%.
Amortisation cost, excluding amortisation of intangibles on acquisition, has
increased 17% to €36.0 million, in line with the increase in capitalised
development cost.
Adjusted net finance cost was €5.0 million in the period compared to €37.2
million in 2016. The decrease is predominantly due to lower foreign exchange
rate losses of €19.7 million during 2017, compared to a €44.7 million loss
in 2016, together with higher dividends from the available for sale investment
from Ladbrokes of €5.9 million (2016: €3.7 million) and €11.2 million
from Plus500 (2016: €8.2 million).
The Company is tax registered, managed and controlled from the Isle of Man,
where the corporate tax rate is set at zero. The Group's main trading
subsidiaries are registered either in the Isle of Man, Alderney or Cyprus,
where effective tax rates are low or set at zero. Other subsidiaries, related
to the Group's development centers are located in other jurisdictions and
operate on a cost-plus basis, and are taxed on their residual profits. The tax
charge in 2017 was €17.5 million (2016: €6.3 million). The increase is
mainly due to acquired companies registered for taxation in higher tax
jurisdictions as well profits being recognised in higher taxing territories
increasing Playtech's effective tax rate.
Adjusted profit and Adjusted EPS
2017 2016
€m €m
Profit for the year- attributable to owners of parent 248.1 193.0
Amortisation of intangibles on acquisitions 51.0 44.3
Impairments related to acquisitions 7.8 12.3
Profit/(loss) on disposal of investment in associates 0.7 (64.4)
Impairment of investment in associates and other non-current assets 14.9 -
Employee stock option expenses 15.1 7.0
Professional expenses on acquisitions 2.4 3.5
Cost of business reorganisation 1.1 -
Non-cash accrued bond interest 10.2 9.8
Decline in fair value of available for sale investments 0.5 -
Additional consideration payable for Put/Call options 5.3 -
One off employee related costs 5.3 -
Deferred tax on acquisition (4.6) (3.4)
Movement in deferred and contingent consideration (126.4) 0.8
Adjusted profit for the year - attributable to owners of the parent 231.4 202.9
Adjusted basic EPS (in Euro cents) 73.6 64.6
Adjusted diluted EPS (in Euro cents) 66.8 58.8
Constant currency impact 35.7 44.7
Adjusted profit for the year attributable to owners of parent on constant 267.1 247.6
currency
Adjusted Net Profit on constant currency related to acquisitions (26.9) (10.1)
Underlying adjusted profit for the year - attributable to owners of the parent 240.2 237.5
Adjusted diluted EPS was up 14% and the underlying Adjusted diluted EPS on a
constant currency basis excluding acquisition was 1% above 2016. Adjusted
diluted EPS is calculated on the basis of a weighted average number of shares
in issue during 2017 of 348.5 million.
Cashflow
Playtech continues to be highly cash generative and once again delivered
strong operating cash flows of €306.7 million.
Cash conversion
2017 2016
€m €m
Adjusted EBITDA 322.1 302.2
Net cash provided by operating activities 306.7 251.4
Cash conversion 95% 83%
Decrease /(Increase) in Progressive, operators' jackpots, security deposits 15.9 (16.6)
Decrease /(Increase) in Client deposits and Client equity 6.3 (17.5)
Adjusted net cash provided by operating activities 284.4 285.5
Adjusted Cash conversion 88% 94%
Operating cash conversion from Adjusted EBITDA decreased slightly in line with
the conversion level in 2016 when adjusted for jackpots, security deposits and
client equity. Since the timing of cash inflows and outflows for jackpots,
security deposits and client equity only affects the reported operating
cashflow and not EBITDA, adjusting these cash fluctuations is essential to
truly reflect the quality of revenue and cash collection.
Net cash outflows from investing activities totalled €140.2 million in the
period, of which €46.3 million (2016: €140.0 million) relates to
acquisitions, mainly of Eyecon and Alpha. Cash outflows from financing
activities included €104.7 million (2016: €245.7 million) of annual
dividend payment.
Balance sheet and financing
As at 31 December 2017, cash and cash equivalents amounted to €584.0 million
(2016: €544.8 million), with cash net of client funds, progressive jackpot
and security deposit, being €412.6 million (2016: €392.0 million).
Total available-for-sale investments were €381.3 million, a 66% increase
compared to the end of 2016, due to the appreciation in value of holdings in
Plus500 and in Ladbrokes Coral.
Contingent consideration and redemption liability decreased to €157.7
million, mainly due to the write off of the Markets earn-out and earn-out
payments, and comprise of:
Acquisition Contingent consideration and redemption liability as of 31.12.17 Maximum payable earnout
ACM Group €71.4 million $145.0 million
Quicksipin AB €24.1 million €26.0 million
Playtech BGT Sports Ltd €30.9 million €95.0 million
Consolidated Financial Holdings €22.4 million $73.1 million
ECM Systems Holdings Ltd €1.2 million £1.1 million
Eyecon Limited €1.3 million £25.0 million
Others €6.4 million €7.1 million
The value of the contingent consideration relating to Markets.com in
Playtech's balance is zero, as the threshold for achieving an additional
earnout has not been met.
Dividend
To provide greater certainty and consistency of dividend payments, the Board
adopted a progressive dividend policy in 2016 which allows the Board to
reflect its confidence in the growth and cash generation of the business
without being tied to a fixed percentage payout as one-off items can impact
results, such as the impact from foreign exchange which we saw in 2016 and
2017.
Playtech's intention is to grow dividends from the current level in line with
the underlying performance of the business on a smoothed basis and to continue
to pay the dividend split approximately one-third as an interim dividend and
two-thirds as a final dividend.
Accordingly, the Board has declared a final dividend of 23.9 €cents per
share (2016: €21.7cents), an increase of 10% over 2016's final dividend,
taking the 2017 full year dividend to 36.0 €cents per share, an increase of
10% over 2016.
For those shareholders wishing to receive their dividends in Sterling the last
date for currency elections is 11 May 2018.
Dividend timetable:
Ex-dividend date: Thursday 3 May 2018
Record date for dividend: Friday 4 May 2018
Currency election date: Friday 11 May 2018
Payment date: Friday 1 June 2018
Principal risks and uncertainties
The key risks, which will be discussed further including how they are being
addressed in Playtech's 2017 Annual Report (which will be available in the
investor relations section of the corporate website), are:
Risks relating to both the Gaming division and Financials division
§ Regulation - licensing requirements
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 requirements Technical Regulatory Requirements
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.
§ Taxation
Given the environment in which the Group operates, the business is exposed to
continuously evolving rules and practices governing the taxation of e-commerce
activity in various jurisdictions. It is imperative to ensure compliance with
all relevant tax
§ Economic Environment
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.
