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China price war leads to Playtech profit warning

| By iGB Editorial Team
Playtech sees share price plummet as it is impacted by new rivals in China

Playtech’s share price nosedived this (Monday) morning after the Isle of Man-based company warned that its full-year revenue from Asia is on course to be about €70m (£62m/$82m) lower than expected.

Playtech confirmed in a trading update that average daily revenue in Asia continues to be impacted by an “increasingly competitive backdrop” and cited “a particularly aggressive pricing environment from new entrants” towards the end of the first half of the year.

However, iGamingBusiness.com understands that the arrival of new local and international market entrants in China, which has led to a bruising price war in the country, is the key factor behind the latest announcement, which comes eight months to the day after the company issued its most recent profit warning.

It is understood that the full impact of the price war, which has been unexpectedly sudden, will be felt in the second half of the year, with the outlook in other parts of Asia having remained relatively unchanged for Playtech.

The company has also faced challenges in Malaysia, where its licensees have found themselves under greater scrutiny than ever before due to efforts from the country’s authorities to crack down on illegal gambling.

Playtech, which will announce its financial results for the six months ended June 30 on August 23, said: “If the current run rate in Asia continues unchanged for the remainder of 2018, including no material improvement in Malaysia, Playtech's expected revenue from Asia will be circa €70m lower than original expectations.”

Owing to the “relatively sudden” downturn in Asia and the company’s centralised cost base, the “vast majority” of the revenue loss would drop through to adjusted earnings before interest, tax, depreciation and amortisation, which is projected to be between €320m and €360m in 2018.

By midday on the London Stock Exchange, Playtech’s share price had plummeted by about 28% since the start of the day’s trading.

Chief executive Mor Weizer said: “Clearly the recent trading performance in Asia is disappointing. We have taken steps to further support our partners in the region and we will continue to work to preserve our position in the face of an increasingly competitive environment.”

Playtech did not disclose the level or nature of “support” for its partners in Asia – a line that was also mentioned in its profit warning issued in November – and did not break down the €70 shortfall in expectations into geographical markets.

However, it is understood that the company believes that the latest development – underlining the volatility of operating in unregulated territories – vindicates Playtech’s efforts to increase its focus on regulated markets.

In April, the company confirmed a deal to acquire a controlling stake in Italy-based Snaitech and late last month Playtech secured approval from Italy’s financial watchdog for its mandatory offer for the remaining shares.

In its trading update, Playtech said that it “believes the increased activity due to the Fifa World Cup and general strength in the Italian gaming market is encouraging for the current period”, even though Snaitech is currently a separately-listed company.

Weizer (pictured) added: “In line with our stated strategy, progress in fast-growing, regulated and soon to-be-regulated markets continues apace. Momentum in key regulated markets continued in the first part of 2018 with new agreements with Gala Leisure in the UK, SAS in Portugal and Totalizator, the Polish national lottery.

“Additionally, regulatory developments in the US represent a significant opportunity for the group. The organic growth reported in the non-Asian B2B gaming business combined with the recent acquisition of Snaitech in Italy provides management with confidence that this strategy will materially improve the quality and diversification of Playtech's performance in 2018 and beyond.”

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