Playtech suspends buyback and dividend as sports betting crumbles
By Josh White
Date: Thursday 19 Mar 2020
(Sharecast News) - Gambling software company Playtech updated the market on the impact of the Covid-19 coronavirus pandemic on Thursday morning, explaining that given the "uncertainty and rapidly changing nature" of the situation, it was working to protect its cash flow by proactively managing its capital expenditure and working capital, as well as identifying opportunities for cost savings that would not impact its long-term success.
The FTSE 250 firm said its casino business, including 'Live', had seen limited impact at the current point, although it was continually monitoring the situation.
Its poker and bingo businesses had seen increases in activity in recent days, following the restrictions on physical movement put in place by various governments.
The company said it believed there was a risk that player behaviour could change, however, the longer the Covid-19 situation continues.
Playtech explained that Live Casino was a business that required a "significant" number of employees working in the same location, and had the potential to be disrupted as the Covid-19 situation continued.
"Playtech's facility in the Philippines has been closed with traffic being redirected to other facilities," the board said in its statement.
"While its facilities in Riga and other locations currently remain operational, there is a risk that these facilities will need to close in the future.
"Playtech has contingency plans in place for this business should this occur."
The company's B2B sport business was being significantly impacted by the postponement of most major sporting events and competitions globally, the company added.
It said that business was primarily retail focused, through self-service betting terminals (SSBTs), with its biggest markets being the UK and Greece.
Before the impact of Covid-19, the business was expected to contribute about 10% of Playtech's adjusted EBITDA in 2020.
"While there are a lack of sporting events and retail locations are severely impacted either through closures or social distancing measures, Playtech estimates this business will generate a loss of €4m of adjusted EBITDA per month before mitigation."
In its B2C gambling operations, following the closure of all Snaitech retail locations as announced on 9 March, the business had been further impacted by the postponement of most sporting events and competitions globally.
Playtech said Snaitech was continuing to generate revenues from its online business, albeit with online betting being impacted by the lack of sporting events.
"Snaitech operates almost exclusively a franchise model with a low fixed cost base.
"Its underlying cost base is lower than it appears from its income statement as it recognises pass-through revenues and then distribution costs that are revenue share payments to franchisees.
"While Snaitech continues to lose significant revenue from retail closures and the lack of sporting events, given the low fixed costs in this business and the revenues being generated from online, Snaitech is currently expected to generate a loss of only €3m of adjusted EBITDA per month before mitigating actions."
Before the impact of Covid-19, Snaitech was expected to generate an average profit of more than €13m adjusted EBITDA per month.
Playtech said its white label business, primarily Sun Bingo, had seen a "solid" performance so far in 2020.
Its retail B2C sport business HPYBET was being impacted, as its retail locations in Germany and Austria were closed.
The company said it expected the business to generate a loss of €0.5m adjusted EBITDA per month while shops remained closed, and there was a lack of sporting events taking place.
In Asia, Playtech said its revenue for March was expected to be at the same level as February at €7m, as it reported in its full-year results on 27 February.
The firm's TradeTech operation was continuing to benefit from the recent increase in market volatility, and had generated adjusted EBITDA of more than €30m so far in 2020.
"While this performance already exceeds Playtech's 2020 financial year expectations for this business, there is no certainty that market conditions will continue to remain as favourable as they have been so far in 2020."
Looking at its balance sheet, Playtech said that given the current circumstances, its board had determined that it was appropriate to maximise liquidity within the firm, and so was suspending shareholder distributions until further notice.
The share repurchase programme announced at the 2019 results had been postponed with immediate effect.
About €10m of the €40m share repurchase programme had been completed to date.
The 2019 final dividend of 12 euro cents would not be proposed at the annual general meeting scheduled for 20 May, with the board noting that together, the measures would save it more than €65m of cash outflows.
Playtech said it had a 3x net debt-to-adjusted EBITDA covenant and a 4x adjusted EBITDA-to-interest cover covenant in its revolving credit facility, alongside a 2x adjusted EBITDA-to-interest cover covenant in its bonds.
As at 31 December, it had €672m of gross cash on its balance sheet and €333m when adjusted for client funds and progressive jackpots.
In addition, it said it had a further €250m available under its revolving credit facility, with another €50m cash expected in the second quarter from the previously agreed sale of surplus Snaitech land in Italy.
"Playtech continues to monitor the situation closely and will provide further updates as appropriate."
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