§ Mergers and Acquisitions
Playtech has made a number of acquisitions over the years. Such acquisitions
may not deliver the expected synergies and/or benefits and may destroy
shareholder value.
§ Key Employees
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.
§ IT Security
The risk of impairment to our operations for example through cyber and
distributed denial of service (DDoS) attacks, technology failure or terrorist
attack continues to be one that the Group considers to be significant. System
failure could significantly affect the services offered to our licensees.
§ Regulatory - Data Protection
The requirements of the new EU General Data Protection Regulations (GDPR) will
come into force in May 2018. This places onerous responsibilities on data
controllers and processors who have users in the EU regardless of where the
data is held or processed.
§ Regulatory - Preventing Financial Crime
Policymakers in the EU and at national levels have taken steps to strengthen
financial crime legislation covering Anti-Money Laundering (AML), 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.
§ Intellectual Property Rights
The Group's primary commercial activity is as a licensor of gambling software.
The Group predominantly owns the intellectual property (IP) rights in that
gambling software, including the IMS which is key to maintaining our
competitive advantage. Any claim that the Group doesn't own its IP (by a
licensee or a third party), or any copying of the Group's IP by a third party,
could have a significant effect on revenues. In addition, the Group licenses
intellectual property from third parties, including creation of very
successful branded games. Any loss of such IP rights could lead to a decline
in casino revenues.
§ Business Continuity Planning
Loss of revenue, reputational damage or breach of regulatory requirements may
occur as a result of a business or location disruptive event.
Additional risks relating to the Gaming division
§ Regulatory - Responsible Gambling
Responsible gambling is a material concern to society as well as a regulatory
priority. Licensing requirements are regularly updated to ensure that
companies in the sector provide a safe environment for consumers. Recent
trends have seen an additional regulatory focus on treating customers fairly
and conducting marketing and advertising in a responsible manner.
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.
§ Trading volume
Low volatility within foreign exchange rates, commodity prices, equity and
index prices may reduce profitability.
By order of the Board,
Mor Weizer Andrew Smith
Chief Executive Officer Chief Financial Officer
22 February 2018 22 February 2018
Directors' responsibility statement
We confirm to the best of our knowledge;
§ The Group and Company financial statements, which have been prepared in
accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union and Article 4 of the IAS Regulation, give a true and
fair view of the assets, liabilities, financial position and profit of the
Group and Company; and
§ The Annual Report includes a fair review of the development and performance
of the business and the financial position of the Group and Company, together
with a description of the principal risks and uncertainties that they face.
The directors of Playtech plc are listed in the Group's Annual Report and
Accounts for the year ended 31 December 2016. A list of current directors is
maintained on Playtech's website, www.playtech.com (http://www.playtech.com)
By order of the Board,
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
2017 2016
Note Actual Adjusted Actual Adjusted
€'000 *€'000 €'000 *€'000
Revenue 4 807,120 807,120 708,558 708,558
Distribution costs before depreciation and amortisation (412,943) (405,651) (345,934) (340,790)
Administrative expenses before depreciation and amortisation (101,009) (79,373) (70,772) (65,535)
EBITDA 293,168 322,096 291,852 302,233
Depreciation, amortisation and impairment (121,376) (62,577) (107,600) (50,947)
Finance income 7a 145,307 18,927 13,270 13,270
Finance cost 7b (34,207) (23,973) (61,119) (50,485)
Share of profit from joint ventures 13a 464 464 146 146
Share of loss from associates 13b (662) (662) (693) (693)
Impairment of available for sale investments 14 (467) - - -
Profit/(loss) on disposal of investment in associate 13c (725) - 64,459 -
Impairment of investment in associate and other non-current assets (14,887) - - -
Profit before taxation 266,615 254,275 200,315 213,524
Tax expenses 8 (17,505) (21,856) (6,303) (9,652)
Profit for the year 249,110 232,419 194,012 203,872
Other comprehensive income for the year:
Items that may be classified to profit or loss:
Change in fair value of available for sale equity instruments 14 157,809 157,809 (53,868) (53,868)
Exchange (losses)/gains arising on translation of foreign operations (50,766) (50,766) 14,251 14,251
Total items that may be classified to profit or loss 107,043 107,043 (39,617) (39,617)
Total comprehensive income for the year 356,153 339,462 154,395 164,255
Profit for the year attributable to:
Owners of the parent 248,140 231,449 193,030 202,890
Non-controlling interest 970 970 982 982
249,110 232,419 194,012 203,872
Total comprehensive income attributable to:
Owners of the parent 356,914 340,223 153,543 163,403
Non-controlling interest (761) (761) 852 852
356,153 339,462 154,395 164,255
Earnings per share for profit attributable to the owners of the parent during
the year:
Basic (cents) 9 78.9 73.6 61.4 64.6
Diluted (cents) 9 74.6 66.8 58.8 58.8
* Adjusted numbers relate to certain non-cash and one-off items including
amortisation of intangibles on acquisitions, professional costs on
acquisitions, additional consideration payable for put/call options, one off
employee related cost, finance costs and contingent consideration movement on
acquisitions, impairment of available-for-sale investments, deferred tax on
acquisition, non-cash accrued bond interest and additional various non-cash
charges. The directors believe that the adjusted profit measures represent
more closely the consistent trading performance of the business. A full
reconciliation between the actual and adjusted results is provided in Note 5.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Additional paid in capital Available for sale reserve 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 Jan 2017 627,764 (51,057) 498,864 (25,417) 45,392 (34,341) 16,800 1,078,005 21,714 1,099,719
Changes in equity for the year
Total comprehensive income for the year - 154,274 248,140 - - - (45,500) 356,914 (761) 356,153
Dividend paid - - (104,656) - - - - (104,656) - (104,656)
Exercise of options - - (3,411) 3,773 - - - 362 15 377
Employee stock option scheme - - 14,948 - - - - 14,948 146 15,094
Acquisition of minority interest - - (4,348) - - 3,300 - (1,048) (7,052) (8,100)
Non-controlling interest acquired on business combination - - - - - (252) - (252) 117 (135)
Balance at 31 December 2017 627,764 103,217 649,537 (21,644) 45,392 (31,293) (28,700) 1,344,273 14,179 1,358,452
Balance at 1 Jan 2016 638,209 1,964 592,051 (27,495) 45,392 - 3,266 1,253,387 7,308 1,260,695
Changes in equity for the year
