Snaitech boosts Playtech revenue but hits profit in H1

Increased B2C revenue resulting from Playtech’s 2018 acquisition of Italy’s Snaitech offset a decline in B2B revenue for the gaming solutions giant in H1, though the deal also resulted in increased depreciation and amortisation and financial costs, which hit profits.

Group revenue for the six months to 30 June 2019 amounted to €736.1m, a 69% year-on-year increase from H1 2018, when the supplier reported revenue of €436.5m. Growth was largely down to increased B2C revenue, which soared 345% to €438.2m.

This was driven by the Snaitech acquisition, which was agreed in April last year, and completed in August. The operator contributed €395.8m in revenue for H1, a significant increase on the €61.3m generated from Playtech’s stake in the business in 2018.

However on a pro forma basis, comparing Snaitech’s figures as if it had been part of the group for the first six months of 2018, revenue was down 11% year-on-year. This was caused by an 18% drop in gaming machine revenue, something Playtech credited to increased gaming taxes, offset by strong online growth. Total online revenue for the period was up 22%.

Elsewhere in Playtech’s B2C division, white label revenue, including Sun Bingo, fell 2% year-on-year to €24.3m. Sun Bingo was the unit’s standout performer, though not by enough to stop other white label brands’ declines hitting revenue. However many of these brands have been consolidated or ceased operating, as part of a ‘housekeeping exercise’ to thin out the number of white label sites.

Financials division TradeTech group also struggled in H1, with revenue falling 25%, while casual gaming remained flat with no improvement in revenue for the period.

However the B2C retail division grew strongly, albeit from a low base. Revenue was up 114% to €9.9m, as a result of the expansion of the Germany-facing HPYBET betting shop franchise.

The Snaitech-driven B2C growth was not matched by Playtech’s core B2B operations, with revenue down 9% year-on-year at €265.5m. The decline was due in part to a 24% drop in casino revenue to €129.8m, offset by growth in B2B sports revenue, which rose 27% to €60.6m.

Casino struggled in H1 as a result of a 42% year-on-year decline in revenue from Asia, though its impact was mitigated slightly by a 9% increase in revenue from regulated markets. Regulated market revenue grew to represent 49% of total casino income, compared to 40% in H1 2018.

Services revenue, meanwhile, grew 12% to €46.2m, aided by the continued growth of OPAP in Greece and Caliente in Mexico and underpinned by increased machine hardware sales. Bingo, on the other hand, was down 10% at €11.8m, with poker declining to €4.3m. As with casino, poker has seen unregulated market revenue fall, dropping 18% in H1, and the regulated market contribution increase. Revenue from licensed jurisdictions now accounts for 71% of the vertical’s total.

Playtech’s significant growth in size and scale prompted by the Snaitech deal contributed to a sharp increase in distribution costs, which almost doubled to €492.8m, and administrative expenses, which grew to €78.9m.

A further charge of €4.6m relating to the impairment of other receivables, which left earnings before interest, tax, depreciation and amortisation of €159.8m, up 32.7% year-on-year.

However Playtech was then hit by significantly increased depreciation and amortisation, as a result of the acquisition of Snaitech. Depreciation increased by 52% to €24.9m, of which €8.8m was incurred through Snaitech. Excluding acquired assets, underlying depreciation increased by 6%.

Amortisation shot up 89% to €83.6m, due to the acquisition of Snaitech and a €10.5m impact from adopting the International Financial Reporting Standard 16. Excluding the amortisation within acquisitions, amortisation increased by 32% to €25.7 million.

Finance costs, meanwhile, increased 36% to €27.4m on a reported basis. On an adjusted basis this rise was even steeper, up 237% from the prior year, driven by a €12.5m rise in interest related to bond loans, including €10.5m on the €530.0m bond raised in October 2018.

Though a 43% increase in finance income to €8.9m offset this in part, it saw Playtech’s operating profit for the half plummet to €28.0m, compared to €124.2m for the prior year. After income taxes, Playtech’s net profit for the period stood at €18.0m, down from €118.0m, though the business did record a foreign exchange gain of €2.2m, taking total income for the period to €20.2m.

Had numbers been adjusted to strip out non-cash and one-off items such as amortisation of intangibles, professional and finance costs, deferred tax and unrealised fair value changes, profit for the quarter would have been €72.0m.

Playtech’s directors noted that this figure, representing a 19.0% year-on-year decline, more closely represented Playtech’s trading performance for the period.

In current trading, regulated B2B revenue, excluding acquisitions and the impact of increased Remote Gaming Duty in the UK, was up 4% for the first 51 days of H2 2019. Snaitech, it said, had shown strong underlying growth, and had not yet been impacted by the Italian advertising ban.

As a result, and based on the H1 figures, Playtech has reiterated its adjusted EBITDA projection for the year of between €390m and €415m, and expected B2B and Snaitech to perform well for the remainder of 2019. However, it added, Asia would continue to struggle – at the current run rate, the region is expected to contribute €115m in annual revenue, down from the €150m projection issued earlier in the year.