Earnings Release • Feb 21, 2019
Earnings Release
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National Storage Mechanism | Additional information You don't have Javascript enabled. For full functionality this page requires javascript to be enabled. RNS Number : 7145Q Playtech PLC 21 February 2019 Playtech plc ("Playtech," or the "Company," or the "Group") Results for the year ended 31 December 2018 Strategic and operational progress in regulated markets together with significant improvement in balance sheet efficiency Reallocation of distributions to shareholders with €40m share buyback Playtech (LSE: PTEC) today announces its results for the year ended 31 December 2018, together with a trading update for the period to 18 February 2019. Financial summary FY 2018 FY 2017 Change (reported) Change (const. currency)3 Revenue €1,240.4m €807.1m 54% 55% Adjusted EBITDA1 €343.0m €322.1m 7% 7% Adjusted Net Profit2 €256.2m €231.4m 11% 6% Reported Net Profit2 €123.8m €248.1m -50% -50% Adjusted diluted EPS 72.9 €c 66.8 €c 20% 16% Total dividend per share4 24.1 €c 36.0 €c -33% NA Group financial highlights § Evolving financial profile; improved quality of earnings - B2B regulated Gaming revenue growth of 12% at constant currency - Proportion of regulated revenue increased to above 80% in FY 2018; 54% in FY 2017 § Completion of Snaitech acquisition; consolidated from 5 June; 100% owned from 3 August - Leading brand, delivers a cornerstone presence in Europe's largest regulated market - Very strong H2 2018 operational performance; synergy targets reaffirmed § Adjusted EBITDA growth of 7% at constant currency as Snaitech acquisition offsets Asia decline § Excluding acquisitions, B2B Gaming cost from operations reduced by €17m in 2018 - Combined with revenue growth led to significant margin expansion in B2B non-Asia - B2B non-Asia gaming margin expected to increase to over 30% in medium term § Net cash from operations up 26% at €387m Balance sheet § Significant progress on balance sheet efficiency - Net debt / EBITDA of 1.5x at 31 December 2018 - €530m bond raised, first public credit rating (Ba2/BB) - Sale of holdings in GVC & Plus500 realised €447m in cash - €200m RCF repaid, new undrawn €272m facility § Reallocation of distributions to shareholders and launch of share buyback programme - In order to maximise efficiency of shareholder returns, and following shareholder feedback, the Group is to reallocate part of its payout into share repurchases - Shareholder distributions will be balanced between dividends and share repurchases - It is the Board's intention that the overall level of capital returned to shareholders will continue to be progressive, in line with medium term earnings - Share buyback programme approved by Board up to an initial amount of €40m via an irrevocable, non-discretionary arrangement with its corporate brokers, Goodbody and UBS - Final dividend declared of 12.0 €c per share Strategic update § Playtech will continue to deliver best in class technology to existing licensees § Significant R&D investment in recent years has furthered our leading technology allowing current and prospective licensees faster and cheaper time to market § Playtech will continue to focus on growing its relationship with existing clients by expanding into new geographies and/or additional products § Going forward we will increasingly focus on high margin structured agreements where market dynamics allow Operational highlights · B2B Gaming Division - Growth in regulated B2B Gaming revenue of 12% at constant currency - Playtech BGT Sports continues strong performance § 14% growth in revenue at constant currency - New wins in key markets § Buzz Bingo UK omni-channel deal; signed in H1 2018, live in H2 2018 § Polish National Lottery Totalizator signed for Casino in H1 2018, live in H2 2018 § PBS signed SAS in Portugal and Sportium in Columbia § Existing Fortuna relationship expanded to further countries and products § Sweden regulated on 1 January 2019 - Playtech customers launched in market on Day 1 § Agreement with Swiss Casinos to launch in recently regulated Switzerland - Pipeline strong across key geographies - Applied for license in New Jersey; opportunities across the US · B2C Gaming Division - Snaitech consolidated from 5 June 2018 - Snaitech FY 2018 (12 months) adjusted EBITDA growth of 14% driven by 27% growth in online revenues - Sun Bingo 44% revenue growth at constant currency - Amended Sun Bingo contract extended for up to 15 years; joint commercial collaboration with no further minimum guarantees from mid-2021; contract expected to be P&L profitable in 2019 · TradeTech Group - 9% revenue growth to €92.9m and 9% Adjusted EBITDA growth to €29.5m - Mixed performance across 2018 with strong H1 and tougher conditions across the industry in H2 Current trading · Regulated B2B Gaming revenue for the first 49 days of 2019 was up 7% on the same period in 2018 at constant currency and excluding acquisitions and one-offs · Non-regulated B2B Gaming revenue for the first 49 days of 2019 was down 26% on the same period in 2018 at constant currency and excluding acquisitions · Snaitech has had a strong start to 2019 with the underlying business trends in line with our expectations albeit impacted by the recent negative legislative headwinds · TradeTech has started 2019 in line with management expectations Outlook · Playtech expects 2019 Adjusted EBITDA in range of €390 to €415m · Guidance reflects following assumptions: - c. €20m positive impact from IFRS 16 adopted as of 1 January 2019 - Sun Bingo to have positive EBITDA contribution in 2019 (from loss making in 2018) - assumption that Asia remains stable at approximately €150m annual revenue run rate Alan Jackson, Chairman of Playtech, commented: "In the face of changing market dynamics Playtech achieved significant strategic and operational progress in 2018 delivering a markedly improved financial profile. The Group achieved new licensee wins in key regulated markets, the UK, Europe and Latin America. The combination of progress in regulated markets and headwinds in unregulated activity saw regulated Group revenue increase to over 80%. "The acquisition of Snaitech and the ongoing strong performance of this business has delivered geographical diversification of the Group's revenue profile, but more importantly delivered a leading presence in the largest, and one of the fastest growing gambling markets in Europe. "Following shareholder engagement, I am pleased to announce our new progressive shareholder return policy. The strength of the balance sheet and cash flows allow the Board to demonstrate its confidence in the future growth of the business through both a share buyback programme and a final recommended dividend." - Ends - For further information contact: Playtech plc Mor Weizer, Chief Executive Officer Andrew Smith, Chief Financial Officer c/o Headland Chris McGinnis, Director of Investor Relations and Strategic Analysis James Newman, Director of Corporate Affairs +44 (0) 20 38054822 +44 (0)1624 645954 Headland (PR adviser to Playtech) Lucy Legh, Stephen Malthouse +44 (0) 20 38054822 1 Adjusted numbers relate to certain non-cash and one-off items including amortisation of intangibles on acquisitions, professional costs on acquisitions, finance costs on acquisitions, deferred tax on acquisitions, unrealised changes in fair value of equity investments recognised in the period income statement, non-cash accrued bond interest and additional various non-cash charges. The Directors believe that the adjusted profit, which includes realised fair value changes recognised in the income statement in the period on equity investments disposed of in the period, represents more closely the consistent trading performance of the business. A full reconciliation between the actual and adjusted results is provided in Note 4. 2 Attributable to the owners 3 Constant currency numbers exclude the exchange rate impact on the results by using previous period relevant exchange rate and exclude the total cost/income of exchange rate differences recognised in the period 4 Reduction in final dividend reflects rebalancing of shareholder distribution between dividend and buyback Presentation and live webcast A presentation for analysts and investors will be held today at 9.00 am in the offices of UBS, 5 Broadgate, London, EC2M 2QS. The presentation will be webcast live and on demand at the following website: https://www.investis-live.com/playtech/5c405c19cad1ac0c0068a12e/owmr The presentation will also be accessible via a live conference call or video link: Dial-in no for UK: 020 3936 2999 Dial-in for all other locations: +44 20 3936 2999 Conference password: 525495 There will also be a replay available for one week: Dial-in no for UK: 020 3936 3001 Dial-in no for US: 1 845 709 8569 Dial-in no for all other locations: + 44 20 3936 3001 Conference reference number: 401407 Forward looking statements This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements. Any forward-looking statements in this announcement reflect Playtech's view with respect to future events as at the date of this announcement. Save as required by law or by the Listing Rules of the UK Listing Authority, Playtech undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement. About Playtech Founded in 1999 and premium listed on the Main Market of the London Stock Exchange, Playtech is a technology leader in the gambling and financial trading industries. Playtech is the gambling industry's leading technology company delivering business intelligence driven gambling software, services, content and platform technology across the industry's most popular product verticals, including, casino, live casino, sports betting, virtual sports, bingo and poker. It is the pioneer of omni-channel gambling technology through its integrated platform technology, Playtech ONE. Playtech ONE delivers data driven marketing expertise, single wallet functionality, CRM and responsible gambling solutions across one single platform across product verticals and across retail and online. Playtech partners with and invests in the leading brands in regulated and newly regulated markets to deliver its data driven gambling technology across the retail and online value chain. Playtech provides its technology on a B2B basis to the industry's leading retail and online operators, land-based casino groups and government sponsored entities such as lotteries. As of June 2018, through the acquisition of Snaitech, Playtech directly owns and operates a leading sports betting and gaming brand in online and retail in Italy, Snai. Playtech's Financials Division, named TradeTech Group, is a technology leader in the CFD and financial trading industry and operates both on a B2C and B2B basis. Playtech has in total c.5,800 employees across 17 countries and is headquartered in the Isle of Man. Chairman's statement This has been an extremely important year in the growth and development of Playtech. The year has produced many challenges for Playtech and the industries we operate in, making our achievements this year all the more critical to our longer-term success. Playtech has continued to improve its quality of earnings, has delivered strategic progress in fast growing markets, has an improved financial profile and continued to develop its corporate governance through the evolution of the Board. This progress lays the foundations for long term, sustainable growth and shareholder value in 2019 and beyond. Notwithstanding challenges to the market in Asia and regulatory headwinds in the UK and Italy, Playtech reported a 54% increase in Group revenue and a 7% increase in Group Adjusted EBITDA. The landmark acquisition of Snaitech, completed in June 2018, delivered the Board's strategic objective to improve the quality and diversification of Group revenue, whilst delivering exposure to high growth end markets and was a key part of achieving this growth. The sustained move from unregulated to regulated revenue has delivered an improved investment profile for the Group with more than 80% of Group revenue now derived from regulated activity. Revenue in regulated B2B markets grew by 12% at constant currency in 2018. Operational progress in new and existing regulated markets is a testament to Playtech's strength in regulation and compliance in the gambling industry, as well as its commercial capabilities. During 2018 Playtech further strengthened its position in the UK, launching a new omni-channel brand to the market and launched in the European growth markets of Poland and Switzerland. Playtech also partnered with leading retail brands to deliver their first online casino offerings as well as working with existing licensees in Sweden following new regulation. In Latin America, Playtech continued to execute on its strategic advantage in the region by signing a new agreement with Sportium Colombia to provide its sportsbook technology across the retail and online environments. This progress lays the foundations for future growth in the core B2B Playtech business. An important part of the Group's improved profile in 2018 has been our progress in delivering a more efficient balance sheet. Following the realisation of value from the sales of the GVC and Plus500 stakes, in October the Company completed the issuance of its first public rated corporate bond, raising €530 million to refinance the Snaitech acquisition, achieving interest cost savings and greater flexibility and efficiency for the Group's balance sheet. The progress on balance sheet efficiency and sustained fiscal control coupled with the Group's continued high levels of cash generation has allowed the Board to introduce greater balance and flexibility into its shareholder return policy by transitioning to a balance of dividends and share buy backs. Following shareholder engagement the Board believes it is in the interest of all shareholders to reallocate part of our capital returns into share buybacks. Following the adoption of the policy the Board has approved an initial share buyback programme of up to €40 million and a final dividend of 12.0 €c per share. Central to Playtech's progress and growth has been a track record of open and constructive dialogue with its shareholders and 2018 has seen the Board continue high levels of engagement to continue important progress on Corporate Governance. To meet the changing demands of the Company the Board has also evolved significantly in that time and has played an important role in shepherding the Company through its rapid change. As part of this ongoing progress it was announced in July 2018 that Susan Ball would join the Board and Chair the Audit Committee. Susan brings experience of the European online gambling space having previously been on the board of Kambi Group plc and before that having served as CFO of Unibet Group plc. Further to the appointment of Susan, in August 2018 former Sportech PLC CEO Ian Penrose joined the Board and has taken over as Chair of the Remuneration Committee, a role in which he has conducted high levels of shareholder engagement. Ian brings deep sector experience having led a strategic repositioning and business turn around at Sportech PLC. Susan's and Ian's appointments represent two important steps forward for the Board in 2018 and the Board is continuing to look to add high quality non-executives in 2019 to match the Company's needs, with the support of a professional search firm. Looking ahead into 2019, Playtech is able to present ever greater opportunities to all stakeholders, providing a platform for further progress in 2019 and beyond. Chief Executive Officer's review Strategy update Playtech has conducted a thorough review of its position in the industry over the last six months. It is clear that Playtech has achieved significant growth in recent years, thereby extending our scale. The company believes it has an unparalleled set of assets within the industry. Playtech has delivered this by balancing operating in regulated and unregulated markets, using the cash generated from the higher margin unregulated business to extend its lead by investing in its technology and through M&A, while also returning significant amounts to shareholders. Playtech and the industry as a whole has been in transition. As further jurisdictions regulate, operators and suppliers have had to adjust to higher taxation and greater oversight and legislation. In addition, the increase in the number of regulated territories, has also led to more competition across the industry. Playtech believes that a balance between regulated and unregulated markets is still needed as unregulated markets remain high margin and highly cash generative. Playtech believes it is essential to have a cornerstone presence in three or more regulated jurisdictions to diversify its risks, particularly from a regulatory perspective. Playtech has achieved this diversification through the strength of its B2B business in the UK, its unique position in Italy with Snaitech and through the success of its agreement with Caliente in Latin America. Looking at the entirety of the group, Playtech has a four-pronged business: · Core B2B · Core B2C · Asia · TradeTech Core B2B: While Playtech's B2B business has a very strong set of assets, the company must also adjust to the evolving industry landscape. In particular the company believes that a significant portion of its addressable market is untapped. The core strategy of Playtech's B2B gaming business is to focus on higher margin regulated opportunities with Sports, Casino and Live Casino being of greatest importance. Playtech will continue to support existing licensees with better tools and new technologies to provide them with greater flexibility in running their businesses. Playtech intends to focus on higher margin opportunities going forward, which includes new customers in both existing regulated markets and newly regulated markets, through structured agreements and wherever market dynamics allow. Playtech will also focus on unchartered territories going forward. It estimates that there are over 1,000 sites globally today that do not take a single Playtech game. The group has invested significantly in R&D in recent years to enhance its leading technology, allowing a faster and cheaper time to market for its licensees. This investment, and resulting benefit, will be essential for tapping into these unchartered markets. Core B2C: Playtech's core B2C business comprises primarily of Snaitech in Italy but also its Sun Bingo operation, its Casual gaming business and the HPYBET B2C sport business in Germany and Austria. Playtech will continue to focus on selected B2C opportunities globally, while maintaining a strong focus on Snaitech and its business in Italy. Asia: Playtech's B2B gaming business in Asia is different and isolated from the rest of the company. It operates a different business model whereby it provides only content to the market. As an unregulated business it is also higher margin and more highly cash generative compared to other parts of the Group. The cash generated from this business will continue to be used to cement its position in regulated markets as well as returns to shareholders. Tradetech: Playtech continues to believe that TradeTech is a highly attractive asset. It is a growth business that contributes to the overall EBITDA of the group. However, the Group recognizes it is less understood by many of our investors, who are more focused on the gaming part of the business. In addition, it has a different business model to other CFD firms, as TradeTech