Total comprehensive income for the year - (53,021) 193,030 - - - 13,534 153,543 852 154,395
Dividend paid - - (245,734) - - - - (245,734) - (245,734)
Exercise of options - - (1,937) 2,078 - - - 141 - 141
Employee stock option scheme - - 6,812 - - - - 6,812 128 6,940
Share buy back (10,445) - (39,384) - - - - (49,829) - (49,829)
Acquisition of minority interest - - (5,974) - - - - (5,974) (1,320) (7,294)
Non-controlling interest acquired on business combination - - - - - (34,341) - (34,341) 14,746 (19,595)
Balance at 31 December 2016 627,764 (51,057) 498,864 (25,417) 45,392 (34,341) 16,800 1,078,005 21,714 1,099,719
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
2017 2016
Note €'000 €'000
NON-CURRENT ASSETS
Property, plant and equipment 11 80,016 72,893
Intangible assets 12 1,051,232 1,014,635
Investments in equity accounted associates & joint ventures 13 37,216 39,026
Available for sale investments 14 381,346 230,278
Other non-current assets 15 19,993 26,861
1,569,803 1,383,693
CURRENT ASSETS
Trade receivables 16 107,165 73,744
Other receivables 17 93,322 73,966
Cash and cash equivalents 18 583,957 544,843
784,444 692,553
TOTAL ASSETS 2,354,247 2,076,246
EQUITY
Additional paid in capital 19 627,764 627,764
Available-for-sale reserve 103,217 (51,057)
Employee Benefit Trust 19 (21,644) (25,417)
Convertible bonds option reserve 21 45,392 45,392
Put/Call options reserve (31,293) (34,341)
Foreign exchange reserve (28,700) 16,800
Retained earnings 649,537 498,864
Equity attributable to equity holders of the parent 1,344,273 1,078,005
Non-controlling interest 14,179 21,714
TOTAL EQUITY 1,358,452 1,099,719
NON CURRENT LIABILITIES
Loans and borrowings 20 - 200,000
Convertible bonds 21 276,638 266,230
Deferred revenues 2,457 3,454
Deferred tax liability 24 31,283 40,443
Contingent consideration and redemption liability 22 137,080 204,550
Other non-current liabilities 474 1,627
447,932 716,304
CURRENT LIABILITIES
Loans and borrowings 20 200,000 -
Trade payables 23 61,969 28,171
Progressive operators' jackpots and security deposits 62,675 46,759
Client deposits 71,628 76,229
Client funds 37,074 29,863
Tax liabilities 24,713 11,732
Deferred revenues 5,414 4,456
Contingent consideration 22 20,592 4,577
Other payables 25 63,798 58,436
547,863 260,223
TOTAL EQUITY AND LIABILITIES 2,354,247 2,076,246
The financial information was approved by the Board and authorised for issue
on 21 February 2018.
Mor Weizer Andrew Smith
Chief Executive Officer Chief Financial Officer
22 February 2018 22 February 2018
CONSOLIDATED STATEMENT OF CASH FLOWS
2017 2016
Note €'000 €'000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit after tax 249,110 194,012
Adjustments to reconcile net income to net cash provided by operating 69,418 67,085
activities (see below)
Income taxes paid (11,876) (9,731)
Net cash provided by operating activities 306,652 251,366
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and deposits advanced (5,064) (9,162)
Acquisition of property, plant and equipment 11 (34,692) (26,224)
Return on investment in joint ventures and associates 13a 1,400 1,844
Acquisition of intangible assets 12 (3,060) (13,019)
Acquisition of subsidiaries (48,276) (240,225)
Cash of subsidiaries on acquisition 1,962 100,244
Capitalised development costs 12 (50,683) (36,176)
Investment in equity-accounted associates 13b,13c (8,067) (1,701)
Return on available-for-sale investments 7a 17,078 11,894
Proceeds from sale of property, plant and equipment 64 145
Acquisition of minority interest (10,827) (7,329)
Net cash used in investing activities (140,165) (219,709)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to the holders of the parent (104,656) (245,734)
Share buy back 19 - (49,829)
Interest paid on convertible bonds and bank borrowing (3,401) (4,594)
Exercise of options 377 141
Net cash used in financing activities (107,680) (300,016)
INCREASE /(DECREASE) IN CASH AND CASH EQUIVALENTS 58,807 (268,359)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 544,843 857,898
Exchange losses on cash and cash equivalents (19,693) (44,696)
CASH AND CASH EQUIVALENTS AT END OF YEAR 583,957 544,843
2017 2016
€'000 €'000
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Income and expenses not affecting operating cash flows:
Depreciation 26,544 20,092
Amortisation 86,987 75,173
Impairment 7,845 12,335
Disposal of intangible asset 2,838 -
Share of profit from joint ventures (464) (146)
Share of loss from associates 662 693
Non- cash transaction 725 (32,272)
Impairment of investment in associates and other non-current assets 14,887 1,586
Changes in fair value of available for sale investments 467 -
Non-cash accrued bond interest 10,234 9,802
Income tax expense 17,505 6,303
Employee stock option plan expenses 15,094 6,940
Movement in contingent consideration and redemption liability (126,379) 832
Return on available for sale investments (17,078) (11,894)
Exchange losses on cash and cash equivalents 19,693 44,696
Other 721 (191)
Changes in operating assets and liabilities:
(Increase)/decrease in trade receivables (33,084) 12,258
Increase in other receivables (13,608) (43,551)
Increase in trade payables 33,637 4,969
Increase/(decrease) in progressive, operators jackpot, security deposits 15,916 (16,582)
Increase/(decrease) in client funds 6,343 (17,512)
Decrease/(increase) in other payables 62 (5,910)
Decrease in deferred revenues (129) (536)
69,418 67,085
Acquisition of subsidiary
2017 2016
Note €'000 €'000
Acquisitions in the year
A. Acquisition of Eyecon Limited 26a 27,735 -
B. Acquisition of ACM Group 26b 4,233 -
C. Other acquisitions 26c 8,582 -
Acquisitions in previous years
A. Acquisition of Playtech BGT Sports Limited 27b 2,001 138,490
B. Acquisition of Consolidated Financial Holdings AS 27d 336 38,927
C. Acquisition of Quickspin AB 27a - 24,461
D. Acquisition of ECM Systems Holdings Ltd 27c 3,077 25,038
E. Acquisition of Yoyo Games Limited - 1,808
F. Other acquisitions 2,312 11,501
48,276 240,225
Non-cash transaction
2017 2016
Note €'000 €'000
Disposal of investment in associates
Fair value of Ladbrokes Coral plc shares received 13c - 44,477
Cost related to the software and services agreement - (5,312)
Disposal of investment in associate 13c (725) (6,893)
Profit/(loss) on disposal of investment in associate (725) 32,272
NOTE 1 - GENERAL
Playtech plc and its subsidiaries (the "Group") develop unified software
platforms for the online and land-based gambling industry, targeting online
and land-based operators. Since May 2015 the Group also offered an online
trading platform to retail customers which enabled them to trade CFD
(Contracts for Differences) on a variety of instruments which fall under the
general categories of Foreign exchange, Commodities, Equities and indices. In
the context of this activity, the Group acts as a market-maker in a
predominantly B2C environment. Following the acquisition of CFH in November
2016, the Group also provides B2B clients with technology for liquidity and
clearing. Playtech's gaming applications - online casino, poker and other P2P
games, bingo, mobile, live gaming, land-based terminal and fixed-odds game 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.
