Despite Warnings, Playtech’s Struggles May Seem Worse Than They Really Are

Published August 31, 2018 by Lee R

Despite Warnings, Playtech’s Struggles May Seem Worse Than They Really Are

Are the recent hiccups at Playtech true causes of concern, or do they have logical explanations?

Playtech has hit a rough patch, and it’s worth examining the numbers to distinguish between short term, mid term, and long term prognostication. 

The Profit Warnings

The trouble comes in the form of two ominous profit warning issued to shareholders over the last ten months, a period in which shares fell 47 per cent from an initial warning last November which precipitated poor trading in Asia and was followed by a second warning last month.

Lukewarm Interim

One of the world’s largest gaming suppliers also posted some curious interim results, jumping from €421.6 million last year showing revenue to €436.5 million with adjusted net profit down over a third to €83.3 million, down from €125.5 million year-on-year from 2017.

Short Term Losses

A revenue increase of 6% to €436.5 million belied much greater losses due to the Asian underperformances, where last year’s Asian performance plugged into this year’s numbers would have revealed a 35% rise in revenues.  

Salary Concern

Apart from those profit warnings, shareholders are unhappy with a recent 17% pay rise for Chairman Alan Jackson from £384,000 to his new annual salary of £450,000 in a time in which the company is experiencing precipitous profit drops.

Playtech Explains

The company justified the pay raise by looking longer term, pointing that the raise is the first for Mr. Jackson since 2013 and ultimately equates to a 4% annual pay rise during a time in which the company has grow and expanded significantly overall.

Problems in Asia

The main problem in Asia impacting Playtech’s numbers and precipitating the profit warnings are the developments in Asia.

The organisation’s leader spoke directly of the situation, acknowledging that Playtech’s overall progress is “marked against the disappointing market conditions in Asia.”

The Malaysia Factor

In that market, Playtech reported the activity to be significantly lower than its full 2016.  

The China Factor

The problem in China stems from new market entries offering favorable pricing to compete, with Playtech choosing to reinvest in its product rather than cut costs to what it sees as unsustainable levels offered from the competition.

Outlook

The implication of Playtech’s explanations is that the market and the performance will level back out in Playtech’s favor by offering superior product at fair market price.

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