operates as both a B2B and B2C business. Regulated markets & future markets In 2018 regulated revenue increased to 78% of total gaming revenue. The increase in regulated revenue is a result of the continued progress the Company has made on the strategic goals outlined above as well as the acquisition of Snaitech in 2018. Playtech continues to lead the way in regulated markets and actively promotes regulation in future and emerging markets. Regulated markets in Europe, Latin America and the US are key to our continued growth. The company is focused on raising industry standards and enabling a fairer, safer and more sustainable sector, where Playtech's regulated markets focused capabilities have an advantage. The company intends to increase its scale and distribution in these markets by signing new licensees. Europe: The UK is another key market for Playtech, where the strength of Playtech ONE provides it with a strategic advantage and a cornerstone presence. The Company's extended agreement with Gala Leisure, to launch a new omni-channel gaming brand across bingo and casino, confirms Playtech's market-leading position as the technology partner of choice in the UK. Playtech has become a strategic partner to Gala Leisure and launched a full omni-channel solution in 2018, including best of breed retail products fully integrated with industry leading digital content and solutions. Regulated markets in Europe represent significant growth opportunities. For example, Playtech launched in the Swedish market on 1 January 2019 and was one of the first technology companies to launch industry leading brands following the regulatory changes which came into effect at the start of 2019. Playtech is partnering with leading betting platforms to bring its industry-leading products to Sweden. In addition, Playtech's Swedish specialist content studio Quickspin launched 30 of its most popular titles on the first day of regulation on 1 January 2019. Playtech's leadership position in Europe was further reinforced in H2 2018 with the launch of its shared liquidity poker network in France and Spain. Partnering with Betclic and Unibet in France, and Bet365, Betfair, Casino Barcelona and Sportium in Spain, Playtech's network has become the first B2B poker network across the two territories, which represent major regulated poker markets. The network significantly boosts marketing and revenue potential for operators across France and Spain, through larger-scale cross-territory network partnerships and promotions. It will also significantly expand on the offering for players in both markets, with greater guaranteed prize pools and an increased array of cash game tables. This marks the introduction of the first B2B Poker network since the industry-wide shared liquidity agreement across France, Spain, Italy and Portugal last year and highlights Playtech's continued strength in regulated markets. The landmark acquisition of Snaitech, completed in June, provided the company with a cornerstone strategic presence in one of Europe's fastest growing and largest regulated gambling markets. By using its proven omni-channel technology and industry-leading regulated market software, Playtech believes there is a significant opportunity to leverage the strength of the Snai brand in Italy, growing its digital presence and driving cross-sell between retail and online in a fragmented and underdeveloped online market. Playtech secured new agreements in key markets with strategically important licensees in Poland and Portugal. In Poland, Playtech was selected by Totalizator Sportowy, the Polish National Lottery provider, to launch its first online Casino offering. In Portugal the Sports division won a landmark agreement to power the country's leading operator SAS's new online sportsbook, with Casino to follow in 2019. Latin America: Latin America remains a key growth territory for online gaming. Mexico is now one of Playtech's top five regulated markets by player jurisdiction (since FY 2017). This is following the growth of licensee Caliente, which during 2018 extended its relationship with Playtech by integrating the Playtech BGT Sports sportsbook into its existing Playtech Casino offering. Also, in the region, and again driven by progress in Sports, Playtech launched an integrated sportsbook across retail and online environments for Sportium. Looking forward, we continue to see positive momentum in the region and are optimistic about opportunities, particularly in Brazil, Argentina and Peru. In 2018, Brazil took an important step towards regulating online gambling and sports betting. Meanwhile in Argentina, Buenos Aires has recently legalised online sports gambling and lottery and Peru is also exploring proposals to regulate online sports betting and casino games. The strength of Playtech's operations in Latin America positions the company well, with these potential markets representing significant opportunities in the future. US: Playtech has applied for a license in the State of New Jersey and is actively considering licensing opportunities and forming strategic alliances across the country. Playtech has strategic optionality within its technology stack in order to go into joint ventures, partnerships and B2B deals with land-based casino groups, media groups and existing international clients. Asia Competition in China increased in 2018 from new market entrants, resulting in downgrades to expectations announced to the market in July. Activity in Malaysia, highlighted as a headwind due to a change in market conditions, continues to be significantly lower than its previous highs. In Asia, Playtech functions out of a base in the Philippines and is licensed as a B2B service provider under the Philippine regulator, PAGCOR. Playtech works directly with large global B2C operators that it works with in other jurisdictions, but the vast majority of activity in Asia is conducted through Playtech's third-party distributor in order to access the fragmented market. The increase in competition in China has resulted in a highly competitive pricing environment. Playtech has taken the decision not to seek to compete on pricing and instead has focused on underlining the premium position of its offering in the region. Increased competition in the region is likely to remain, and accordingly Playtech has taken several actions to secure its position in the market. These actions include appointing a new Managing Director for Asia who has responsibility for Playtech's operations in the region, including managing relationships with operators and distributors. The company has also launched multiple new games, focusing on branded content and has increased the support given to its partners in the region to enable them to offer progressive jackpots, another key Playtech strength. In addition to this, Playtech has participated in promotions and provided incentive schemes to sub licensees to support their efforts in promoting Playtech content. Playtech continues to monitor developments in Asia closely and, at its current run rate, still sees commercial benefits to operating in the region. While operating at a lower run rate than before, Playtech's Asia business remains high margin and highly cash generative. This cash will continue to be used to execute our strategy in regulated markets as well as for returns to shareholders. Playtech's IMS platform Playtech's Information Management Service (IMS) platform is one of the industry's most powerful player management systems, driving the industry's pioneering omni-channel technology. Playtech is committed to continuing to expand the data driven capabilities of Playtech's IMS to retain its position as the leading technology provider in the gambling industry. The first half of 2018 saw Playtech introduce 'Smart Limits' to the data driven services within the Playtech BI (Business Intelligence) tools available on its platform. The industry standard in gaming is to have rigid predetermined game value limits. Playtech's BI has introduced a system that derives the optimal limits for the specific player, on a specific game, from multiple data parameters and inputs, including player history, current balance and bonuses active. This is a further innovation in Playtech's ability to deliver a fully bespoke customer journey, across channels and product verticals driven by the powerful data captured across the Playtech ONE eco-system. In 2018 Playtech also launched its new player engagement platform as the next phase of IMS development. The new engagement platform will allow B2C brands to respond to user data in real-time with cross vertical in-game live messaging across multiple offline channels. This project was completed in conjunction with the new UK Competition and Markets Authority requirements around bonus communication and continues Playtech's commitment to deliver technology in line with, and ahead of, regulation. Responsible gambling Regulators across Europe, including the UK, Italy, Spain and Denmark, continue to strengthen consumer protection and safer gambling regulations. Playtech welcomes sensible policies designed to support the long-term success of the sector whilst also creating a safer, fairer and more responsible industry. Playtech is well positioned to help licensees navigate the continually evolving regulatory landscape around responsible gambling in online and retail markets. Playtech also continues to strengthen its responsible gambling technology offerings. Following the integration of BetBuddy to IMS in the first half of 2018, the solution is now being deployed to its first licensees, including Buzz Bingo. The combination of BetBuddy's applied artificial intelligence to assess risk while working seamlessly with Engagement 360's real-time player messaging, will allow operators to implement personalised messaging that empowers consumers to make safer choices. In addition, new Responsible Gambling features in Playtech's Portal and Marketplace platforms, aimed at increasing both licensee and player education and awareness of Playtech's casino content, are due to be trialed in 2019. Playtech continues to engage constructively with regulators and stakeholders on a wide range of policy topics. The company is also collaborating with licensees, academics, charities and industry bodies to help raise and shape industry standards, share best practices and explore how technology can help address some of the most pressing challenges facing the industry. Gaming Division performance Gaming B2B Casino Revenues from the Casino vertical fell 22% to €320.1 million in 2018, driven by the changing dynamics of the Asian casino market in the period and the tough like-for-like comparatives with FY 2017. Excluding Asia, Casino revenues enjoyed strong momentum, growing 9% in 2018 on a like-for-like basis at constant currency. This was partly driven by contribution from new Casino agreements with Casino Barcelona in Spain and Veikkaus in Finland. In addition, Pokerstars, alongside a successful launch of Playtech's Live Dealer product, significantly increased its Playtech content portfolio in 2018. Other major contributors which saw growth in 2018 were Bet365, Paddy Power Betfair, Betfred and Caliente. Operational momentum continued in 2018 in the Casino vertical including the Sporting Legends progressive jackpot suite rolled out across the Frankie Dettori, Ronnie O'Sullivan and Football Stars games, designed to foster sportsbook cross-sell during the football World Cup. New content launches, and specifically integrated content across product vertical, such as World Cup specific material, are important evidence of the constant innovation of products required to deliver a more engaging and relevant offer to regulated markets. Further progress, driven by innovation, was evident through GPAS (Playtech's Gaming Platform as a Service). GPAS has been developed with the aim of continuing to evolve the way that gaming content is designed and created, ultimately extending the use of Playtech's technology across the industry and increasing the scale and reach of Playtech's platform. GPAS technology and its proprietary math engine allows third parties (operators, content providers and developers) to use a simple drag and drop user interface to build high quality HTML5 games or submit their own existing content for distribution across Playtech's global network on any channel. GPAS technology is developed using Playtech ONE's omni-channel approach and can be seamlessly developed for retail and online. Historically, converting popular online games into retail games was expensive and inefficient and involved two sets of technology and two sets of developers. Therefore, those using Playtech's innovative GPAS technology have an advantage in retail-driven, regulated markets. In 2018 Playtech fully implemented the unification of its eight content studios onto its agile development platform. Playtech is shifting the studios towards leveraging new tailored jackpots, a new game suite, in-game innovations and a greater focus on platform features that will benefit licensees. A new game suite to be launched in 2019, Kingdom's Rise, will showcase these features. Licensees should see improved retention rates and improved customer experience while lowering bonus costs. Playtech completed the integration of 35 brands on to the Playtech Open Platform (POP) in 2018, enabling access to a huge selection of third-party games on any channel or platform, of which there were 16 specific third-party integrations. New linkages are now rapidly achieved, freeing up more resource for 2019. In addition to the POP and third-party integrations, Playtech is now also able to offer its partners access to the IMS bonusing and engagement tools. The new Playtech Marketplace was launched in H2 2018 and, by year end, over 30 brands had launched. 2019 will see Marketplace become the new industry standard of content aggregation with a roadmap that leverages Playtech's BI system to deliver snackable insights to content and marketing teams. Marketplace removes much of the guesswork with new and existing operators when they look to target player clusters for acquisition, retention and player values, even down to a country specific level. Live Casino Playtech has continued driving product innovation in Live Casino, following the migration to its new Live Casino facility in Riga in 2017, by launching new concepts, games and features. Driven by the powerful Playtech IMS player management platform and data-driven business intelligence technology, Playtech Live Casino is fully integrated into the Playtech platform and Casino offering. The period saw Ladbrokes Coral launch a dedicated sports area for the World Cup with an integrated bet slip. This was in addition to seasonal experiences such as around Cheltenham roulette and Chinese New Year. The move to the new facility has continued to drive an increase in new Live Casino licensees and the number of dedicated tables. For example, in the period, Playtech launched new additional dedicated tables with Sisal, Sports Interaction, Mansion and Casino.com. Moreover, 2018 saw Betfred partner with Playtech Live to deliver a bespoke dedicated area for roulette and blackjack. Playtech achieved an extensive array of new product deliveries, innovative customer engagement tools, and successful promotional activity, all of which was complemented by the surge in new customer areas and table propositions. Playtech's Live product portfolio grew throughout the course of 2018 with Spin a Win and Live Trivia, which both have received a positive response from customers. Live Trivia is the first online gaming Trivia product enabling customers a free to play experience, where their general knowledge is tested as they look to win a variety of prizes. Omni channel is a key aspect of Playtech's overall strategy, and in 2018 Live casino delivered a "Live from" experience allowing customers the ability to play Roulette from a land-based casino. In addition, key products such as Roulette, Blackjack and Baccarat all saw extensive UX overhauls providing a more immersive feel in line with Playtech's approach in leading UX solutions. Playtech BGT Sports (PBS) Since the creation of PBS, Playtech still expects sports to be one of the fastest growing verticals in the coming years. In line with these expectations, sports saw the largest increase in revenue across all B2B Gaming verticals with a 12% increase in revenue to €98.0 million in 2018, and a 13% increase at constant currency. PBS continues to develop new pioneering content and technology to drive incremental revenue for its licensees as well as drive innovation in the sports betting vertical. Following the integration of PBS with the Playtech IMS platform, PBS can offer an omni-channel sports product across retail and online that is unique to the industry. 'Track my SSBT Bet' and 'Cash out' functionality is now available across all operators globally, either through integration with the operators' own app or through the PBS 'Bet Tracker' product. PBS's most important product development in 2018 was 'MatchAcca', which enables users to combine multiple markets within the same event to create an accumulator bet with one specific price, subsequently encouraging higher margin betting. PBS launched MatchAcca across retail and digital sportsbook in 2018, ahead of the FIFA World Cup. PBS also developed Tap2Bet, which enables customers to stake bets quickly and easily with their debit cards by tapping their card on the terminal, as well as Bet Recommender, an intelligent recommendation engine using advanced AI algorithms, which suggests relevant content to customers on the Terminal. Recommendations are based on the behavior of other customers in comparable selections similar to Amazon's recommendation feature. 