Basis of preparation
The directors consider that the Group has adequate resources to continue in
operational existence for the foreseeable future and that it is therefore
appropriate to adopt the going concern basis in preparing its financial
statements.
The financial information set out in this document does not constitute the
Group's statutory accounts for the year ended 31 December 2017 or 31 December
2016. The Annual Report and financial statements for the year ended 31
December 2017 were approved by the Board of Directors on 21 February 2017
along with this preliminary announcement. The auditor's report on the
statutory accounts for both the year ended 31 December 2017 and 31 December
2016 was unqualified.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
financial information, on a consistent basis, are:
Accounting principles
This financial information has been prepared in accordance with International
Financial Reporting Standards, International Accounting standards and
interpretations (collectively IFRS) issued by the International Accounting
Standards Board (IASB) as adopted by the European Union ("adopted IFRSs").
In the current year the Group has adopted all of the new and revised
standards and interpretations issued by the IASB and the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they
have been adopted by the European Union, that are relevant to its operations
and effective for accounting periods beginning on 1 January 2017. None of
these adoptions has had a material impact on the results or reporting of the
Group.
New standards, interpretations and amendments effective from 1 January 2018
There are no new standards, interpretations or amendments which are effective
for periods beginning on or before 1 January 2018 which have a material effect
on the Group's financial information, including IFRS 15: Revenue from
contracts with customers, and IFRS 9: Financial Instruments, although there
may be presentational changes.
IFRS 16 Leases
Adoption of IFRS 16 will result in the group recognising right of use assets
and lease liabilities for all contracts that are, or contain, a lease. For
leases currently classified as operating leases, under current accounting
requirements the group does not recognise related assets or liabilities, and
instead spreads the lease payments on a straight-line basis over the lease
term, disclosing in its annual financial statements the total commitment.
At 31 December 2017 operating lease commitments amounted to €63.4 million.
The effect of discounting those commitments is anticipated to result in
right-of-use assets and lease liabilities of €50.0- €60.0 million being
recognised on 1 January 2018.
However, further work still needs to be carried out to determine whether and
when extension and termination options are likely to be exercised, which will
result in the actual liability recognised being higher than this.
The Board still considering if it will apply the modified retrospective or the
restatement approach in IFRS 16.
Instead of recognising an operating expense for its operating lease payments,
the group will instead recognise interest on its lease liabilities and
amortisation on its right-of-use assets. This will increase reported EBITDA
which will approximate to its current operating lease cost, which for the year
ended 31 December 2017 was approximately €13.5 million.
Other than as noted, the directors do not expect that any other new standards,
interpretations and amendments which are effective for periods beginning after
1 January 2018 to have a material effect on the Group's future financial
information
Basis of consolidation
Where the company has control over an investee it is classified as a
subsidiary. The company controls an investee if all three of the following
elements are present: power over the investee; exposure to variable returns
from the investee; and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
The consolidated financial information presents the results of the Group as if
they formed a single entity. Intercompany transactions and balances between
Group companies are therefore eliminated in full.
The consolidated financial information incorporates the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is obtained.
They are deconsolidated from the date on which control ceases.
Foreign currency
The financial information of the gaming division, which includes the Company
and some of its subsidiaries is prepared in Euros (the functional currency),
which is the currency that best reflects the economic substance of the
underlying events and circumstances relevant to the gaming division.
Transactions and balances in foreign currencies are converted into Euros in
accordance with the principles set forth by IAS 21 ("The Effects of Changes in
Foreign Exchange Rates"). Accordingly, transactions and balances have been
converted into the presentation currency of Euros as follows:
§ Monetary assets and liabilities - at the rate of exchange applicable at the
balance sheet date;
§ Income and expense items - at exchange rates applicable as of the date of
recognition of those items. Non-monetary items are converted at the rate of
exchange used to convert the related balance sheet items i.e. at the time of
the transaction. Exchange gains and losses from the aforementioned conversion
are recognised in the consolidated statement of comprehensive income.
The financial information of the financial division is prepared in US Dollars
(the functional currency), which is the currency that best reflects the
economic substance of the underlying events and circumstances relevant to the
financial division. The transactions and balances are converted into the
presentation currency of Euros as follows:
§ Assets and liabilities - at the rate of exchange applicable at the balance
sheet date;
§ Income and expense items - at average exchange rates applicable at the
period of recognition of those items;
§ Equity- at historic rate.
Exchange gains and losses from the aforementioned conversion are recognised in
the foreign exchange reserve.
Revenue recognition
The Group's principal revenue streams and their respective accounting
treatments are discussed below:
Royalty income
Royalty income relating 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 and is recognised in the accounting periods in
which the gaming transactions occur.
Trading income
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.
Fixed-fee income
Other revenue 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 usage of the service/technology in each accounting
period. Income is recognised over the period of service once the obligations
under the contracts have passed. Where amounts are billed and obligations not
met, revenue is deferred.
Fixed-term arrangements
Other income receivable under fixed-term arrangements is recognised as revenue
over the term of the agreement on a straight line basis.
Distribution costs
Distribution costs represent the direct costs of the function of providing
services to customers, costs of the development function and advertising
costs.
Share-based payments
Certain employees participate in the Group's share option plans which
commenced with effect from 1 December 2005. 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. The share options plan does not have any performance
conditions other than continued service. 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.
Income taxes and deferred taxation
Provision for income taxes is calculated in accordance with the tax
legislations and applicable tax rates in force at the balance sheet date in
the countries in which the Group companies are tax registered and for Group
branches based on place where the branch is established.
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the consolidated balance sheet differs from its
tax base, except for differences arising on:
§ the initial recognition of goodwill;
§ the initial recognition of an asset or liability in a transaction which is
not a business combination and at the time of the transaction affects neither
accounting or taxable profit; and
§ investments in subsidiaries and jointly controlled entities where the Group
is able to control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable future.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the reporting date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
§ the same taxable Group company; or
§ different Group entities which intend either to settle current tax assets
and liabilities 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 assets or liabilities are expected to be settled or recovered.
