Playtech Regulatory News (PTEC)

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 summary1,2

Group highlights

·; Core B2B Gambling7 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:

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

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 basis2, 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 Summary3

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:

B2B Gambling

\* 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

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

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

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:

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:

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

*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

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2019

The financial information was approved by the Board and authorised for issue on 26 February 2020.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

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.

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.

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:

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.

Set out below, are the carrying amount of the Group's right of use assets and lease liability and the movement during the year:

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.

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 

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).