2018 saw a number of operators launch within both retail and online. In the first half of 2018 PBS delivered a landmark agreement to supply Sociedade de Apostas Sociais (SAS), Portugal's largest gaming and betting operator, with its new sportsbook offering and IMS platform. SAS's major shareholder is Santa Casa da Misericórdia de Lisboa, Portugal's national lottery provider. The PBS online sportsbook went live with SAS in June 2018 following an accelerated project to go live ahead of the FIFA World Cup 2018. In its first month of trading SAS acquired 20,000 new registered first-time depositors. Also, in Europe, PBS continued the roll-out started in Spain with Codere Andalusia and now has more than 1,000 terminals in the region. In the key target market of Latin America, PBS continued to develop its strategic position and signed an agreement to supply an integrated retail and digital sportsbook to Sportium Colombia through the provision of self-service betting terminals (SSBTs), over the counter (OTC) services and online sportsbook. The PBS offering has been approved by the Colombian regulator as fully compliant. Colombia first announced its plan to regulate online gambling in 2016 with the first licenses issued in 2017. Playtech also deepened its relationship with its key licensee Caliente in Mexico. Playtech has worked with Caliente since 2014 in online casino and, since the integration of PBS, has rolled out its digital sportsbook in 2017 and in 2018 integrated retail SSBTs into the offering with the first SSBTs placed in Caliente casinos. Key contract extensions were also secured during the year. PBS extended its agreement to supply Paddy Power Retail with the software for its suite of self-service betting terminals. PBS also extended its agreement to supply Ladbrokes Coral with the software for its suite of self-service betting terminals throughout Great Britain and Northern Ireland, the Republic of Ireland, and Belgium until the end of 2020. This will cover over 12,000 terminals as well as exciting new content and features. In addition, PBS also signed a new Sportsbook contract with Codere until October 2022, which includes all jurisdictions (Spain, Mexico, Colombia and Panama), currently 8,500 bet entry points (BEPs) worldwide (7,622 SSBTs and 864 Tills). Services The company's strategy to focus on regulated markets, shifting away from unregulated markets, has been the most pronounced in the Services revenue line. In 2018 Services revenue declined 9% at constant currency. Progress in regulated Services revenue was seen in the period with a strong increase in new business, with a focus on regulated activity in Spain, Mexico, Columbia and Portugal. Regulated Services revenue also saw an increase from increased Live services. Bingo Bingo had a solid 2018 performance as new variants and features drove sales, while operators were more tactical with bonusing and promotions. The Bingo vertical remains a key customer acquisition channel at an operator level. Playtech's Bingo offering allows licensees to provide seamless cross-sell and movement between channels and verticals, but more importantly integrated Casino content. In 2018 the Bingo division released 'Age of the Gods Bingo' for the network, tying in the successful Playtech brand. For its top tier operators, Playtech also developed six exclusive Bingo variants. To supplement these new Bingo variants three new Bingo features were also introduced including 'Flip N Win' which gives paying players the chance of getting free tickets. Product development also extended to side games, with 4 new network slot titles including Age of the Gods branded games and 11 operator exclusive side games launched over the year. In 2018 Bingo also started to shift to an agile development methodology which will reduce delivery cycles going forward. Buzz Bingo launched at the end of September 2018 and has been outperforming expectations. Playtech expects further growth on Buzz Bingo as the project to integrate the retail ECM wallet into the IMS wallet is completed, and Buzz Bingo use its dedicated Bingo development allocation to replicate its retail Bingo features on its online site. Migration to HTML5 from Flash is now nearly complete and is expected to be completed by the middle of the year. In addition, with the Italian PBAD3 regulations finalised, considerable effort has been directed into updating the Bingo platform to support these regulations. The concluding elements of the work were finalised at the start of 2019, putting us in a position to re-launch Italian Bingo at the start of February. Poker Poker is an important part of the complete Playtech ONE product offering and grew 2% at constant currency in 2018. Regulated markets show the strongest growth for Poker, coinciding with the launch of EU liquidity sharing, and the product is well-positioned to maximise the potential of any future regulatory changes. Playtech will continue to invest in the product as the online poker market demonstrates an increasing market opportunity. Other Other revenues grew 5% at constant currency in 2018. The majority of revenue under the 'Other' reporting line is derived from Playtech's retail Casino software (IGS), the land-based Casino management system. B2C Gaming Snaitech In 2018 Playtech completed the acquisition of leading Italian gambling operator, Snaitech. The acquisition created a fully-integrated gaming company across retail and online and provides Playtech with a cornerstone presence in one of its key target markets. Playtech will utilise its omni-channel technology stack to capture the online growth opportunity in one of the largest gambling markets in the world where online market penetration remains low at approximately 8% of Gross Gaming Revenue in 2019. The Snaitech acquisition has delivered a significant increase to Playtech's scale and distribution capabilities in a high growth regulated market. Snaitech's results are included in Playtech's consolidated financial statements from 5 June 2018, the date of completion of the acquisition. Regulation in the gambling industry remains one of the key market dynamics shaping the development and growth of the industry. Playtech has significant experience of driving growth in the highly regulated UK market, and Snaitech has considerable understanding and experience of working with the regulator in Italy. Management believes that the combination of the Playtech and Snaitech businesses can realise shareholder value and execute on the significant opportunity for online growth in the current market dynamics. This expertise is especially important given recent regulatory developments in Italy. In 2018, the government in Italy approved an advertising ban for all forms of gambling which will be fully active in July 2019. Part of the rationale for the acquisition of Snaitech was the strength of its retail network and resonance of the Snai brand. Management believe that the ban on advertising will facilitate market consolidation in the fragmented online market, with companies with a retail brand and presence set to benefit and gain online market share. As well as the advertising ban, there has been various increases in taxation on gambling activities in Italy. These are estimated to negatively impact Snaitech EBITDA in 2019 by approximately €30 million (including impact of 2018 Dignity Decree as well as 2019 budget law) before mitigation. In 2018 Snaitech's total revenues grew 1.0% to €894.6 million. The growth in revenue was predominantly driven by 27% growth in online, partially offset by a decline in gaming machines revenue of 3%. Playtech consolidated €511.9 million of revenue and €93 million of EBITDA from Snaitech's 2018 performance. White-label: Sun Bingo update Revenue from Sun Bingo in 2018 increased significantly, growing by 43% (44% on a constant currency basis) compared to 2017. The strong revenue growth was driven by the continued focus on targeted and data driven marketing. Playtech has agreed a multi-year extension with News UK to operate Sun Bingo, one of the UK's largest and most popular bingo sites. The collaboration with News UK was originally established in 2015, but under the new contract has been expanded to include new product verticals and has also been extended for a period of up to 15 years. These new terms will help to enhance the Sun Bingo customer offer, while delivering greater value to both Playtech and News UK over the long term. It also follows strong performance from the operation across the past year, driven by the continued focus on targeted and data-driven marketing. TradeTech Group - Playtech's financial division TradeTech Group continued to deliver positive financial results which reflects the continued improvement and progress made in the business in 2018. TradeTech delivered organic growth, new business and successfully integrated acquisitions during the year, laying the foundations for future growth in the years to come. The division reported continued growth on reported results and on a proforma basis with revenues and adjusted EBITDA increasing by 15% and 21% respectively, compared to 2017 and by 4% and 12% respectively, on a proforma basis including the comparable ACM performance in 2017. These positive headline results reflect an improvement in EBITDA margin from 32% in 2017 to 33% in 2018, as incremental revenues allow for higher margins as the business continues to grow. TradeTech Group B2B results Revenue from B2B activity increased by 17% during the period. This was driven by 20% growth in the liquidity offering which increased to $27.9 million in 2018, and 118% growth on our execution and risk management offering to $24.8 million compared to previous year, (including a full year benefit from the acquisition of ACM assets completed October 2017). Strong momentum in the TradeTech B2B business continued in 2018, with a total volume of $2 trillion, compared to $1.3 trillion in 2017. This is supported by a significant pipeline of new customers to each of the sub segments of our B2B business, establishing strong foundations for the future growth of B2B activity. TradeTech management believe these results reflect the successful execution of its strategy to become the provider of choice to brokers in the financial trading industry. The combination of the Group's liquidity offering, execution and risk management offering, and its frontend and backend technology, enables it to deliver an end to end solution for brokers. TRADETECH 360 solution TradeTech believes its superior technology and services in its B2B segment give it a strategic advantage in the early stage and underdeveloped financial trading industry. To increase the profile and recognition of its B2B technology suite, Management has branded it as 'TradeTech 360', representing the most comprehensive B2B management system and data driven business intelligence tools - the equivalent of Playtech's IMS platform in the Gaming division. Tradetech 360 enables brokers to efficiently operate a complex multi-brand, multi-license, multi-channel, and multi-risk model across the globe. The Group has a strong pipeline of brokers looking to improve their business operationally by migrating to TradeTech's systems and infrastructure and the company believes this will become a significant growth factor of the B2B proposition. Markets.com performance The TradeTech Group B2C brand, Markets.com, enjoyed continued revenue growth in 2018 of 12% in a period where the implementation of the European Securities and Markets Authority's (ESMA) new rules and regulations came into effect in August 2018. As reported at the interim results, Management decided to take a prudent approach to marketing spend in 2018 on new customer acquisition, taking the view that the incoming regulation may potentially impact the economic metrics across the market. This resulted in slower growth in the number of new customers in 2018, with total new customers of 15.1 thousand compared to 27 thousand in 2017. Importantly, the Group was able to produce increased interactions and trading activity with its existing customer base, resulting in a 60% increase in existing customer activity, which is the result of continued investment into the product and service improvement. In addition, while it's still too early to properly evaluate the long-term impact of ESMA's new measures, given the continued healthy revenue generation post ESMA's implementation Management commenced a gradual increase on marketing spend and new customers numbers are now returning to a growth trajectory. TradeTech continues to grow outside of the EU, with approximately 18% of active customers coming from our non-EU licenses and the Group expects this number to continue to grow as TradeTech continues to diversify its revenue base. Chief Financial Officer's review Presentation of results The Directors believe that in order to best represent the trading performance and results of the Group, the reported numbers should exclude certain non-cash and one-off items including amortisation of intangibles on acquisitions, professional costs on acquisitions, additional consideration payable for put/call options, one-off employee related costs, finance costs and contingent consideration movement on acquisitions, unrealised changes in fair value of equity investments recognised in the period, deferred tax on acquisitions, non-cash accrued interest and additional various non-cash charges. The Directors believe therefore that Adjusted EBITDA and Adjusted Net Profit, which include realised fair value changes on equity instruments disposed of in the period, more accurately represent the trading performance of the business. As a result, Adjusted EBITDA and Adjusted Net Profit are the key performance metrics used by the Board when assessing the Group's financial performance. A full reconciliation between the actual and adjusted results is provided in Note 4 of the financial statements below. Given the fluctuations in exchange rates in the period, the underlying results are presented in respect of the above adjustments after excluding acquisitions and on a constant currency basis, to best represent the trading performance and results of the Group. Overview Total reported revenue increased by 54% and Adjusted EBITDA increased by 7%. Adjusted Net Profit increased by 11%. On a constant currency basis, revenue increased by 55%, Adjusted EBITDA increased by 8% and Adjusted Net Profit increased by 6%. Playtech completed the acquisition of 70.6% of Snaitech on 5 June 2018 and subsequently acquired the remainder of company, with Snaitech becoming a wholly-owned subsidiary within the Group on 3 August 2018. Snaitech's balance sheet and income statement are included in Playtech's results from 5 June 2018. Playtech made significant progress on balance sheet efficiency during 2018. Playtech started 2018 with €584.0 million in gross cash and, after adjusting for cash held on behalf of client funds, progressive jackpots and security deposits, Playtech had Adjusted Gross cash of €386.8 million[1]. Playtech started 2018 with the €200 million drawn credit facility and €276.5 million carrying value of its convertible bond as debt. During 2018, Playtech took a bridge loan of €412 million to finance the acquisition of Snaitech and sold its equity investments in GVC and Plus500 for €447 million. In October 2018, Playtech raised €530 million senior secured notes maturing in 2023, which represented the company's first public debt offering, securing a public rating on its debt in the process. Playtech used the proceeds of the notes, along with the proceeds from the sales of its stakes in GVC/Ladbrokes and Plus500, towards repaying the €412 million bridge loan and refinancing Snaitech's existing €570 million senior secured notes. Playtech continues to be highly cash generative, with net cash from operations up 26% to €387.1 million compared to €306.7 million in 2017. The net cash from operations represents a 89% conversion from Adjusted EBITDA after excluding cash movements which are not reflected in Adjusted EBITDA, such as movements in jackpot liabilities, customer security deposits, changes in client equity and professional fees on acquisitions and financing. Revenue Total revenue increased by 54% to €1,240.4 million (2017: €807.1 million) and by 55% on a constant currency basis, with underlying revenue, after excluding acquisitions at constant currency, decreasing by 12%. 2018 €m 2017 €m Change Constant Currency Change Casino 320.1 412.8 -22% -21% Sport 98.0 87.5 12% 13% Services 84.6 94.4 -10% -9% Bingo 26.3 26.2 1% 2% Poker 9.6 9.5 1% 2% Other 27.4 26.4 4% 5% Gaming B2B 566.0 656.7 -14% -13% Snai 511.9 - 100% 100% Sun Bingo 33.7 23.6 43% 44% Casual & Other B2C 47.6 46.6 2% 3% Gaming B2C 593.2 70.3 744% 745% ICE (Intercompany eliminations) -11.7 -4.8 - - Gaming division 1,147.5 722.2 59% 60% Financials division 92.9 84.9 9% 13% Total revenue 1,240.4 807.1 54% 55% To reflect the underlying activity of the gaming B2B division, B2B revenues include the software and services charges generated from the relevant B2C activity, which is then eliminated to show the consolidated gaming division revenues. Gaming B2B Casino revenue decreased by 22% in 2018 and by 21% on a constant currency basis. This fall was due to a 41% decrease in revenues from Asia versus 2017. The decrease in Asia was partially offset by a 12% increase in regulated revenues, which represented 43% of total casino revenues in 2018. Mobile casino revenue continued to increase, growing 12% year-on-year in 2018. Sport revenue increased by 12% in 2018 and by 13% on a constant currency basis. The increase was driven by a 10% increase in retail sports revenues which came from the OPAP agreement. Additionally, revenues generated in Mexico, Belgium and the UK contributed to the growth in sport. Services revenue decreased by 10% on a reported basis and by 9% on a constant currency basis. The decrease is mainly due to revenues generated in .com markets. Conversely, revenues from regulated markets grew by 12%, driven by a 14% increase in live services revenues and a 46% increase in revenues from the structured agreements with Caliente and Marca. Bingo revenue was up 1% on a reported basis and 2% on a constant currency basis, mainly due to a 14% increase in retail bingo and a marginal increase in online bingo. Poker reported revenue increased by 1% versus 2017 and by 2% on a constant currency basis. This increase was driven by 9% growth in regulated markets, with regulated revenues reflecting 68% of total poker revenues in 2018, compared to 63% in 2017. Other revenue grew by 4% mainly due to an increase in revenues from the IGS casino management system and revenues from Beehive. Underlying revenue, excluding acquisitions and on a constant currency basis, grew by 1% compared to 2017. Gaming B2C: Snaitech On 5 June 2018 Playtech completed the acquisition of 70.6% of Snaitech, meaning the company became a subsidiary of the Playtech group and it has been consolidated from this date. Playtech also acquired 10.8% of Snaitech's issued share capital through market purchases and as of 30 June 2018, Playtech held 81.4% of the issued share capital of Snaitech. On 26 July Playtech completed the acquisition of an additional 15.1% of Snaitech's shares through a mandatory tender offer and additional purchase of shares in the market. On 3 August 2018 Playtech completed the acquisition of 100% of Snaitech and delisted the company from the Borsa Italiana. Snaitech revenues for the whole of 2018 increased by 1.0% to €894.6 million, driven by an increase in wagers from online betting and online games. Total online revenues increased by 27.4% and retail betting revenues by 2.4%, driven largely by a higher volume of wagers including a positive contribution from the 2018 World Cup and partially offset by higher payouts. These increases were offset by a 2.5% decrease in gaming machine revenues driven by the PREU (Italian tax) increase and partially offset by a reduction in video lottery terminal (VLT) payouts. Sun Bingo Sun Bingo revenue increased significantly by 43% and by 44% on a constant currency basis. The increase demonstrates the continued focus on targeted and data-driven marketing. Further details on the amended contract with News UK are included below. Casual & Other B2C Revenue from Casual & Other B2C increased by 2% and decreased by 42% excluding acquisitions. The increase is driven by retail sport white label arrangements, whilst offset slightly by a decrease in Casual revenue following an expected decline in the 'Narcos' game as marketing efforts focused on new Casual games. Casual and B2C saw adjusted EBITDA fall from a loss of €2.6 million to a loss of €12 million due to investment in HPYBET, our B2C Sports offering in Germany and Austria, and a loss in Casual as revenue from the Narcos game slowed and investment went into new titles. TradeTech Group TradeTech's revenue increased by 9% in 2018, or 13% on a constant currency basis. The increase was driven by increased B2B volume, together with a full-year inclusion of the Alpha business, which was consolidated from 1 October 2017. Adjusted EBITDA & Adjusted EBITDA margin 2018 €m 2017 €m EBITDA 287.8 277.1 Employee stock option expenses 13.7 15.1 Professional expenses on acquisitions One off employee related costs 27.1 - 2.4 5.0 Gain/ (Loss) on sale