Dividend distribution
Final dividends are recorded in the Group's financial information in the
period in which they are approved by the Group's shareholders. Interim
dividends are recognised when paid.
Property, plant and equipment
Property, plant and equipment comprise computers and gaming machines,
buildings and leasehold and buildings improvements, office furniture and
equipment, and motor vehicles and are stated at cost less accumulated
depreciation. Carrying amounts are reviewed on each balance sheet 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 10-20, or over the length of the lease
Motor vehicles 15
Subsequent expenditures are 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 during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing proceeds with
carrying amount and are included in the consolidated statement of
comprehensive income.
Business combinations
The consolidated financial information incorporate the results of business
combinations using the purchase method. In the consolidated balance sheet, the
acquiree's identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date. The results
of acquired operations are included in the consolidated statement of
comprehensive income from the date on which control is obtained.
Put/Call options
Where a put/call option is entered into over the non-controlling interest the
ownership risks and rewards of the shares relating to the option are analysed
to determine whether the equity is attributable to the non-controlling
interest or the parent. The non-controlling interest is recognised if the
risks and rewards of ownership of those shares remain with them.
A financial liability is recorded to reflect the option. All subsequent
changes to the liability (other than the cash settlement) are recognised in
profit or loss.
Where the significant risks and rewards of ownership remain with the
non-controlling interest the non-controlling interest continues to be
recognised and is allocated its share of profits and losses.
Where the significant risks and rewards of ownership reside with the
controlling interest, the financial liability recognised offsets the
non-controlling interest.
Investments in subsidiary undertakings
Investments in subsidiary undertakings are recognised at cost less, if any,
provision for impairment.
Intangible assets
Intangible assets comprise externally acquired patents, domains and customer
lists. Intangible assets also include internally generated capitalised
software development costs. All such intangible assets are stated at cost less
accumulated amortisation. Where intangible assets are acquired as part of a
business combination they are recorded initially at their fair value. Carrying
amounts are reviewed on each balance sheet date for impairment. Where the
carrying amount of an asset is greater than its estimated recoverable amount,
it is written down to its recoverable amount.
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 license 10-33
Management believes that the useful life of the domain names is indefinite.
Domain names are reviewed for impairment annually.
Expenditure incurred on development activities including the Group's software
development is capitalised only where the expenditure will lead to new or
substantially improved products, the products are technically and commercially
feasible and the Group has sufficient resources to complete development.
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, in
the case of
- More to follow, for following part double click ID:nRSV6181Fc reported operating cashflow and not EBITDA, adjusting these cash fluctuations
is essential to truly reflect the quality of revenue and cash collection.
Net cash outflows from investing activities totalled E140.2 million in the period, of which E46.3 million (2016: E140.0
million) relates to acquisitions, mainly of Eyecon and Alpha. Cash outflows from financing activities included E104.7
million (2016: E245.7 million) of annual dividend payment.
Balance sheet and financing
As at 31 December 2017, cash and cash equivalents amounted to E584.0 million (2016: E544.8 million), with cash net of
client funds, progressive jackpot and security deposit, being E412.6 million (2016: E392.0 million).
Total available-for-sale investments were E381.3 million, a 66% increase compared to the end of 2016, due to the
appreciation in value of holdings in Plus500 and in Ladbrokes Coral.
Contingent consideration and redemption liability decreased to E157.7 million, mainly due to the write off of the Markets
earn-out and earn-out payments, and comprise of:
Acquisition Contingent consideration and redemption liability as of 31.12.17 Maximum payable earnout
ACM Group E71.4 million $145.0 million
Quicksipin AB E24.1 million E26.0 million
Playtech BGT Sports Ltd E30.9 million E95.0 million
Consolidated Financial Holdings E22.4 million $73.1 million
ECM Systems Holdings Ltd E1.2 million £1.1 million
Eyecon Limited E1.3 million £25.0 million
Others E6.4 million E7.1 million
The value of the contingent consideration relating to Markets.com in Playtech's balance is zero, as the threshold for
achieving an additional earnout has not been met.
Dividend
To provide greater certainty and consistency of dividend payments, the Board adopted a progressive dividend policy in 2016
which allows the Board to reflect its confidence in the growth and cash generation of the business without being tied to a
fixed percentage payout as one-off items can impact results, such as the impact from foreign exchange which we saw in 2016
and 2017.
Playtech's intention is to grow dividends from the current level in line with the underlying performance of the business on
a smoothed basis and to continue to pay the dividend split approximately one-third as an interim dividend and two-thirds as
a final dividend.
Accordingly, the Board has declared a final dividend of 23.9 Ecents per share (2016: E21.7cents), an increase of 10% over
2016's final dividend, taking the 2017 full year dividend to 36.0 Ecents per share, an increase of 10% over 2016.
For those shareholders wishing to receive their dividends in Sterling the last date for currency elections is 11 May 2018.
Dividend timetable:
Ex-dividend date: Thursday 3 May 2018
Record date for dividend: Friday 4 May 2018
Currency election date: Friday 11 May 2018
Payment date: Friday 1 June 2018
Principal risks and uncertainties
The key risks, which will be discussed further including how they are being addressed in Playtech's 2017 Annual Report
(which will be available in the investor relations section of the corporate website), are:
Risks relating to both the Gaming division and Financials division
§ Regulation - licensing requirements
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 requirements Technical Regulatory Requirements
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.
§ Taxation
Given the environment in which the Group operates, the business is exposed to continuously evolving rules and practices
governing the taxation of e-commerce activity in various jurisdictions. It is imperative to ensure compliance with all
relevant tax
§ Economic Environment
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.
§ Mergers and Acquisitions
Playtech has made a number of acquisitions over the years. Such acquisitions may not deliver the expected synergies and/or
benefits and may destroy shareholder value.
§ Key Employees
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.
§ IT Security
The risk of impairment to our operations for example through cyber and distributed denial of service (DDoS) attacks,
technology failure or terrorist attack continues to be one that the Group considers to be significant. System failure could
significantly affect the services offered to our licensees.
§ Regulatory - Data Protection
The requirements of the new EU General Data Protection Regulations (GDPR) will come into force in May 2018. This places
onerous responsibilities on data controllers and processors who have users in the EU regardless of where the data is held
or processed.
§ Regulatory - Preventing Financial Crime
Policymakers in the EU and at national levels have taken steps to strengthen financial crime legislation covering
Anti-Money Laundering (AML), 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.
