Playtech sees ‘viable’ future in Asia despite profit slump

23 August 2018

Playtech CEO Mor Weizer insisted this (Thursday) morning that Asia remains a “commercially viable and attractive market” for the company despite a surge in competition across the continent having led to a fall in profit for the first half of 2018.

Playtech’s adjusted net profit on a constant currency basis slumped by 38% year-on-year to €83.3m (£75m/$96m) from €125.5m and earnings before interest and deductions fell by 13% to €145m from €170.9m.

Playtech sources told iGamingBusiness.com at the start of July that a price war in China was the primary reason behind the Isle of Man-based company issuing a profit warning, and although Weizer said today that the outlook in Asia had “stabilised” since then, the impact of the region’s competitive environment on the company’s bottom line was clear.

Total sales excluding Asia were up 35% on a reported basis, but with Asia included in overall revenue figures, a modest 6% increase was registered to €436.5m from €421.6m. Additionally, whilst the B2B Gaming Division’s average daily revenue for the first 52 days of the third quarter was down 13%, excluding Asia would have led to the division posting a 6% increase.

“Asia is not going to disappear,” said Weizer, who highlighted the content provider-led structure of the region as having presented a unique challenge to the company.

“It is still a growing market; perhaps not at the levels of previous years, but still in the high single digits, I have been told. However, a year ago there were only five companies operating in the market and now there are 30-plus.”

Weizer said that Playtech would maintain its pricing structure in Asia whilst focusing on premium services as the company’s management does not believe the pricing models adopted by some competitors in the region are sustainable.

Weizer added in an earnings call that low barriers to entry in Asia and a “very price sensitive” environment had led to headwinds, with an influx of newcomers introducing a “highly competitive pricing environment”.

“As the market has developed it has become increasingly competitive at an operator level, but also at a content provider level," he said. "Things have stabilised broadly in Asia and we don't see as many coming into market now.”

Playtech chairman Alan Jackson acknowledged “disappointing” market conditions in Asia, but added that they are “not reflective of the core strength of the Playtech model as the regulated segment continues to report organic growth and encouraging momentum”.

Jackson added that Playtech’s increasing focus on regulated markets – leading to a rise in the proportion of the group’s regulated revenue from 50% to 69% year-on-year – had represented “progress”. Regulated revenue at the current run rate is expected to be at between 80% and 90% for the full year.

Weizer said: “Playtech has identified key markets in Europe and Latin America which have the potential to increase their online penetration of gaming revenue and where Playtech's regulated markets focused capabilities have an advantage. These markets are the focus for increasing Playtech's scale and distribution through signing new licensees.

“Looking towards 2019, licensing regimes are expected to be introduced in major European countries including the Netherlands, Sweden, Switzerland and some commentators expect significant steps forward in Germany.

“Playtech already has an agreement in place with national operator Holland Casino in the Netherlands and remains in discussions with potential customers in others.”

Weizer added that Playtech would continue to consider “small-size, bolt-on acquisitions” after finalising a $1bn takeover of Snaitech earlier this month.

Referring to Snaitech, he also believes that Italy’s biggest sports betting firm’s position in the market will be strengthened following the country’s ban on gambling advertising, which is expected to hurt smaller players who are less well established.

Analysts at Regulus Partners reacted to Playtech’s financial update by saying: “In a more complex, mobile-first, increasingly regulated and disaggregated world, the extent to which Playtech can continue to adapt and thrive, especially at the margin level, remains to be seen in our view, with Snaitech adding significant legacy and regulatory risks, as well as scale and diversification.”

Earlier this week, Playtech confirmed the appointment of Ian Penrose as a non-executive director amid reports that he has been lined up to take over as chairman.

Playtech’s share price on the London Stock Exchange improved by nearly 10% this morning before settling back to a 3.5% rise by midday.