of shares (0.9) 0.7 Impairment of investments 8.0 14.9 Amendment to deferred consideration 1.7 - Provision for other receivables 5.6 - Additional consideration payable for Put/Call options (2.4) 5.3 Cost of business reorganisation 2.4 1.1 Adjusted EBITDA 343.0 322.1 Adjusted EBITDA margin 27.7% 39.9% Adjusted EBITDA on a constant currency basis 346.3 322.1 Adjusted EBITDA margin on a constant currency basis 27.7% 39.9% EBITDA related to acquisitions at constant currency (92.7) (0.0) Underlying Adjusted EBITDA 255.6 322.1 Underlying Adjusted EBITDA margin 20.6% 39.9% Snaitech, which was consolidated from 5 June 2018, contributed €93.0 million to the Group's 2018 adjusted EBITDA. The underlying adjusted EBITDA decreased by 21% compared to 2017, predominantly due to the fall in revenues from Asia. Cost of operations 2018 €m 2017 €m Change Research and development 80.5 87.4 -8% Operations 150.8 157.2 -4% Administrative 62.1 68.0 -9% Sales and marketing 20.0 17.6 14% Total B2B Gaming 313.4 330.2[2] -6% Snai 418.9 - 100% Sun Bingo 53.8 52.4 3% Casual & Other B2C 59.5 49.3 21% B2C Gaming 532.2 101.7 424% ICE (Intercompany eliminations) -11.7 -4.8 Gaming division 833.9 427.0 95% Financials division 63.5 58.0 9% Total Group 897.4 485.0 85% Gaming B2B Research and development ("R&D") cost include, among others, employee related costs, dedicated teams direct expenses and proportional office cost. Expensed R&D costs decreased in 2018 by 8% to €80.5 million due to an increase in capitalised development costs, as a result of extensive investment in Playtech's platform, innovation and the Playtech One solution in Sport. Capitalised development costs were 37% of total Gaming B2B R&D costs in the period, compared to 33% in the comparable period. Gross R&D costs were down by 2% in 2018, compared to 2017, mainly due to a decrease in outsourced development costs, dedicated teams cost, a decrease in office and rent costs of 14%, while employee related costs were up by only 0.6%, an increase mainly due to new acquisitions. The Operations cost line includes employee related costs and their direct expenses, operational marketing cost, hosting, license fees paid to third parties, branded content, terminal hardware cost & maintenance, feeds, chat moderators and proportional office cost. Operations costs decreased by 4% from to €150.8 million in 2018. The main decrease in the operational cost is due to lower employee related cost, less chat moderator cost, following optimization, lower license fees paid to third parties and lower hardware costs. Administrative cost decreased by 9% mainly due to decrease in employee related cost, doubtful debt and office costs , set off by an increase in compliance costs. Sales and marketing cost mainly include employee related cost, their direct expenses, marketing and exhibition costs. Sales and marketing cost increased by 14% to €20.0 million. The increase is mainly due to employee related cost and an increase in exhibition costs. Gaming B2C Snaitech Snaitech operating costs for the whole of 2018 increased marginaly by 0.6%. The increase was largely due to higher marketing costs related to the football World Cup, whilst mitigated slightly by a decrease in employee costs. Sun Bingo Despite an increase in revenue driven costs, linked to an increase in revenues, total costs were marginally higher by 3% over 2017, mainly due to lower employee related costs. The loss from Sun Bingo in 2018 decreased by 30% to €20.1 million (2017: €28.8 million)[3]. An amendment to our contract with News UK to run Sun Bingo has been agreed and extended for a period of up to 15 years. Minimum guarantee cash payments will continue until mid-2021 under terms of original contract. From a P&L perspective the minimum guarantee payments will be spread over life of the extended contract. The new extended contract is a joint commercial collaboration with no further minimum guarantees from mid-2021. From 2019 onwards, Sun Bingo contract should no longer be loss making from a P&L perspective. Casual and other B2C Casual & Other B2C costs increased largely due to acquisitions. Excluding acquisitions, operational costs in Casual & Other B2C Gaming decreased by 14% in line with the decrease in revenues, as these costs were largely revenue-driven. TradeTech Group TradeTech's cost of operations increased by 9% in 2018, in line with the increase in revenue. The increase was driven by increased direct costs from volume and revenue improvements, together with an increase in costs related to the Alpha business. Depreciation and amortisation Depreciation increased in 2018 by 61% to €42.7 million, mainly due to the acquisition of Snaitech. Excluding acquisitions, depreciation increased by 22%. Amortisation expense, excluding amortisation of intangibles on acquisitions, increased significantly by 73% to €62.2 million, largely due to the acquisition of Snaitech. Excluding the amortisation within acquisitions, amortisation increased by 17%, in line with the increase in capitalised development costs. Finance costs and income Following the acquisition of Snaitech and the refinancing of the Snaitech bonds, adjusted finance costs increased by 68% to €40.4 million. The increase was driven by a €29.5 million rise in interest expenses, which was offset by a €15.1 million fall in exchange rate differences. Adjusted finance income increased by 92%, driven by increased dividends from the equity investments in Plus500 of €28.1 million (2017: €11.4 million) and Ladbrokes of €5.9 million (2017: €5.0 million). Tax The Group's underlying effective tax rate of 10% is impacted by the geographic mix of profits and reflects a combination of higher headline rates of tax in the various jurisdictions in which the Group operates when compared with the Isle of Man standard rate of corporation tax of 0%. The Group's reported tax rate for the year is materially impacted by overseas provisions in respect of prior years tax. These adjustments relate to the tax effect of the settlement of open enquiries with the Israeli tax authorities. The adjusted tax charge in 2018 was €35.1 million (2017: €21.9 million). The increase is mainly due to acquired companies registered for taxation in higher tax jurisdictions as well as profits being recognised in higher taxing territories increasing Playtech's effective tax rate and an increase in withholding taxes due to higher dividend income. Cash taxes are lower than P&L taxes mainly due to tax loss carryforwards available in Italy following the acquisition of Snaitech. Israel Tax Agreement Following a civil tax audit, Playtech reached an agreement with the Israeli tax authorities on 31 December 2018. The civil tax audit covered the 10 fiscal years from 2008 to 2017 (inclusive). As a result of the audit, the Israeli tax authorities made transfer pricing adjustments in relation to certain functions performed by the Playtech group in Israel during this period. The agreement covers the full period from 2008 to 2017, and the Playtech group will pay additional tax of approximately €28 million. No penalties were imposed as a result of the audit; and the agreement covers the entirety of the Playtech group's activity in Israel. This additional tax charge has been included as an exceptional item in 2018. The cash payment related the settlement was made in January 2019. Adjusted profit and Adjusted EPS 2018 €m 2017 €m Profit for the year- attributable to owners of parent 123.8 248.1 Amortisation & impairment of intangibles on acquisitions 47.9 58.8 Employee stock option expenses 13.7 15.1 Professional expenses on acquisitions 27.1 2.4 Cost of business reorganisation 2.4 1.1 Finance costs on acquisitions 8.5 - Gain on early repayment of the bond loans (8.4) - Tax for previous years 28.4 5.2 (Gain) / loss on sale of shares (0.9) 0.7 Impairment of investments 8.0 15.4 Additional consideration 1.7 - Provision for other receivables 5.6 - Fair value change of equity instruments 1.7 - Non-cash accrued bond interest 10.7 10.2 Fair value change for Put/Call options (2.4) 5.3 Deferred tax on acquisition (9.9) (4.6) Movement in deferred and contingent consideration (1.9) (126.4) Adjusted profit for the year - attributable to owners of the parent 256.2 231.4 Adjusted basic EPS (in Euro cents) 81.3 73.6 Adjusted diluted EPS (in Euro cents) 72.9 66.8 Constant currency impact 9.6 19.7 Adjusted profit for the year attributable to owners of parent on constant currency 265.8 251.1 Adjusted Net Profit on constant currency related to acquisitions (31.9) (20.4) Underlying adjusted profit for the year - attributable to owners of the parent 224.3 230.7 Adjusted diluted EPS increased by 9% and the underlying Adjusted diluted EPS on a constant currency basis excluding acquisitions increase by 8% compared to 2017. Adjusted diluted EPS is calculated using a weighted average number of shares in issue during 2018 of 317.3 million. Cashflow Playtech continues to be highly cash generative and once again delivered strong operating cash flows of €381.1 million; €289.5 million after excluding Snaitech. Cash conversion Excluding Snai 2018 €m 2018 €m 2017 €m Adjusted EBITDA 343.0 247.0 322.1 Net cash provided by operating activities 387.1 289.5 306.7 Cash conversion 113% 117% 95% Increase in Progressive, operators' jackpots, security deposits (4.2) (5.1) (15.9) Increase in Client deposits and Client equity (70.1) (67.6) (32.1) Dividends payable (4.3) (4.3) (0.7) Professional expenses on acquisitions 27.1 21.7 2.4 Finance costs on acquisitions 8.5 8.5 - Adjusted net cash provided by operating activities 344.2 242.7 260.4 Adjusted Cash conversion 89% 84% 85% Excluding Snaitech, operating cash conversion from Adjusted EBITDA is in line with the 2017 conversion rate after adjusting for jackpots, security deposits and client equity, payable dividend and professional and finance costs on acquisitions. Adjusting the above cash fluctuations is essential in order to truly reflect the quality of revenue and cash collection. This is because the timing of cash inflows and outflows for jackpots, security deposits, client equity and payable dividend only impacts the reported operating cashflow and not EBITDA, while professional expenses and finance costs relating to acquisitions are excluded from adjusted EBITDA but impact operating cashflow. Net cash from investing activities totaled €49.2 million in the period, of which €487.6 million (2017: €62.9 million) relates to acquisitions. €412.8 million of this was spent on the acquisition of Snaitech, which was netted off against €161.1 million of the cash acquired and €481.2 million of proceeds from the sale of, and dividends received from, the equity investments in Ladbrokes-Coral/GVC and Plus500. Cash outflows used for financing activities totaled €393.6 million which included a €580.6 million repayment relating to Snaitech bonds, repayment of the €200 million of drawn revolving credit facility and €22.1 million of interest paid. This was netted off by the €523.4 million of net proceeds from issuing the 5-year senior secured fixed rate notes. Dividend paid in 2018 totaled €113.3 million (2017: €104.7 million). Balance sheet and financing Cash As at 31 December 2018, cash and cash equivalents amounted to €622.2 million (2017: €584.0 million). Cash net of client funds, progressive jackpot and security deposits amounted to €312.7 million (2017: €386.8 million). Sale of equity investments in GVC / Plus500 During the first half of 2018 Playtech sold its holdings in GVC/Ladbrokes-Coral for proceeds of €254 million. The carrying value of this investment was €261.9 million and the sale resulted in a €7.9 million loss on sale of investment. Playtech also received €5.9 million in dividends prior to divesting its stake. The Group sold its holdings in Plus500 during the second half of 2018 for proceeds of €193 million. The sale resulted in a gain of €73.6 million. Playtech also received €28.1 million in dividends prior to divesting its stake. The company generated a combined total of €447.2 million from the sales of GVC/Ladbrokes and Plus500 in 2018 as well as a further €34 million in dividends. As of 31 December 2018, the equity investment balance is €1.4 million (2017: €381.3 million). Bond financing In October 2018 the Group raised €530 million 5-year senior secured fixed rate notes (3.75% coupon, maturity 2023). Own cash resources, proceeds from the issued notes and the proceeds from the equity investment sales, were used to fully repay the €200 million drawn revolving credit facility and consequently cancel the bridge facility used to acquire Snaitech for a total of €412 million, and fully repay the bond loans held by Snaitech. In addition, the Group has successfully increased its revolving credit facility to a total of €272 million, which remains undrawn to date. The facility is for a term of 3 years with a one-year extension option. Contingent consideration Contingent consideration and redemption liability increased to €6.5 million and comprise the following: Acquisition Contingent consideration and redemption liability as of 31.12.18 Maximum payable earnout Payment date ACM Group €73.7 million €126.7 million €2.4 million Q1 2019 €71.3 million Q1 2020 Playtech BGT Sports Ltd €25.7 million €100.0 million €25.7 million Q2 2020 Consolidated Financial Holdings €21.8 million €63.9 million Q2 2019 Destres €10.1 million €15.0 million Q2 2021 Quickspin AB €14.6 million €14.6 million Q1 2019 ECM Systems Holdings Ltd €0.8 million €0.8 million Q1 2020 Bet Buddy €2.2 million €2.2 million €0.8 million Q4 2019 €1.4 million Q4 2020 GenWeb €2.3 million €2.3 million Q4 2019 Eyecon Limited €1.3 million €27.8 million €1.3 million Q2 2021 Other €6.3 million €9.6 million Total €158.8 million €362.9 million Share buyback and dividend In order to maximise the efficiency of shareholder returns the Board has adopted a new policy to reallocate part of its payout ratio into share repurchases. Under the revised policy, future returns will be balanced between dividends and share buybacks. It is the Board's intention that the overall level of capital returned to shareholders will continue to be progressive, in line with medium term earnings. Following adoption of the revised policy, the Board has approved an initial share repurchase programme of €40 million and a final dividend declared of 12.0 €c per share. For shareholders wishing to receive their dividends in Sterling, the last date for currency elections is 10 May 2019. Dividend timetable: Ex-dividend date: Thursday 2 May 2019 Record date for dividend: Friday 3 May 2019 Currency election date: Friday 10 May 2019 Payment date: Friday 31 May 2019 Share buyback programme Playtech has entered into irrevocable, non-discretionary arrangements with Goodbody Stockbrokers UC ("Goodbody") and UBS Limited to repurchase shares on its behalf of up to €40 million. The share repurchase programme will commence tomorrow (22 February 2019), subject to market conditions, and it is intended that ordinary shares will be repurchased on the London Stock Exchange. The purpose of the share repurchase programme is to reduce the Company's share capital and ordinary shares purchased by Playtech will be cancelled. Goodbody will undertake the initial tranche of share repurchases, up to a total consideration of €20 million. Following completion of this tranche, UBS Limited will undertake the second tranche of up to a further €20 million. Goodbody and UBS will make their trading decisions in relation to Playtech's ordinary shares independently of, and uninfluenced by, Playtech. The share buyback programme will be conducted in accordance with Playtech's general authority to repurchase ordinary shares as approved by shareholders at its 2018 annual general meeting held on 16 May 2018, the parameters prescribed by the Market Abuse Regulation 596/2014/EU and the applicable laws and regulations of the London Stock Exchange. Details of any ordinary shares repurchased will be announced by Playtech via a Regulatory Information Service following any repurchase. Playtech confirms that it currently has no unpublished inside information relevant to the share buyback programme. Principal risks and uncertainties Risks relating to both the Gaming division and Financials division § Regulation - Licensing requirements Playtech holds several licences for its activities from regulators. The review and/or loss of all or any of these licences may adversely impact on the operations, revenues and/or reputation of the Group. § Regulation - Local Technical Regulatory Requirements Local regulators have their own specific requirements, which often vary on a country to country basis. In addition, new requirements may be imposed. For example, a requirement to locate significant technical infrastructure within the relevant territory or to establish and maintain real-time data interfaces with the regulator. Such conditions present operational challenges and may prohibit the ability of licensees to offer the full range of the Group's products. § Regulation - Data Protection The requirements of the new EU General Data Protection Regulations (GDPR) will come into force in May 2018. The regulation is mandatory and all organisations that hold or process personal data must comply with these regulations. § Regulatory - Preventing Financial Crime Policymakers in the EU and at national levels have taken steps to strengthen financial crime legislation covering Anti-Money Laundering (AML), prevention of facilitation of tax evasion and Anti-Bribery and Corruption (ABC). Non-compliance could result in investigations, prosecutions, loss of licences and/or an adverse reputational impact. § Taxation - Changes to tax rules Given the dynamic nature of tax rules, guidance and tax authority practice, the business is exposed to continuously evolving rules and practices governing the taxation of e-commerce activity in various jurisdictions. Such taxes may include corporate income tax, withholding taxes and indirect taxes. As such, it is imperative to ensure compliance with all relevant tax regulations and requirements in each jurisdiction that Playtech operates. § Mergers and Acquisitions (both Gaming and Financials) Playtech has made a number of acquisitions in the past. Such acquisitions may not deliver the expected synergies and/or benefits and may diminish shareholder value if not integrated effectively or the opportunity executed successfully. § Key Employees (both Gaming and Financials) The Group's future success depends in large part on the continued service of a broad leadership team including Executive Directors, senior managers and key personnel. The development and retention of these employees, along with the attraction and integration of new talent, cannot be guaranteed. § Cyber Crime and IT Security (both Gaming and Financials) System downtime or a security breach, whether through cyber and distributed denial of service (DDoS) attacks or technology failure, could significantly affect the services offered to our licensees. § Business Continuity Planning (both Gaming and Financials) Loss of revenue, reputational damage or breach of regulatory requirements may occur as a result of a business or location disruptive event. § Global Diversification As Playtech plc continues to operate across multiple locations, servicing our clients in many markets across the globe. These operations bring with them significant opportunities for growth, however, as is well understood, globally diverse operations carry risk particularly as markets change. Additional risks relating to the Gaming division § Regulation - Responsible Gambling