§ Intellectual Property Rights
The Group's primary commercial activity is as a licensor of gambling software. The Group predominantly owns the
intellectual property (IP) rights in that gambling software, including the IMS which is key to maintaining our competitive
advantage. Any claim that the Group doesn't own its IP (by a licensee or a third party), or any copying of the Group's IP
by a third party, could have a significant effect on revenues. In addition, the Group licenses intellectual property from
third parties, including creation of very successful branded games. Any loss of such IP rights could lead to a decline in
casino revenues.
§ Business Continuity Planning
Loss of revenue, reputational damage or breach of regulatory requirements may occur as a result of a business or location
disruptive event.
Additional risks relating to the Gaming division
§ Regulatory - Responsible Gambling
Responsible gambling is a material concern to society as well as a regulatory priority. Licensing requirements are
regularly updated to ensure that companies in the sector provide a safe environment for consumers. Recent trends have seen
an additional regulatory focus on treating customers fairly and conducting marketing and advertising in a responsible
manner.
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.
§ Trading volume
Low volatility within foreign exchange rates, commodity prices, equity and index prices may reduce profitability.
By order of the Board,
Mor WeizerChief Executive Officer22 February 2018 Andrew Smith Chief Financial Officer22 February 2018
Directors' responsibility statement
We confirm to the best of our knowledge;
§ The Group and Company financial statements, which have been prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation, give a true and fair view of the
assets, liabilities, financial position and profit of the Group and Company; and
§ The Annual Report includes a fair review of the development and performance of the business and the financial position of
the Group and Company, together with a description of the principal risks and uncertainties that they face.
The directors of Playtech plc are listed in the Group's Annual Report and Accounts for the year ended 31 December 2016. A
list of current directors is maintained on Playtech's website, www.playtech.com
By order of the Board,
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
2017 2016
Note Actual Adjusted Actual Adjusted
E'000 *E'000 E'000 *E'000
Revenue 4 807,120 807,120 708,558 708,558
Distribution costs before depreciation and amortisation (412,943) (405,651) (345,934) (340,790)
Administrative expenses before depreciation and amortisation (101,009) (79,373) (70,772) (65,535)
EBITDA 293,168 322,096 291,852 302,233
Depreciation, amortisation and impairment (121,376) (62,577) (107,600) (50,947)
Finance income 7a 145,307 18,927 13,270 13,270
Finance cost 7b (34,207) (23,973) (61,119) (50,485)
Share of profit from joint ventures 13a 464 464 146 146
Share of loss from associates 13b (662) (662) (693) (693)
Impairment of available for sale investments 14 (467) - - -
Profit/(loss) on disposal of investment in associate 13c (725) - 64,459 -
Impairment of investment in associate and other non-current assets (14,887) - - -
Profit before taxation 266,615 254,275 200,315 213,524
Tax expenses 8 (17,505) (21,856) (6,303) (9,652)
Profit for the year 249,110 232,419 194,012 203,872
Other comprehensive income for the year:
Items that may be classified to profit or loss:
Change in fair value of available for sale equity instruments 14 157,809 157,809 (53,868) (53,868)
Exchange (losses)/gains arising on translation of foreign operations (50,766) (50,766) 14,251 14,251
Total items that may be classified to profit or loss 107,043 107,043 (39,617) (39,617)
Total comprehensive income for the year 356,153 339,462 154,395 164,255
Profit for the year attributable to:
Owners of the parent 248,140 231,449 193,030 202,890
Non-controlling interest 970 970 982 982
249,110 232,419 194,012 203,872
Total comprehensive income attributable to:
Owners of the parent 356,914 340,223 153,543 163,403
Non-controlling interest (761) (761) 852 852
356,153 339,462 154,395 164,255
Earnings per share for profit attributable to the owners of the parent during the year:
Basic (cents) 9 78.9 73.6 61.4 64.6
Diluted (cents) 9 74.6 66.8 58.8 58.8
*Adjusted numbers relate to certain non-cash and one-off items including amortisation of intangibles on acquisitions,
professional costs on acquisitions, additional consideration payable for put/call options, one off employee related cost,
finance costs and contingent consideration movement on acquisitions, impairment of available-for-sale investments, deferred
tax on acquisition, non-cash accrued bond interest and additional various non-cash charges. The directors believe that the
adjusted profit measures represent more closely the consistent trading performance of the business. A full reconciliation
between the actual and adjusted results is provided in Note 5.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Additional paid in capital Available for sale reserve 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
E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000
Balance at 1 Jan 2017 627,764 (51,057) 498,864 (25,417) 45,392 (34,341) 16,800 1,078,005 21,714 1,099,719
Changes in equity for the year
Total comprehensive income for the year - 154,274 248,140 - - - (45,500) 356,914 (761) 356,153
Dividend paid - - (104,656) - - - - (104,656) - (104,656)
Exercise of options - - (3,411) 3,773 - - - 362 15 377
Employee stock option scheme - - 14,948 - - - - 14,948 146 15,094
Acquisition of minority interest - - (4,348) - - 3,300 - (1,048) (7,052) (8,100)
Non-controlling interest acquired on business combination - - - - - (252) - (252) 117 (135)
Balance at 31 December 2017 627,764 103,217 649,537 (21,644) 45,392 (31,293) (28,700) 1,344,273 14,179 1,358,452
Balance at 1 Jan 2016 638,209 1,964 592,051 (27,495) 45,392 - 3,266 1,253,387 7,308 1,260,695
Changes in equity for the year
Total comprehensive income for the year - (53,021) 193,030 - - - 13,534 153,543 852 154,395
Dividend paid - - (245,734) - - - - (245,734) - (245,734)
Exercise of options - - (1,937) 2,078 - - - 141 - 141
Employee stock option scheme - - 6,812 - - - - 6,812 128 6,940
Share buy back (10,445) - (39,384) - - - - (49,829) - (49,829)
Acquisition of minority interest - - (5,974) - - - - (5,974) (1,320) (7,294)
Non-controlling interest acquired on business combination - - - - - (34,341) - (34,341) 14,746 (19,595)
Balance at 31 December 2016 627,764 (51,057) 498,864 (25,417) 45,392 (34,341) 16,800 1,078,005 21,714 1,099,719
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
2017 2016
Note E'000 E'000
NON-CURRENT ASSETS
Property, plant and equipment 11 80,016 72,893
Intangible assets 12 1,051,232 1,014,635
Investments in equity accounted associates & joint ventures 13 37,216 39,026
Available for sale investments 14 381,346 230,278
Other non-current assets 15 19,993 26,861
1,569,803 1,383,693
CURRENT ASSETS
Trade receivables 16 107,165 73,744
Other receivables 17 93,322 73,966
Cash and cash equivalents 18 583,957 544,843
784,444 692,553
TOTAL ASSETS 2,354,247 2,076,246
EQUITY
Additional paid in capital 19 627,764 627,764
Available-for-sale reserve 103,217 (51,057)
Employee Benefit Trust 19 (21,644) (25,417)
Convertible bonds option reserve 21 45,392 45,392
Put/Call options reserve (31,293) (34,341)
Foreign exchange reserve (28,700) 16,800
Retained earnings 649,537 498,864
Equity attributable to equity holders of the parent 1,344,273 1,078,005
Non-controlling interest 14,179 21,714
TOTAL EQUITY 1,358,452 1,099,719
NON CURRENT LIABILITIES
Loans and borrowings 20 - 200,000
Convertible bonds 21 276,638 266,230
Deferred revenues 2,457 3,454
Deferred tax liability 24 31,283 40,443
Contingent consideration and redemption liability 22 137,080 204,550
Other non-current liabilities 474 1,627
447,932 716,304
CURRENT LIABILITIES
Loans and borrowings 20 200,000 -
Trade payables 23 61,969 28,171
Progressive operators' jackpots and security deposits 62,675 46,759
Client deposits 71,628 76,229
Client funds 37,074 29,863
Tax liabilities 24,713 11,732
Deferred revenues 5,414 4,456
Contingent consideration 22 20,592 4,577
Other payables 25 63,798 58,436
547,863 260,223
TOTAL EQUITY AND LIABILITIES 2,354,247 2,076,246
The financial information was approved by the Board and authorised for issue on 21 February 2018.
Mor Weizer Andrew Smith
Chief Executive Officer 22 February 2018 Chief Financial Officer22 February 2018
CONSOLIDATED STATEMENT OF CASH FLOWS
2017 2016
Note E'000 E'000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit after tax 249,110 194,012
Adjustments to reconcile net income to net cash provided by operating activities (see below) 69,418 67,085
Income taxes paid (11,876) (9,731)
Net cash provided by operating activities 306,652 251,366
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and deposits advanced (5,064) (9,162)
Acquisition of property, plant and equipment 11 (34,692) (26,224)
Return on investment in joint ventures and associates 13a 1,400 1,844
Acquisition of intangible assets 12 (3,060) (13,019)
Acquisition of subsidiaries (48,276) (240,225)
Cash of subsidiaries on acquisition 1,962 100,244
Capitalised development costs 12 (50,683) (36,176)
Investment in equity-accounted associates 13b,13c (8,067) (1,701)
Return on available-for-sale investments 7a 17,078 11,894
Proceeds from sale of property, plant and equipment 64 145
Acquisition of minority interest (10,827) (7,329)
Net cash used in investing activities (140,165) (219,709)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to the holders of the parent (104,656) (245,734)
Share buy back 19 - (49,829)
Interest paid on convertible bonds and bank borrowing (3,401) (4,594)
Exercise of options 377 141
Net cash used in financing activities (107,680) (300,016)
INCREASE /(DECREASE) IN CASH AND CASH EQUIVALENTS 58,807 (268,359)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 544,843 857,898
Exchange losses on cash and cash equivalents (19,693) (44,696)
CASH AND CASH EQUIVALENTS AT END OF YEAR 583,957 544,843
2017 2016
E'000 E'000
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Income and expenses not affecting operating cash flows:
Depreciation 26,544 20,092
Amortisation 86,987 75,173
Impairment 7,845 12,335
Disposal of intangible asset 2,838 -
Share of profit from joint ventures (464) (146)
Share of loss from associates 662 693
Non- cash transaction 725 (32,272)
Impairment of investment in associates and other non-current assets 14,887 1,586
Changes in fair value of available for sale investments 467 -
Non-cash accrued bond interest 10,234 9,802
Income tax expense 17,505 6,303
Employee stock option plan expenses 15,094 6,940
Movement in contingent consideration and redemption liability (126,379) 832
Return on available for sale investments (17,078) (11,894)
Exchange losses on cash and cash equivalents 19,693 44,696
Other 721 (191)
Changes in operating assets and liabilities:
(Increase)/decrease in trade receivables (33,084) 12,258
Increase in other receivables (13,608) (43,551)
Increase in trade payables 33,637 4,969
Increase/(decrease) in progressive, operators jackpot, security deposits 15,916 (16,582)
Increase/(decrease) in client funds 6,343 (17,512)
Decrease/(increase) in other payables 62 (5,910)
Decrease in deferred revenues (129) (536)
69,418 67,085
Acquisition of subsidiary
2017 2016
Note E'000 E'000
Acquisitions in the year
A. Acquisition of Eyecon Limited 26a 27,735 -
B. Acquisition of ACM Group 26b 4,233 -
C. Other acquisitions 26c 8,582 -
Acquisitions in previous years
A. Acquisition of Playtech BGT Sports Limited 27b 2,001 138,490
B. Acquisition of Consolidated Financial Holdings AS 27d 336 38,927
C. Acquisition of Quickspin AB 27a - 24,461
D. Acquisition of ECM Systems Holdings Ltd 27c 3,077 25,038
E. Acquisition of Yoyo Games Limited - 1,808
F. Other acquisitions 2,312 11,501
48,276 240,225
Non-cash transaction
2017 2016
Note E'000 E'000
Disposal of investment in associates
Fair value of Ladbrokes Coral plc shares received 13c - 44,477
Cost related to the software and services agreement - (5,312)
Disposal of investment in associate 13c (725) (6,893)
Profit/(loss) on disposal of investment in associate (725) 32,272
NOTE 1 - GENERAL
Playtech plc and its subsidiaries (the "Group") develop unified software platforms for the online and land-based gambling
industry, targeting online and land-based operators. Since May 2015 the Group also offered an online trading platform to
retail customers which enabled them to trade CFD (Contracts for Differences) on a variety of instruments which fall under
the general categories of Foreign exchange, Commodities, Equities and indices. In the context of this activity, the Group
acts as a market-maker in a predominantly B2C environment. Following the acquisition of CFH in November 2016, the Group
also provides B2B clients with technology for liquidity and clearing. Playtech's gaming applications - online casino, poker
and other P2P games, bingo, mobile, live gaming, land-based terminal and fixed-odds game 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.
Basis of preparation
The directors consider that the Group has adequate resources to continue in operational existence for the foreseeable
future and that it is therefore appropriate to adopt the going concern basis in preparing its financial statements.
The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31
December 2017 or 31 December 2016. The Annual Report and financial statements for the year ended 31 December 2017 were
approved by the Board of Directors on 21 February 2017 along with this preliminary announcement. The auditor's report on
the statutory accounts for both the year ended 31 December 2017 and 31 December 2016 was unqualified.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the financial information, on a consistent basis, are:
Accounting principles
This financial information has been prepared in accordance with International Financial Reporting Standards, International
Accounting standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB)
as adopted by the European Union ("adopted IFRSs"). In the current year the Group has adopted all of the new and revised
standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee
(IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations and effective for
accounting periods beginning on 1 January 2017. None of these adoptions has had a material impact on the results or
reporting of the Group.
New standards, interpretations and amendments effective from 1 January 2018
There are no new standards, interpretations or amendments which are effective for periods beginning on or before 1 January
2018 which have a material effect on the Group's financial information, including IFRS 15: Revenue from contracts with
customers, and IFRS 9: Financial Instruments, although there may be presentational changes.
IFRS 16 Leases
Adoption of IFRS 16 will result in the group recognising right of use assets and lease liabilities for all contracts that
are, or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the
group does not recognise related assets or liabilities, and instead spreads the lease payments on a straight-line basis
over the lease term, disclosing in its annual financial statements the total commitment.
At 31 December 2017 operating lease commitments amounted to E63.4 million. The effect of discounting those commitments is
anticipated to result in right-of-use assets and lease liabilities of E50.0- E60.0 million being recognised on 1 January
2018.
However, further work still needs to be carried out to determine whether and when extension and termination options are
likely to be exercised, which will result in the actual liability recognised being higher than this.
The Board still considering if it will apply the modified retrospective or the restatement approach in IFRS 16.
Instead of recognising an operating expense for its operating lease payments, the group will instead recognise interest on
its lease liabilities and amortisation on its right-of-use assets. This will increase reported EBITDA which will
approximate to its current operating lease cost, which for the year ended 31 December 2017 was approximately E13.5
million.
Other than as noted, the directors do not expect that any other new standards, interpretations and amendments which are
effective for periods beginning after 1 January 2018 to have a material effect on the Group's future financial information
Basis of consolidation
Where the company has control over an investee it is classified as a subsidiary. The company controls an investee if all
three of the following elements are present: power over the investee; exposure to variable returns from the investee; and
the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and
circumstances indicate that there may be a change in any of these elements of control.
The consolidated financial information presents the results of the Group as if they formed a single entity. Intercompany
transactions and balances between Group companies are therefore eliminated in full.
The consolidated financial information incorporates the results of business combinations using the acquisition method. In
the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the
consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the
date on which control ceases.
Foreign currency
The financial information of the gaming division, which includes the Company and some of its subsidiaries is prepared in
Euros (the functional currency), which is the currency that best reflects the economic substance of the underlying events
and circumstances relevant to the gaming division. Transactions and balances in foreign currencies are converted into Euros
in accordance with the principles set forth by IAS 21 ("The Effects of Changes in Foreign Exchange Rates"). Accordingly,
transactions and balances have been converted into the presentation currency of Euros as follows:
§ Monetary assets and liabilities - at the rate of exchange applicable at the balance sheet date;
§ Income and expense items - at exchange rates applicable as of the date of recognition of those items. Non-monetary items
are converted at the rate of exchange used to convert the related balance sheet items i.e. at the time of the transaction.
Exchange gains and losses from the aforementioned conversion are recognised in the consolidated statement of comprehensive
income.
The financial information of the financial division is prepared in US Dollars (the functional currency), which is the
currency that best reflects the economic substance of the underlying events and circumstances relevant to the financial
division. The transactions and balances are converted into the presentation currency of Euros as follows:
§ Assets and liabilities - at the rate of exchange applicable at the balance sheet date;
§ Income and expense items - at average exchange rates applicable at the period of recognition of those items;
§ Equity- at historic rate.
Exchange gains and losses from the aforementioned conversion are recognised in the foreign exchange reserve.
Revenue recognition
The Group's principal revenue streams and their respective accounting treatments are discussed below:
Royalty income
Royalty income relating 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 and is recognised in the accounting periods in which the gaming transactions occur.
Trading income
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.
Fixed-fee income
Other revenue 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 usage of the service/technology in each accounting period. Income is
recognised over the period of service once the obligations under the contracts have passed. Where amounts are billed and
obligations not met, revenue is deferred.
Fixed-term arrangements
Other income receivable under fixed-term arrangements is recognised as revenue over the term of the agreement on a straight
line basis.
Distribution costs
Distribution costs represent the direct costs of the function of providing services to customers, costs of the development
function and advertising costs.
Share-based payments
Certain employees participate in the Group's share option plans which commenced with effect from 1 December 2005. 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. The share options plan does
not have any performance conditions other than continued service. 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.
Income taxes and deferred taxation
Provision for income taxes is calculated in accordance with the tax legislations and applicable tax rates in force at the
balance sheet date in the countries in which the Group companies are tax registered and for Group branches based on place
where the branch is established.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated
balance sheet differs from its tax base, except for differences arising on:
§ the initial recognition of goodwill;
§ the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit; and
§ investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal
of the difference and it is probable that the difference will not reverse in the foreseeable future.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the
reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets
and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
§ the same taxable Group company; or
§ different Group entities which intend either to settle current tax assets and liabilities 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
assets or liabilities are expected to be settled or recovered.
Dividend distribution
Final dividends are recorded in the Group's financial information in the period in which they are approved by the Group's
shareholders. Interim dividends are recognised when paid.
Property, plant and equipment
Property, plant and equipment comprise computers and gaming machines, buildings and leasehold and buildings improvements,
office furniture and equipment, and motor vehicles and are stated at cost less accumulated depreciation. Carrying amounts
are reviewed on each balance sheet 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 10-20, or over the length of the lease
Motor vehicles 15
Subsequent expenditures are 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 during the financial period in which they are
incurred.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the
consolidated statement of comprehensive income.
Business combinations
The consolidated financial information incorporate the results of business combinations using the purchase method. In the
consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The results of acquired operations are included in the
consolidated statement of comprehensive income from the date on which control is obtained.
Put/Call options
Where a put/call option is entered into over the non-controlling interest the ownership risks and rewards of the shares
relating to the option are analysed to determine whether the equity is attributable to the non-controlling interest or the
parent. The non-controlling interest is recognised if the risks and rewards of ownership of those shares remain with them.
A financial liability is recorded to reflect the option. All subsequent changes to the liability (other than the cash
settlement) are recognised in profit or loss.
Where the significant risks and rewards of ownership remain with the non-controlling interest the non-controlling interest
continues to be recognised and is allocated its share of profits and losses.
Where the significant risks and rewards of ownership reside with the controlling interest, the financial liability
recognised offsets the non-controlling interest.
Investments in subsidiary undertakings
Investments in subsidiary
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