Regulators, industry, charities and the public at large continue to challenge the gaming and betting sector to make gambling and gaming products safer, fairer and crime free. In addition, licensing requirements are regularly updated to ensure that companies in the sector provide a safe environment for consumers. Additional risks relating to the Financials division § Market exposure The fair value of financial assets and financial liabilities could adversely fluctuate due to movements in market prices of foreign exchange rates, commodity prices, equity and index prices. § Regulatory - Capital Adequacy The requirement to maintain adequate regulatory capital may affect the Group's ability to conduct its business and may reduce profitability. Directors' responsibility statement We confirm to the best of our knowledge; § The Group and Company financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and § The Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and Company, together with a description of the principal risks and uncertainties that they face. A list of current directors is maintained on Playtech's website, www.playtech.com By order of the Board, Mor Weizer Chief Executive Officer 20 February 2019 Andrew Smith Chief Financial Officer 20 February 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 2018 2017 Note Actual Adjusted Actual Adjusted €'000 €'000 €'000 €'000 Revenue 5 1,240,443 1,240,443 807,120 807,120 Distribution costs before depreciation and amortisation (796,494) (791,480) (412,943) (405,651) Administrative expenses before depreciation and amortisation (156,105) (105,914) (117,088) (79,373) EBITDA 287,844 343,049 277,089 322,096 Depreciation, amortisation and impairment (152,845) (104,909) (121,376) (62,577) Finance income 8a 46,610 36,374 145,307 18,927 Finance cost 8b (59,549) (40,371) (34,207) (23,973) Share of profit from joint ventures 14a 180 180 464 464 Share of loss from associates 14b (2,771) (2,771) (662) (662) Unrealised fair value changes on equity investments 15 (1,738) - - - Realised fair value changes on equity investments disposed 15 65,691 65,691 - - Profit before taxation 183,422 297,243 266,615 254,275 Tax expenses 9 (53,643) (35,094) (17,505) (21,856) Profit for the year 129,779 262,149 249,110 232,419 Other comprehensive income for the year: Items that may be classified to profit or loss: Equity instruments - net change in fair value 15 - - 157,809 157,809 Exchange gains/(losses) arising on translation of foreign operations 19,348 19,348 (50,766) (50,766) Total items that may be classified to profit or loss 19,348 19,348 107,043 107,043 Items that will not be classified to profit or loss: Gain re-measurement of employee termination indemnities 56 56 - - Total items that will not be classified to profit or loss 56 56 - - Total comprehensive income for the year 149,183 281,553 356,153 339,462 Profit for the year attributable to: Owners of the parent 123,809 256,179 248,140 231,449 Non-controlling interest 5,970 5,970 970 970 129,779 262,149 249,110 232,419 Total comprehensive income attributable to: Owners of the parent 144,412 276,782 356,914 340,223 Non-controlling interest 4,771 4,771 (761) (761) 149,183 281,553 356,153 339,462 Earnings per share for profit attributable to the owners of the parent during the year: Basic (cents) 10 39.3 81.3 78.9 73.6 Diluted (cents) 10 38.4 72.9 74.6 66.8 * Adjusted numbers relate to certain non-cash and one-off items including amortisation of intangibles on acquisitions, professional costs on acquisitions, finance costs on acquisitions, deferred tax on acquisitions, unrealised changes in fair value of equity investments recognised in the period, non-cash accrued bond interest and additional various non-cash charges. The directors believe that the adjusted profit, which includes realised fair value changes recognised in the income statement in the period on equity investments disposed of in the period, represents more closely the consistent trading performance of the business. A full reconciliation between the actual and adjusted results is provided in Note 6. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 Additional paid in capital Equity investment reserve Reserve for re-measurement of employee termination indemnities Retained earnings Employee benefit trust Convertible bond option reserve Put/Call options reserve Foreign exchange reserve Total attributable to equity holders of parent Non-controlling interest Total equity €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 Balance at 1 January 2018 627,764 103,217 - 649,537 (21,644) 45,392 (31,293) (28,700) 1,344,273 14,179 1,358,452 Changes in equity for the year Total comprehensive income for the year - - 56 123,809 - - - 20,547 144,412 4,771 149,183 Transfer on adoption of IFRS 9 - (103,217) - 103,217 - - - - - - - Dividend paid - - - (113,288) - - - - (113,288) - (113,288) Exercise of options - - - (4,246) 3,781 - - - (465) - (465) Employee stock option scheme - - - 13,533 - - - - 13,533 191 13,724 Purchase of non-controlling interest - - - (46,229) - - 473 - (45,756) (41,176) (86,932) Non-controlling interest acquired on business combination - - - - - - - - - 29,832 29,832 Balance at 31 December 2018 627,764 - 56 726,333 (17,863) 45,392 (30,820) (8,153) 1,342,709 7,797 1,350,506 Balance at 1 Januanry 2017 627,764 (51,057) - 498,864 (25,417) 45,392 (34,341) 16,800 1,078,005 21,714 1,099,719 Changes in equity for the year Total comprehensive income for the year - 154,274 - 248,140 - - - (45,500) 356,914 (761) 356,153 Dividend paid - - - (104,656) - - - - (104,656) - (104,656) Exercise of options - - - (3,411) 3,773 - - - 362 15 377 Employee stock option scheme - - - 14,948 - - - - 14,948 146 15,094 Acquisition of minority interest - - - (4,348) - - 3,300 - (1,048) (7,052) (8,100) Non-controlling interest acquired on business combination - - - - - - (252) - (252) 117 (135) Balance at 31 December 2017 627,764 103,217 - 649,537 (21,644) 45,392 (31,293) (28,700) 1,344,273 14,179 1,358,452 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2018 2018 2017 Note €'000 €'000 NON-CURRENT ASSETS Property, plant and equipment 12 410,088 80,016 Intangible assets 13 1,644,133 1,051,232 Investments in equity accounted associates & joint ventures 14 29,641 37,216 Equity investments 15 1,400 381,346 Other non-current assets 16 15,942 19,993 2,101,204 1,569,803 CURRENT ASSETS Trade receivables 17 209,854 107,165 Other receivables 18 160,473 93,322 Cash and cash equivalents 19 622,197 583,957 992,524 784,444 TOTAL ASSETS 3,093,728 2,354,247 EQUITY Additional paid in capital 20 627,764 627,764 Equity investment reserve - 103,217 Reserve for re-measurement of employee termination indemnities 56 - Employee Benefit Trust 20 (17,863) (21,644) Convertible bonds option reserve 22 45,392 45,392 Put/Call options reserve (30,820) (31,293) Foreign exchange reserve (8,153) (28,700) Retained earnings 726,333 649,537 Equity attributable to equity holders of the parent 1,342,709 1,344,273 Non-controlling interest 7,797 14,179 TOTAL EQUITY 1,350,506 1,358,452 NON CURRENT LIABILITIES Loans and borrowings 21 206 - Bonds 22 523,706 276,464 Deferred revenues 3,742 2,457 Deferred tax liability 26 73,392 31,283 Contingent consideration and redemption liability 24 110,523 137,080 Other payables 27 14,081 474 725,650 447,758 CURRENT LIABILITIES Loans and borrowings 21 489 200,000 Convertible bond 22 287,149 - Trade payables 25 73,585 61,969 Progressive operators' jackpots and security deposits 88,601 62,675 Client deposits 116,656 71,628 Client funds 104,200 37,074 Corporate, gaming and other taxes payable 28 144,905 18,421 Deferred revenues 3,875 5,414 Contingent consideration and redemption liability 24 48,316 20,592 Provisions for risks and charges 23 12,095 - Other payables 27 137,701 70,264 1,017,572 548,037 TOTAL EQUITY AND LIABILITIES 3,093,728 2,354,247 The financial information was approved by the Board and authorised for issue on 20 February 2019. Mor Weizer Andrew Smith CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 2018 2017 Note €'000 €'000 CASH FLOWS FROM OPERATING ACTIVITIES Profit after tax 129,779 249,110 Adjustments to reconcile net income to net cash provided by operating activities (see below) 285,643 69,418 Income taxes paid (28,290) (11,876) Net cash provided by operating activities 387,132 306,652 CASH FLOWS FROM INVESTING ACTIVITIES Loans and deposits repaid/(advanced) 9,055 (5,064) Acquisition of property, plant and equipment 12 (54,980) (34,692) Return on investment in joint ventures and associates 14a 1,027 1,400 Acquisition of intangible assets 13 (5,161) (3,060) Acquisition of subsidiaries (362,753) (48,276) Cash of subsidiaries on acquisition 161,129 1,962 Capitalised development costs 13 (58,297) (50,683) Investment in equity-accounted associates 14b,14c (1,830) (8,067) Proceeds from the sale of equity-accounted associates 3,969 - Acquisition of equity investments 15 (37,890) - Proceeds from the sale of equity investments 15 447,194 - Proceeds from sale of property, plant and equipment 788 64 Return on equity investments 8a 33,927 17,078 Acquisition of non-controlling interest 20 (86,932) (10,827) Net cash from / (used in) investing activities 49,246 (140,165) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to the holders of the parent (113,288) (104,656) Interest paid on bonds and bank borrowing (22,137) (3,401) Exercise of options (465) 377 Issue of bond loans, net of issue costs and repayment of bridge loans 22 523,417 - Repayment of bond loans 22 (580,605) - Repayment of loans and borrowings (200,481) - Net cash used in financing activities (393,559) (107,680) INCREASE IN CASH AND CASH EQUIVALENTS 42,819 58,807 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 583,957 544,843 Exchange losses on cash and cash equivalents (4,579) (19,693) CASH AND CASH EQUIVALENTS AT END OF YEAR 622,197 583,957 2018 2017 €'000 €'000 ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Income and expenses not affecting operating cash flows: Depreciation 42,688 26,544 Amortisation 110,178 86,987 Impairment of intangible assets - 7,845 Disposal of intangible asset - 2,838 Share of profit from joint ventures (180) (464) Share of loss from associates 2,771 662 Interest on bond loans 28,152 - Non- cash transaction (see below) (74,938) 725 Impairment of investment in associates and other non-current assets 10,990 14,887 Changes in fair value of equity investments 1,738 467 Non-cash accrued bond interest 10,685 10,234 Income tax expense 53,643 17,505 Employee stock option plan expenses 13,724 15,094 Movement in contingent consideration and redemption liability (7,443) (126,379) Return on equity investments (33,927) (17,078) Exchange losses on cash and cash equivalents 4,579 19,693 Other 72 721 Changes in operating assets and liabilities: Increase in trade receivables (7,739) (33,084) Decrease/(increase) in other receivables 14,447 (13,608) Increase in trade payables 18,217 33,637 Increase in progressive, operators jackpot, security deposits 4,186 15,916 Increase in client funds and deposits 70,083 6,343 Increase in other payables 26,374 62 Decrease in provisions for risks and charges (1,183) - Decrease in deferred revenues (1,447) (129) 285,643 69,418 Acquisition of subsidiary 2018 2017 Note €'000 €'000 Acquisitions in the year A. Acquisition of Seabrize Marketing Limited 29a 20,000 - B. Acquisition of Rarestone Gaming PTY Ltd 29b 3,435 - C. Acquisition of Destres GmbH 29c 15,358 - D. Acquisition of Snaitech SpA 28d 291,175 - E. Acquisition of Piazza Hosting S.R.L. 29e 6,500 - F. Other acquisitions 29f 13,122 - Acquisitions in previous years A. Acquisition of Eyecon Limited 30a - 27,735 B. Acquisition of ACM Group 30b 1,673 4,233 C. Acquisition of Playtech BGT Sports Limited - 2,001 D. Acquisition of Consolidated Financial Holdings AS - 336 E. Acquisition of ECM Systems Holdings Ltd - 3,077 F. Other acquisitions 11,490 10,894 362,753 48,276 Cash of subsidiaries on acquisition 2018 2017 Note €'000 €'000 Acquisitions in the year A. Acquisition of Seabrize Marketing Limited 29a 173 - B. Acquisition of Rarestone Gaming PTY Ltd 29b 62 - C. Acquisition of Destres GmbH 29c 2,538 - D. Acquisition of Snaitech SpA 28d 154,947 - E. Acquisition of Piazza Hosting S.R.L. 29e 395 - F. Other acquisitions 29f 3,014 - Acquisitions in previous years A. Acquisition of Eyecon Limited 30a - 575 B. Acquisition of ACM Group 30b - - C. Other acquisitions 29a - 1,387 161,129 1,962 Non-cash transaction 2018 2017 Note €'000 €'000 Profit on disposal of equity-accounted associates (897) (725) Profit on disposal of equity investments 15 (65,691) - Gain on early repayment of bond 22 (8,350) - (74,938) (725) NOTE 1 - GENERAL A. Playtech plc (the 'Company') is a company domiciled in the Isle of Man. Playtech and its subsidiaries ('the Group') develop unified software platforms for the online and land based gambling industry, targeting online and land based operators. Playtech's gaming applications - online casino, poker and other P2P games, bingo, mobile, live gaming, land-based kiosk networks, land based terminal and fixed-odds games - are fully inter-compatible and can be freely incorporated as stand-alone applications, accessed and funded by the operators' players through the same user account and managed by the operator by means of a single, powerful management interface. Since June 2018, through the acquisition of Snaitech, Playtech directly owns and operates the leading sports betting and gaming brand in online and retail in Italy, Snai. The Group's financial trading division, has four primary business models, being: • B2C retail Contracts for difference ("CFD"), through www.markets.com where the group acts as the execution venue and the market-maker on a variety of instruments which fall under the general categories of Foreign exchanges, Commodities, Equities and indices; • B2B clearing and execution services for other retail brokers and professional clients, through CFH, where the group acts as a matched-principal liquidity provider and straight through processes ("STPs") the trades to prime brokers and clearing houses such as BNP, Jeffries, UBS, Citi etc; • B2B clearing and execution for other retail brokers, where the group acts as the execution venue and market-maker; and • B2B technology and risk management services, where the group provides platform, CRM, reporting and risk-management technology to the retail broker market. Where the Group acts as the execution venue, or provides execution services, these activities are undertaken in entities regulated by the UK's Financial Conduct Authority ("FCA"), the Australian Securities & Investments Commission ("ASIC"), the Cyprus Securities and Exchange Commission ("CySEC"), the British Virgin Islands' Financial Services Commission ("FSC"), and the South African Financial Sector Conduct Authority ("FSCA")." Basis of preparation The directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing its financial statements. Despite the net current liability position at the year end and the potential repayment of the convertible bond in November 2019; the Group's corporate planning processes include completion of a strategic review, preparation of a three-year business plan and a rolling re-forecast of current year business performance and prospects. During the year, additional business plans and financial projections were prepared to specifically consider the acquisition of Snaitech and issuance of a long term debt issuance, and its impact on the Group's future performance and funding requirements. The Group has also obtained a 3-year revolving credit facility in 2018 of €272m. The Directors continuously assessing the long-term viability of the Playtech group as part of their ongoing monitoring of the company. Refer to going concern, viability, responsibilities and disclosure in the Directors report. The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2018 or 31 December 2017. The Annual Report and financial statements for the year ended 31 December 2018 were approved by the Board of Directors on 20 February 2019 along with this preliminary announcement. The auditor's report on the statutory accounts for both the year ended 31 December 2018 and 31 December 2017 was unqualified. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed in the preparation of the financial information, on a consistent basis, are: Accounting principles This financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs"). In the current year the Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations and effective for accounting periods beginning on 1 January 2018. New standards, interpretations and amendments effective from 1 January 2018 New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2018, and which have given rise to changes in the Group's accounting policies are: § IFRS 9 Financial Instruments (IFRS 9); and § IFRS 15 Revenue from Contracts with Customers (IFRS 15) IFRS 9 - Financial instruments IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had a significant effect on the Group in the following areas: Equity investments classified as available for sale financial assets under IAS 39 Financial Instruments: Recognition and Measurement have been classified as being at Fair Value through Profit and Loss, unless an irrevocable election is made on the equity investment under IFRS 9. All fair value gains in respect of those assets are recognised in the statement of comprehensive income and accumulated in retained earnings. Any balance in the equity investment reserve relating to investments now treated as Fair Value Through Profit or Loss (FVTPL) on transition have been moved to retained earnings. Previously, under IAS 39, impairments of such assets were recognised in profit or loss, and gains and losses accumulated in reserves were recycled to profit or loss on disposal. The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) have been calculated in accordance with IFRS 9's expected credit loss model, which differs from the incurred loss model previously required by IAS 39. The Group has chosen not to restate comparatives on adoption of IFRS 9 and, therefore, both of these changes have been processed at the date of initial application (i.e. 1 January 2018), and presented in the statement of changes in equity. The change to an expected credit losses model as required under IFRS 9 has had an immaterial impact on the group. As allowed by the transitional rules in IFRS 9, prior year financial statements have not been restated and, in any event, no material changes in the numbers recognized were required. The adoption of IFRS 9 has though resulted in presentational changes as described above. On the date of initial application, 1 January 2018, the financial instruments of the group were as follows, with any reclassifications noted: Measurement Category Carrying amount Original (IAS 39) New (IFRS 9) Original New Difference €'000 €'000 €'000 Non-current financial assets Equity securities Available for Sale FVTPL 381,346 381,346 - Current financial assets Trade receivables Amortised cost Amortised cost 107,165 107,165 - Other receivables Amortised cost Amortised cost 93,322 93,322 - Cash and cash equivalents Amortised cost Amortised cost 583,957 583,957 - Non-current liabilities Bonds Amortised cost Amortised cost 276,638 276,638 - Contingent consideration and redemption liability FVTPL FVTPL 137,080 137,080 Current liabilities Loans and borrowings Amortised cost Amortised cost 200,000 200,000 - Contingent consideration and redemption liability FVTPL FVTPL 20,592 20,592 IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control - at a point in time or over time - requires judgement. The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognized at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017 has not been restated - i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations. Additionally, the disclosure requirements in IFRS 15 have not generally been applied to comparative information. Due to the nature of the revenue of the Group and the low number of fixed revenue contracts in existence, the transition to IFRS 15, net of tax, on retained earnings as at 1 January 2018 is not material. Hence, the impacts of adopting IFRS 15 on the Group's statement of financial position as at 31 December 2018 and its statement of profit or loss and OCI for the year then ended is also not material. IFRS 15 did not have a significant impact on the Group's accounting policies with respect to other revenue streams. For the description of the principal revenue streams and their respective accounting treatments, refer below. For more detailed information about reportable segments, see Notes 4 and 5. b) New standards, interpretations and amendments not yet effective There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The most significant of these is: § IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019) IFRS 16 replaces IAS 17, Leases and its related interpretations. The standard's instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead, for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize a right-of-use asset and a lease liability in its financial statements. Nonetheless, IFRS 16 includes two exceptions to the general model whereby a lessee may elect to not apply the requirements for recognizing a right-of-use asset and a liability with respect to short-term leases of up to one year and/or leases where the underlying asset has a low value. IFRS 16 is applicable for annual periods as of January 1, 2019, with the possibility of early adoption. IFRS 16 includes various alternative transitional provisions, so that companies can choose between the full retrospective application or recognizing a cumulative effect, which means application (with the possibility of certain practical expedients) as from the mandatory effective date with an adjustment to the balance of retained earnings at that date ("the modified approach"). Method of application and expected effects The Group plans to adopt IFRS 16 as from January 1, 2019 using the modified approach, with an adjustment to the balance of retained earnings as at January 1, 2019. The Group has elected the following expedients: (1) Not separating non-lease components from lease components and instead accounting for all the lease components and related non-lease components as a single lease component. (2) Relying on a previous assessment of whether an arrangement contains a lease in accordance with current guidance with respect to agreements that exist at the date of initial application. (3) Relying on a previous assessment of whether a contract is onerous in accordance with IAS 37 at the transition date, as an alternative to assessing impairment of right-of-use assets. (4) Excluding initial direct costs from measurement of the asset at the transition date. (5) Using hindsight when determining the lease term, meaning data presently available that may not have been available at the original date of entering into the agreement. Expected effects: · The Board still considering if it will measure the right of use assets under the modified approach as if the new standard had always been applied from the beginning of the lease (using the incremental borrowing rate of the lessee at the date of initial application), or at an amount equal to the lease liability, as possible under the transitional provisions of IFRS 16 on a lease-by-lease basis. Accordingly, application of the standard may result in an adjustment of retained earnings at the date of initial application. · These changes are expected to result in an increase in the balance of right-of-use assets at the date of initial application in the range of €111.2-121.9 million and an increase in the balance of the lease liability at the date of initial application in the range of €119.6-121.9 million (depending on the approach chosen). As a result, these changes are expected to result in a decrease up to €8.3 million in equity at the date of initial application. · Accordingly, depreciation and amortization expenses will be recognized in subsequent periods in respect of the right-of-use asset, and the need for recognizing impairment of the right-of-use asset will be examined in accordance with IAS 36. Furthermore, financing expenses will be recognized in respect of the lease liability. Therefore, as from the date of initial application and in subsequent periods, depreciation expenses and financing expenses will be recognized instead of lease expenses relating to assets leased under an operating lease, which were presented as part of the general and administrative expenses item in the income statement. In addition, the nominal discount rates used for measuring the lease liability are in the range of 2.7% to 8%. This range is affected by differences in the length of the lease term, differences between the various groups of assets and so forth. · The impact on the EBITDA as a result of the implementation of IFRS 16 is expected to be a growth of around €25 million. Additionally, the expected effect of the standard's application on the consolidated statement of comprehensive income in the year ended 31 December 2019, regardless any future modifications of the lease term, and with regard only to existing lease contracts, is a decrease in the range of €1.2-3.2 million in the Group's net profit. · The Group expects a change in principal financial ratios such as: an increase in the leverage ratio, a decrease in the interest coverage ratio and a decrease in the current ratio. Basis of consolidation Where the company has control over an investee it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee; exposure to variable returns from the investee; and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The consolidated financial information presents the results of the Company and its subsidiaries (the "Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases. Foreign currency The financial information of the gaming division, which includes the Company and some of its subsidiaries is prepared in Euros (the functional currency), which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the gaming division. Transactions and balances in foreign currencies are converted into Euros in accordance with the principles set forth by IAS 21 ("The Effects of Changes in Foreign Exchange Rates"). Accordingly, transactions and balances have been converted into the presentation currency of Euros as follows: § Monetary assets and liabilities - at the rate of exchange applicable at the balance sheet date; § Income and expense items - at exchange rates applicable as of the date of recognition of those items. § Non-monetary items are converted at the rate of exchange used to convert the related balance sheet items i.e. at the time of the transaction. Exchange gains and losses from the aforementioned conversion are recognised in the consolidated statement of comprehensive income. The financial information of the financial division is prepared in US Dollars (the functional currency), which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the financial division. The transactions and balances are converted into the presentation currency of Euros as follows: § Assets and liabilities - at the rate of exchange applicable at the balance sheet date; § Income and expense items - at average exchange rates applicable at the period of recognition of those items; § Equity- at historic rate. Exchange gains and losses from the aforementioned conversion are recognised in the foreign exchange reserve. Revenue recognition The majority of the Group's revenue is derived from selling services with revenue recognized at a point in time when services have been delivered to the customer. Type of Service Nature, timing of satisfaction of performance obligations and significant payment terms Royalty Income Royalty income relating to licensed technology and the provision of certain services provided via various distribution channels (online, mobile or land-based interfaces). Royalty income is based on the underlying gaming revenue earned by our licensees and is recognised in the accounting periods in which the gaming transactions occur. Royalty income invoices are billed and paid on a monthly basis. Trading income Trading income represents gains (including commission) and losses arising on client trading activity, primarily in contracts for difference on shares, indexes, commodities and foreign exchange. Open client positions are carried at fair market value and gains and losses arising on this valuation are recognised in revenue as well as gains and losses realised on positions that have closed. Fixed-fee income Other revenue includes revenue derived from the provision of certain services and licensed technology for which charges are based on a fixed-fee and stepped according to the usage of the service/technology in each accounting period. Income is recognised over the period of service once the obligations under the contracts have passed. Where amounts are billed and obligations not met, revenue is deferred. Amounts are mostly billed and paid on a monthly basis. Cost based revenue Cost Based revenue is the total revenue charged to the licensee based on the actual costs incurred from production and an additional percentage charged on top as a profit. Cost based revenue invoices are recognised in line with the cost and paid on a monthly basis. B2C revenue -Revenues from concessions related to the gaming machines are recognised less the flat- rate gaming tax and winnings paid out. - Revenue from the gaming machines are recognised less the winnings, jackpots and flat-rate gaming tax but inclusive of compensation payable to managers and operators, as well as the concession fees payable to the ADM. - Revenue from Online gaming (games of skill/casino/bingo) are recognised less the winnings, jackpots and flat-rate gaming tax but inclusive of the cost of the platform and concession fees. - The wagers related to the acceptance of fixed quota and reference bets (or bets for which the Group bears a risk deriving from winnings) are recognised net of costs for the single tax, the ex ASSI withholding, winnings and refunds paid to bettors. - The revenues from accepting totalisator bets, on the other hand, are recognised on the basis of the percentage of the premium established by the agreement for the year in which the bets are placed. - Revenues and costs related to bets are recognised at the time of the event for which the bet is accepted. Based on the services provided by the Group, excluding certain rebates provided to customers in the financial division, no return, refund and other similar obligations exist. Moreover, no warranties and related obligations exist. Distribution costs Distribution costs represent the direct costs of the function of providing services to customers, costs of the development function, advertising costs and indirect taxes. Share-based payments Certain employees participate in the Group's share option plans which commenced with effect from 1 December 2005. The fair value of the equity settled options granted is charged to the consolidated statement of comprehensive income on a straight line basis over the vesting period and the credit is taken to equity, based on the Group's estimate of shares that will eventually vest. Fair value is determined by the Black-Scholes and Binomial valuation model. The share options plan does not have any performance conditions other than continued service. Where equity settled share options are settled in cash at the group's discretion the debit is taken to equity. The Group has also granted awards to be distributed from the Group's Employee Benefit Trust. The fair value of these awards is based on the market price at the date of the grant, some of the grants have performance conditions. Income taxes and deferred taxation Provision for income taxes is calculated in accordance with the tax legislations and applicable tax rates in force at the balance sheet date in the countries in which the Group companies are tax registered and for Group branches based on place where the branch is established. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated balance sheet differs from its tax base, except for differences arising on: § the initial recognition of goodwill; § the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and § investments in subsidiaries and joint arrangements where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilized. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: § the same taxable Group company; or § different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Dividends Dividends are recognized when they become legally payable. In case of interim dividends to equity shareholders, this is when declared by the Directors. In case of final dividend, this is when approved by the shareholders at the AGM. Property, plant and equipment Property, plant and equipment are initially recognized at cost. Carrying amounts are reviewed on each balance sheet date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Depreciation is calculated to write off the cost of fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose, which are consistent with those of the previous years, are: % Computers and gaming machines 20-33 Office furniture and equipment 7-33 Freehold and leasehold buildings and improvements 3-20, or over the length of the lease Motor vehicles 15 Land is not depreciated. Subsequent expenditures are included in the asset carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the consolidated statement of comprehensive income. Put/Call options Where a put/call option is entered into over the non-controlling interest the ownership risks and rewards of the shares relating to the option are analysed to determine whether the equity is attributable to the non-controlling interest or the parent. The non-controlling interest is recognised if the risks and rewards of ownership of those shares remain with them. A financial liability is recorded to reflect the option. All subsequent changes to the liability (other than the cash settlement) are recognised in profit or loss. Where the significant risks and rewards of ownership remain with the non-controlling interest the non-controlling interest continues to be recognised and is allocated its share of profits and losses. Where the significant risks and rewards of ownership reside with the controlling interest, the financial liability recognised offsets the non-controlling interest. Investments in subsidiary undertakings Investments in subsidiary undertakings are recognised at cost less, if any, provision for impairment. Intangible assets Externally acquired intangible assets Externally acquired intangible assets are recognized at cost and subsequently amortised on a straight line basis over their useful economic lives. Intangible assets are recognized on business combinations if they are separable from the acquired entity or give rise to other contractual legal rights. The amounts described to such intangible are arrived at by using appropriate valuation techniques. Internally generated intangible assets (development costs) Expenditure on internally developed products is capitalized if it can be demonstrated that: § it is technically feasible to develop the product for it to be sold § adequate resources are available to complete and sell the product § the Group is able to sell the product § sale of the product will generate future economic benefits, § expenditure on the project can be measured reliably Amortisation is calculated at annual rates estimated to write off the costs of the assets over their expected useful lives and is charged to operating expenses from the point the asset is brought into use. The principal annual rates used for this purpose, which are consistent with those of the previous years, are: % Domain names Nil Internally generated capitalised development costs 20-33 Technology IP 13-33 Customer lists In line with projected cash flows or 7-20 Affiliate contracts 5-12.5 Patents and licenses 10-33 or over the period of the license Management believes that the useful life of the domain names and certain trading licenses is indefinite. These assets are reviewed for impairment annually. Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates. All other expenditure, including that incurred in order to maintain an intangible assets current level of performance, is expensed as incurred. Goodwill Goodwill represents the excess of the cost of a business combination over the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, and liabilities assumed and equity instruments issued plus the amount of non-controlling interest in the acquire plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquire. Contingent consideration, is included in the cost as its acquisition date fair value and, in case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. For business combinations completed on or after 1 January 2010, direct costs of acquisition are recognized immediately as an expense. Changes in the estimated value of contingent consideration arising on business combinations completed by this date were treated as an adjustment to cost and, in consequence, resulted in a change in the carrying value of goodwill. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Impairment of non-financial assets Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to annual impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to establish the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows, its cash generating units ("CGU"). Goodwill is allocated on initial recognition to each of the Group's cash generating units that are expected to benefit from a business combination giving rise to the goodwill. Impairment charges are included in the administrative expenses line item in the consolidated statement of comprehensive income, except to the extent they reverse gains previously recognised in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed. Associates and structured agreements Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate or structured agreements, as appropriate. Associates are initially recognised in the consolidated balance sheet at cost. Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses). Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets. Joint arrangements The Group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries. The Group classifies its interests in joint arrangements as either: Joint ventures - where the group has rights to only the net assets of the joint arrangement; or Joint operations - where the group has rights to both the assets and obligations for the liabilities of the joint arrangement. In assessing the classification of interests in joint arrangements, the Group considers: • The structure of the joint arrangement; • The legal form of joint arrangements structured through a separate vehicle; • The contractual terms of the joint arrangement agreement; and • Any other facts and circumstances (including any other contractual arrangements). The Group accounts for its interests in joint ventures in the same manner as investments in Associates (i.e. using the equity method - refer above). Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets. The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations. Financial assets (i) Classification From 1 January 2018, the Group classifies its financial assets in the following measurement categories: § those to be measured subsequently at fair value (either through OCI or through profit or loss), and § those to be measured at amortised cost. The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows. For assets measure at fair value, gains and losses will either recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrecoverable election at the time of initial recognitions to account for the equity investment at fair value through other comprehensive income. (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. (iii) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expenses in profit or loss. Changes in the fair value of financial assets at FVTPL are recognised in the statement of comprehensive. Financially assets measured at amortised cost arise principally through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 365 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional. The group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value. Other receivables consist of amounts generally arising from transactions outside the usual operating activities of the group such as the proceeds from disposal of investment. Due to the short-term nature of the other current receivables, their carrying amount is considered to be the same as their fair value. For the majority of the non-current receivables, the fair values are also not significantly different to their carrying amounts (iv) Impairment For trade receivables the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. (v) Accounting policies applied until 31 December 2017 The Group has applied IFRS9 retrospectively, but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Group's previous accounting policy. Until 31 December 2017, the Group classified its financial assets in the following categories: § Loans and receivable § Available for sale financial assets Loans and receivables (until 31 December 2017) These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The Group's receivables comprise trade and other receivables, cash and cash equivalents, and loans to customers in the balance sheet. Trade receivables which principally represent amounts due from licensees are carried at original invoice value less an estimate made for bad and doubtful debts based on a review of all outstanding amounts at the year-end. An estimate for doubtful debts is made when there is objective evidence that the Group will not be able to collect amounts due according to the original terms of receivables. Bad debts are written off when identified. Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less. Where cash is on deposit with maturity dates greater than three months, it is disclosed within other receivables. Loans to customers are in respect of formal loan agreements entered into between the Group and its customers, which are carried at original advanced value less provision for impairment (or fair value on inception, if different). They are classified between current and non-current assets in accordance with the contractual repayment terms of each loan agreement. Available-for-sale financial assets (until 31 December 2017) Non-derivative financial assets classified as available-for-sale comprise the Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value generally recognised in other comprehensive income and accumulated in the available for sale reserve. In accordance with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of comprehensive income. Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from equity and recognised in the consolidated statement of comprehensive income. Financial liabilities Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Several of the Group's licensees participate in progressive jackpot games. Each time a progressive jackpot game is played, a preset amount is added to a cumulative jackpot for that specific game. The accrual for the jackpot at the consolidated balance sheet date is included in progressive jackpot and other operator's jackpot liabilities. The Group's liability in connection with client funds includes customer deposits offset by the fair value of open positions, the movement on which is recognised through profit or loss. Such open positions are classified as short term financial derivatives in the balance sheet. Where customer's trading positions are hedged, or partly hedged, for risk management purposes, the fair value of those open hedge positions are carried at fair market value in trade receivables or trade payables (depending on whether the positions are in or out of the money) and classified as short term financial derivatives in the balance sheet. Liability components of convertible loan notes are measured as described further below. Loans and bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated balance sheet. Interest expense in this context includes initial transaction costs and premia payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Fair value measurement hierarchy IFRS 7 and IFRS 13 requires certain disclosure which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement (see note 30). The fair value hierarchy has the following levels: a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); b) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. - derived from prices) (Level 2); and c) Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). The level in the fair value hierarchy within which the financial asset or financial liability is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels. The Group measures its equity investments at fair value - refer to Note 15 for more detailed information in respect of the fair value measurement. Share capital Ordinary shares are classified as equity and are stated at the proceeds received net of direct issue costs. Employee Benefit Trust Consideration paid/received for the purchase/sale of shares subsequently put in the Employee Benefit Trust is recognised directly in equity. The cost of treasury shares held is presented as a separate reserve (the "Employee Benefit Trust reserve"). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the shares sold is credited to retained earnings. Convertible bond The proceeds received on issue of the Group's convertible bond are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the bond, where the option meets the definition of an equity instrument. The remainder of the proceeds is allocated to the conversion option and is recognised in the "Convertible bond option reserve" within shareholders' equity. Long term liabilities Long term liabilities are those liabilities that are due for repayment or settlement in more than twelve months from balance sheet date. Provisions Provisions, which are liabilities of uncertain timing or amount, are recognised when the Group has a present obligation as a result of past events, if it is probable that an outflow of funds will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Leased assets Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. Non-controlling interests Non-controlling interest is recognised at the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets. The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests. Adjusted results The directors believe that in order to best represent the trading performance and results of the Group, the reported numbers should exclude certain non-cash and one-off items including the below. Management regularly uses the adjusted financial measures internally to understand, manage and evaluate the business and make operating decisions. These adjusted measures are among the primary factors management uses in planning for and forecasting future periods. Furthermore, compensation of the executives is based in part on the performance of the business based on these adjusted measures. Accordingly, these are the key performance metrics used by the Board when assessing the Group's financial performance. Such exclusions include: • Material non-cash items, e.g. amortisation of intangibles on acquisition, change in fair value of equity investments in the income statement and Employee Share Option Plan expenses. Management regularly monitors the operating cash conversion to adjusted EBITDA. These items are excluded to better analyse the underlying cash transactions of the business. • Material one-off items, e.g. gain on sale of investment in associates, professional services cost related to acquisitions and other exceptional projects. In the last few years the Group has acquired new businesses on a regular basis, however, the costs incurred due to these acquisitions are not considered to be an ongoing trading cost and usually cannot be changed or influenced by management. Underlying adjusted results excludes the following items in order to present a more accurate 'like for like' comparison over the comparable period: • The impact of acquisitions made in the period or in the comparable period; and • Specific material agreements, adjustments to previous years or currency fluctuations affecting the results in the period and the comparable period. As these are non-GAAP measures, they should not be considered as replacements for IFRS measures. The Group's definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies. A full reconciliation of adjustments is included in note 6. NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The areas requiring the use of estimates and critical judgments that may potentially have a significant impact on the Group's earnings and financial position are detailed below. Judgments § Structured agreements For all arrangements structured in separate vehicles the Group must assess the substance of the arrangement in determining whether it meets the definition to be classified as an associate or joint venture. Factors the Group must consider include: • Structure • Legal form • Contractual agreement • Other facts and circumstances. Upon consideration of these factors, the Group has determined that all of its arrangements structured through separate vehicles give it significant influence but not joint control rights to the net assets and are therefore classified as associates. § Provision for loss from onerous contracts Management considers the requirement for a creation of a provision from a loss-making contract by forecasting the cash flow outcomes in the remain period of the contract. The assessment of the cash flow outcomes includes the probability of future changes in commercial terms and the steps taking to mitigate the issues encountered with the contract. § Revenue from contracts with customers As part of gambling activities may be physically located in casinos or in public venues (e.g., bingo) and others may be played online. In some cases, wagers may be handled through bookmakers or be sold through retail outlets (e.g., scratch cards or lottery tickets). Depending on the fact pattern, players might place a wager against the operator (the house), against other players, or both. In some jurisdictions, the operation of gambling activities is subject to a number of regulations and sometimes these regulations prescribe a percentage of all amounts wagered that must be awarded as prizes to winners. However, in other jurisdictions, the regulations do not prescribe a fixed percentage that must be awarded to winner(s) and in such situations, the percentage could be left to the operator's discretion or predefined as game rules, which are known to the players in advance. Therefore, the presentation of revenue depends on the nature of the gambling activity. When the gambling contract or instrument meets the definition of a derivative, it is accounted for as a financial instrument in accordance with IFRS 9 Financial Instruments: Recognition and Measurement. When the gambling contract or instrument does not meet the definition of a derivative, the operator assesses whether it acts as a principal or an agent. When the operator acts as an agent, only the net amount is presented as revenue (net of win and taxes). If it is deemed that the operator is acting as a principal, revenue is recognised gross at the amount collected from players, with prizes awarded to winners classified as an expense. Even if the operator receives the cash flows net, an entity that is deemed to be the principal presents revenue on a gross basis. § Internally generated intangible assets Expenditure on internally developed products is capitalized based on the below: § adequate resources are available to complete and sell the product § the Group is able to sell the product § sale of the product will generate future economic benefits, § expenditure on the project can be measured reliably Upon consideration of these factors, the Group capitalize these expenditure under intangible assets. § Income taxes The Group is subject to corporate income tax in jurisdictions in which its companies are incorporated and registered. Judgment is required to interpret international tax laws relating to ecommerce in order to identify and value provisions in relation to corporate income taxes. The principal risks relating to the Group's tax liabilities, and the sustainability of the underlying effective tax rate, arise from domestic and international tax laws and practices in the e-commerce environment continuing to evolve, including the corporate tax rates in jurisdictions where the Group has significant assets or people presence. The Group is basing its tax provisions on current (and enacted but not yet implemented) tax rules and practices, together with advice received from professional advisers, and believes that its accruals for tax liabilities are adequate for all open enquiry years based on its assessment of many factors including past experience and interpretations of tax law. The Group constantly monitors changes in legislation and update its accruals accordingly. More details are included in Note 9. § Regulatory The Group's subsidiaries, Safecap Investments Limited, Magnasale Trading Limited, CFH Clearing Limited, TradeTech Alpha Limited, TradeTech Markets (Australia) Pty Limited, TradeTech Markets (BVI) Limited, and TradeTech Markets (South Africa) Pty Limited are regulated by the Financial Conduct Authority, Australian Securities & Investments Commission, Cyprus Securities and Exchange Commission, the Financial Services Commission, or the Financial Sector Conduct Authority. The regulatory environment is regularly changing and imposes significant demands of the resources of the subsidiaries. As the subsidiaries' activities expand, offering new products and penetrating new markets, these regulatory demands will inevitably increase. The increasing complexity of the Group's operations require training and recruitment be tailored to meet these regulatory demands and the costs of compliance are expected to increase. In addition to the above, the regulated subsidiaries manage their capital resources on the basis of capital adequacy requirements as prescribed by each of the regulators, together with their own assessments of other business risks and sensitivities which may impact the business. Capital adequacy requirements are monitored on a real-time basis, including a 'buffer' which is deemed sufficient by management to ensure that capital requirements are not breached at any time. Estimates and assumptions § Impairment of goodwill and other intangibles The Group is required to test, on an annual basis, whether goodwill, intangible assets not yet in use and indefinite life assets have suffered any impairment. The Group is required to test other intangibles if events or changes in circumstances indicate that their carrying amount may not be recoverable. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Such estimates are based on management's experience of the business, but actual outcomes may vary. More details including carrying values are included in Note 13. § Deferred tax assets Deferred tax assets are recognized with respect to the tax losses carryovers and other significant temporary differences, to the extent that there is likely to be sufficient future taxable income against which such losses and temporary differences may be deducted in future periods. Directors are required to make significant discretionary evaluation to determine the amount of deferred tax assets that may be recognised. The directors need to estimate the probable temporary effect and the amount of the future taxable income, as well as the planning strategy for future taxes. More details included in Note 26. § Determination of fair value of intangible and tangible assets acquired on business combinations The fair value of the intangible assets acquired is based on the discounted cash flows expected to be derived from the use of the asset. Further information in relation to the determination of fair value of intangible assets acquired is given in Notes 29 and 30. The fair value of the tangible assets acquired on business combinations was determined through the methods of value in use and market value as determined by an external, independent property valuer. Further information in relation to the determination of fair value of tangible assets acquired is given in Note 29D. § Determination of the fair value of contingent consideration and redemption liability The fair value of contingent consideration and redemption liability is based on the probability of expected cash flow outcomes and the assessment of present values using appropriate discount rates. Recognition of put/call options over non-controlling interest is based on consideration of the ownership risks and rewards of the shares relating to the option to determine whether the equity is attributable to the non-controlling interest or the parent. The fair value is based on the probability of expected cashflow outcomes based on management's best estimates and discount rates applied.Further information in relation to the determination of the fair value of contingent consideration is given in Notes 23, 29 and 30. § Impairment of financial assets Loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculations based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period. The Group's exposure to various risks associated with the financial instruments is discussed in note 33. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned in Note 33. § Provision for risks and charges and potential liabilities The Group ascertains a liability in the presence of legal disputes or lawsuits underway when it believes it is probable that a financial outlay will take place and when the amount of the losses which derive there from can be reasonably estimated. The Group is subject to lawsuits regarding complex legal problems, which are subject to a differing degree of uncertainty (also due to a complex legislative framework), including the facts and the circumstances inherent to each case, the jurisdiction and the different laws applicable. Given the uncertainties inherent to these problems, it is difficult to predict with certainty the outlay which will derive from these disputes and it is therefore possible that the value of the provisions for legal proceedings and disputes may vary depending on future developments in the proceedings underway. The Group monitors the status of the disputes underway and consults with its legal advisors and experts on legal and tax-related matters. NOTE 4 - SEGMENT INFORMATION The Group's reportable segments are strategic business units that offer different products and services. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer and the Chief Financial Officer. The operating segments identified are: § Gaming B2B: including Casino, Services, Sport, Bingo, Poker and Other § Gaming B2C: Snaitech, Sun Bingo and Casual & Other B2C § Financial: including B2C and B2B CFD The Group-wide profit measures are adjusted EBITDA and adjusted net profit (see Note 6). Management believes the adjusted profit measures represent more closely the underlying trading performance of the business. No other differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial information. In 2017 following the growth in the business to customer ("B2C") segment and due to the fundamental difference in its margin profiles, the Group has changed the internal and external reporting and split out from the gaming segment the B2C element. There is no allocation of operating expenses, profit measures, assets and liabilities to individual products within the gaming segments, as allocation would be arbitrary. Geographical analysis of non-current assets The Group's information about its non-current assets by location of the domicile are detailed below: 2018 2017 €'000 €'000 Italy 900,837 - Isle of Man 539,944 805,288 Austria 176,621 147,877 Luxemburg - 117,366 UK 109,179 107,435 Cyprus 83,067 74,477 Sweden 70,157 76,452 British Virgin Islands 65,558 63,609 Denmark 42,738 43,004 Alderney 33,343 35,878 Gibraltar 33,413 25,295 Malta 21,043 20,537 Latvia 15,491 17,254 Rest of World 9,813 35,331 2,101,204 1,569,803 Year ended 31 December 2018 Casino Services Sport Bingo Poker Other Total B2B Snai Sun Bingo Casual and other B2C Total B2C Intercompany Total Gaming Total financial Consolidated €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 Total revenue 320,080 84,587 98,051 26,359 9,555 27,390 566,022 511,907 33,713 47,594 593,214 (11,729) 1,147,507 92,936 1,240,443 Adjusted EBITDA 252,645 60,945 313,590 29,459 343,049 Adjusted net profit 136,490 2,280 138,770 117,409 256,179 Total assets 1,106,104 1,197,026 2,303,130 790,598 3,093,728 Total liabilities 1,096,605 323,116 1,419,721 323,411 1,743,132 Year ended 31 December 2017 Casino Services Sport Bingo Poker Other Total B2B Snai Sun Bingo Casual and other B2C Total B2C Intercompany Total Gaming Total financial Consolidated €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 Total revenue 412,811 94,381 87,467 26,180 9,475 26,408 656,722 - 23,648 46,638 70,285 (4,817) 722,190 84,930 807,120 Adjusted EBITDA 321,686 (26,606) 295,080 27,016 322,096 Adjusted net profit 234,772 (25,895) 208,877 22,572 231,449 Total assets 1,523,525 21,809 1,545,334 808,913 2,354,247 Total liabilities 739,139 6,436 745,575 250,190 995,795 NOTE 5 - REVENUE FROM CONTRACTS WITH CUSTOMERS The Group has disaggregated revenue into various categories in the following table which is intended to: · Depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic date; and · Enable users to understand the relationship with revenue segment information provided in the segmental information note. Set out below is the disaggregation of the Group's revenue: Geographical analysis of revenues by jurisdiction of license B2B B2C Financial Intercompany Total Primary Geographic Markets €'000 €'000 €'000 €'000 €'000 Italy 23,366 519,117 3,686 (6,447) 539,722 UK 175,589 44,208 40,870 (3,581) 257,086 Philippines 170,062 - 1 - 170,063 Malta 30,812 - 220 - 31,032 Gibraltar 24,252 - 186 - 24,438 Mexico 23,204 - 663 - 23,867 Spain 21,652 555 1,398 (56) 23,549 Greece 13,427 - 1,076 - 14,503 Germany 1,329 11,769 2,621 (1,237) 14,482 Finland 12,827 - 141 - 12,968 Belgium 7,853 - 3 - 7,856 Austria 4,856 2,259 361 (408) 7,068 Seychelles - - 6,974 - 6,974 Ireland 6,312 - 446 - 6,758 Norway 5,849 - 752 - 6,601 Rest of World 44,632 15,306 33,538 - 93,476 566,022 593,214 92,936 (11,729) 1,240,443 B2B B2C Financial Intercompany Total Product type €'000 €'000 €'000 €'000 €'000 Casino 320,080 - - (4,875) 315,205 Services 84,587 - - (3,116) 81,471 Sport 98,051 - - (2,410) 95,641 Bingo 26,359 - - (884) 25,475 Poker 9,555 - - (346) 9,209 Other 27,390 - - (98) 27,292 SNAI - 511,907 - - 511,907 Sun Bingo - 33,713 - - 33,713 Casual and Other B2C - 47,594 - - 47,594 Financial - - 92,936 - 92,936 566,022 593,214 92,936 (11,729) 1,240,443 B2B B2C Financial Intercompany Total Timing of transfer of services €'000 €'000 €'000 €'000 €'000 Point in time (at point of transaction) 486,132 583,971 92,695 (11,181) 1,151,617 Over time 79,890 9,243 241 (548) 88,826 566,022 593,214 92,936 (11,729) 1,240,443 The effect of initially applying IFRS 15 on the Group's revenue from contracts with customers is described in Note 2. Due to the transition method chosen in applying IFRS 15, comparative information has not been restated to reflect the new requirements. The vast majority of the Group's B2B contracts are for the delivery of services within the next 12 months. In 2018, there were one licensees (2017: Two licensees) who individually accounted for more than 10% of the total gaming revenue and the total revenue of the Group. Aggregate revenue from these licensees total €137.7 million (2017: €280.6 million). NOTE 6 - ADJUSTED ITEMS The following tables give a full reconciliation between adjusted and actual results: 2018 2017 €'000 €'000 Revenue 1,240,443 807,120 Constant currency impact 11,228 - Revenue on constant currency basis 1,251,671 807,120 Revenue related to acquisitions on a constant currency basis (547,587) (9,640) Underlying revenue 704,084 797,480 Distribution costs before depreciation and amortisation 796,494 412,943 Employee stock option expenses (5,014) (7,292) Adjusted distribution costs before depreciation and amortisation 791,480 405,651 Administrative expenses before depreciation and amortisation 156,105 117,088 Employee stock option expenses (8,710) (7,802) Professional fees on acquisitions (27,102) (2,387) One off employee related costs - (5,001) Additional consideration payable for put/call options 2,391 (5,345) Cost of business reorganization (2,396) (1,101) Decline in the fair value of equity investments - (467) Impairment of investment in equty-accounted associates (8,001) (14,887) Gain/(loss) from the disposal of equity-accounted associates 897 (725) Amendment to deferred consideration (1,705) - Provision for other receivables (5,565) - Total adjusted items (50,191) (37,715) Adjusted administrative expenses before depreciation and amortisation 105,914 79,373 Depreciation - distribution costs 36,690 19,129 Depreciation - administrative costs 5,977 7,415 Amortisation - distribution costs 110,178 86,987 Impairment - 7,845 Total depreciation and amortization 152,845 121,376 Amortisation of intangibles on acquisitions - distribution costs (47,936) (50,954) Impairment - (7,845) Adjusted depreciation and amortisation 104,909 62,577 EBITDA 287,844 277,090 Employee stock option expenses 13,724 15,094 Professional expenses on acquisitions 27,102 2,387 One off employee related costs - 5,001 Additional consideration payable for put/call options (2,391) 5,345 Cost of business reorganization 2,396 1,101 Decline in the fair value of equity investments - 467 Impairment of investment in equity-accounted associates 8,001 14,887 Gain/(loss) from the disposal of equity-accounted associates (897) 725 Amendment to deferred consideration 1,705 - Provision for other receivables 5,565 - Adjusted EBITDA 343,049 322,096 Constant currency impact 3,208 - Adjusted EBITDA on constant currency basis 346,257 322,096 EBITDA related to acquisitions on constant currency basis (90,703) - Underlying adjusted EBITDA 255,554 322,096 Profit for the year- attributable to owners of parent 123,809 248,140 Amortisation of intangibles on acquisitions 47,936 50,954 Impairments related to acquisitions - 7,845 Gain/(loss) from the disposal of equity-accounted associates (897) 725 Impairment of investment in associate and other non-current assets 8,001 14,887 Employee stock option expenses 13,724 15,094 Professional expenses on acquisitions 27,102 2,387 Additional consideration payable for put/call options (2,391) 5,345 Cost of business reorganisation 2,396 1,101 Non-cash accrued bond interest 10,685 10,234 Decline in fair value of equity investments - 467 One off employee related costs - 5,241 Deferred tax on acquisition (9,861) (4,592) Movement in deferred and contingent consideration (1,887) (126,379) Finance costs on acquisitions 8,494 - Fair value change of equity investments 1,738 - Tax relating to prior years (refer to note 9) 28,410 - Gain on the early repayment of the bond (8,350) - Amendment to deferred consideration 1,705 - Provision for other receivables 5,565 - Adjusted profit for the year - attributable to owners of the parent 256,179 231,449 Constant currency impact 9,650 - Adjusted profit for the year - attributable to owners of the parent on constant currency basis 265,829 231,449 Adjusted net profit related to acquisitions on constant currency basis (32,700) 18,808 Underlying adjusted profit for the year - attributable to owners of the parent 233,129 250,257 NOTE 7 - EBITDA EBITDA is stated after charging: 2018 2017 €'000 €'000 Directors compensation Short-term benefits of directors 2,899 2,532 Share-based benefits of directors 1,320 1,436 Bonuses to executive directors 717 2,280 4,936 6,248 Auditor's remuneration Group audit and parent company (BDO) 572 509 Audit of subsidiaries (BDO) 634 508 Audit of subsidiaries (non-BDO) 758 209 Total Audit fees 1,964 1,226 Non-audit services provided by parent company auditor and its international member firms Corporate finance services related to acquisitions 2,264 271 Other non-audit services 407 116 Tax advisory services 192 96 Total Non-audit fees 2,863 483 Development costs (net of capitalised development costs of €58.3 million (2017: €50.7 million) 87,290 85,191 NOTE 8 - FINANCING INCOME AND COSTS 2018 2017 €'000 €'000 A. Finance income Interest received 2,446 1,850 Dividends received from equity investments 33,927 17,078 Movement in contingent consideration 1,887 126,379 Gain on early repayment of bond loans (Note 22) 8,350 - 46,610 145,307 B. Finance cost Exchange differences (4,579) (19,693) Non cash accrued bond interest (10,685) (10,234) Nominal interest expenses on convertible bonds (1,485) (1,485) Interest on bond loans - Snai bond (14,873) - Interest on bond loans - Bond (4,645) - Interest on bank loans (4,102) (1,857) Bank facility fees (13,642) - Bank charges and interest paid (5,538) (938) (59,549) (34,207) Net financing (cost)/income (12,939) 111,100 NOTE 9 - TAXATION 2018 2017 €'000 €'000 Current income tax Income tax on profits of subsidiary operations 29,938 21,856 Deferred tax (Note 26) (4,705) (4,592) Tax for prior years 28,410 241 Total tax charge 53,643 17,505 The tax charge for the year can be reconciled to accounting profit as follows: 2018 2017 €'000 €'000 Profit before taxation 183,031 266,615 Tax at effective rate in Isle of Man - - Income tax on profits of subsidiary operations 29,938 21,856 Deferred tax (4,705) (4,592) Tax for prior years 28,410 241 Total tax charge 53,643 17,505 The Group's policy is to manage, control and operate Group companies only in the countries in which they are registered. The international tax laws and practices in the e-commerce environment continue to evolve in many jurisdictions where the Group has significant assets or people presence. The Group's international presence means that it is possible that the amount of tax that will eventually become payable may differ from the amount provided in the financial statements. The Group's underlying effective adjusted tax rate of 10% is impacted by the geographic mix of profits and reflects a combination of higher headline rates of tax in the various jurisdictions in which the Group operates when compared with the Isle of Man standard rate of corporation tax of 0%. The Group's underlying effective tax rate for the year includes adjustments in respect of prior years for overseas tax of €28.4 million which relates to the settlement of open enquiries with tax authorities. The deferred tax is due to the reversal of temporary differences arising on the identification of the intangible assets acquired in the current and prior years. Refer to Note 26 for more detailed information in respect of deferred taxes. NOTE 10 - EARNINGS PER SHARE Earnings per share have been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue and the earnings, being profit after tax is as follows: 2018 2017 Actual Adjusted Actual Adjusted €'000 €'000 €'000 €'000 Profit for the year attributable to owners of the parent 123,809 256,179 248,140 231,449 Add interest on convertible bond 12,170 1,485 11,719 1,485 Earnings used in diluted EPS 135,979 257,664 259,859 232,934 Basic (cents) 39.3 81.3 78.9 73.6 Diluted (cents) 38.4 72.9 74.6 66.8 2018 2017 Actual Adjusted Actual Adjusted Number Number Number Number Denominator - basic Weighted average number of equity shares 315,066,252 315,066,252 314,504,413 314,504,413 Denominator - diluted Weighted average number of equity shares 315,066,252 315,066,252 314,504,413 314,504,413 Weighted average number of option shares 3,420,264 3,420,264 418,290 418,290 Weighted average number of convertible bonds 35,194,994 35,194,994 33,543,403 33,543,403 Weighted average number of shares 353,681,510 353,681,510 348,466,106 348,466,106 NOTE 11 - EMPLOYEE BENEFITS Total staff costs comprise the following: 2018 2017 €'000 €'000 Salaries and personnel-related costs 289,035 264,555 Employee stock option costs 13,724 15,094 302,759 279,649 Average number of personnel: Distribution 4,741 4,586 General and administration 562 458 5,303 5,044 The Group has the following employee share option plans ("ESOP") for the granting of non-transferable options to certain employees: § Playtech 2005 Share Option Plan ("the Plan") and Israeli plans, options granted under the plans vest on the first day on which they become exercisable which is typically between one to four years after grant date. § GTS 2010 Company Share Option Plan ("CSOP"), options granted under the plan vest on the first day on which they become exercisable which is three years after grant date. § Long Term Incentive Plan 2012 ("LTIP"), awards (options, conditional awards or a forfeitable share award) granted under the plan vest on the first day on which they become exercisable which is typically between eighteen to thirty six months after grant date. The overall term of the ESOP is ten years. These options are settled in equity once exercised. Option prices are denominated in GBP. During 2012, the Group amended some of the rules of the equity based Plan. The amendments allow the Group, at the employees consent, to settle fully vested and exercisable options for cash instead of issuing shares. The Group granted 2,985,462 and 1,615,579 nil cost awards in 2018 and 2017 respectively at fair value per share of £5.35 in 2018 and between £9.625 and £10.06 in 2017. At 31 December 2018, options under these schemes were outstanding over: 2018 2017 Number Number Shares vested between 28 November 2009 and 28 November 2012 at an exercise price of £3.20 per share - 19,735 Shares vested between 18 April 2012 and 18 April 2013 at an exercise price of £5.12 per share 18,000 18,000 Shares vested between 26 August 2012 and 26 August 2013 at an exercise price of £4.16 per share 30,500 30,500 Shares vested on 10 March 2014 at an exercise price of £3.5225 per share 25,700 26,500 Shares vested on 1 March 2018 at nil cost 102,844 146,919 Shares vested between 1 September 2016 and 1 March 2018 at nil cost 159,158 276,825 Shares will vest on 1 March 2019 at nil cost 246,728 246,728 Shares will vest between 1 September 2017 and 1 March 2019 at nil cost 319,742 429,817 Shares will vest on 21 December 2019 at nil cost 86,205 110,183 Shares will vest between 1 October 2017 and 1 April 2019 at nil cost 29,562 324,494 Shares will vest on 1 March 2020 at nil cost 1,115,570 1,228,877 Shares will vest On 1 September 2019 at nil cost 16,703 - Shares will vest On 1 March 2021 at nil cost 2,867,209 - 5,017,921 2,858,578 Total number of shares exercisable as of 31 December 2018 is 458,156 (2017: 278,982). The following table illustrates the number and weighted average exercise prices of shares options for the ESOP. 2018 2017 2018 2017 Number of options Number of options Weighted average exercise price Weighted average exercise price Outstanding at the beginning of the year 2,858,578 1,836,137 £0.13 £0.38 Granted 2,985,462 1,615,579 Nil Nil Forfeited (351,166) (113,339) £0.08 Nil Exercised (474,953) (479,799) £0.09 £0.67 Outstanding at the end of the year 5,017,921 2,858,578 £0.06 £0.13 Included in the number options exercised during the year are 14,387 options (2017: 29,689) where a cash alternative was received. The weighted average share price at the date of exercise of options was £6.912 (2017: £8.601). Share options outstanding at the end of the year have the following exercise prices: Expiry date Exercise price 2018 2017 Number Number 28 November 2018 £3.2 - 19,735 Between 18 April 2020 and 26 August 2020 Between £4.16 and £5.12 48,500 48,500 10 March 2021 £3.5225 25,700 26,500 21 December 2025 Nil 262,002 423,744 Between 21 December 2026 and 31 December 2026 Nil 652,675 786,728 Between 1 March 2027 and 28 June 2027 Nil 1,126,440 1,553,371 23 July 2028 Nil 2,902,604 - 5,017,921 2,858,578 Tradetech ESOP In addition, the Group has the following employee share option plans ("ESOP") for the granting of non-transferable options to certain employees: § TradeFX 2009 Global Share Option Plan ("the First Plan"), options granted under the first plan vest on the first day on which they become exercisable which is typically between one to four years after grant date. § Long Term Incentive Plan 2012 ("LTIP"), awards (options, conditional awards or forfeitable share award) granted under the plan vest on the first day on which they become exercisable which is typically between eighteen to thirty six months after grant date. § Tradetech Performance Share Plan 2017 ("the Second Plan"), options granted under the second plan vest three years after grant date, according to performance targets in the years 2017 and 2018. The overall term of the ESOP is ten years. These options are settled in equity once exercised. Option prices are either denominated in USD, depending on the option grant terms. Total number of share options exercisable as of 31 December 2018 is 7,500 (2017: 100,416). 2018 2017 Number Number Shares vested between 1 June 2011 and 31 December 2017 at an exercise price of $4 per share - 750 Shares vested between 1 November 2013 and 31 December 2017 at an exercise price of $12 per share - 4,475 Shares vested between 1 December 2015 and 31 December 2017 at an exercise price of $70 per share 4,250 95,191 Shares vested between 1 January 2018 and 31 December 2018 at an exercise price of $70 per share 3,250 - 7,500 100,416 Shares vesting between 1 January 2018 and 1 September 2020 at an exercise price of $70 per share 5,500 53,495 Shares will vest between June 2020 November 2020 at nil cost 7,898 7,898 13,398 61,393 20,898 161,809 The following table illustrates the number and weighted average exercise prices of shares options for the ESOP: 2018 2017 2018 2017 Number of options Number of options Weighted average exercise price Weighted average exercise price Outstanding at the beginning of the year 161,809 160,061 $ 66.64 $ 60.7 Granted through the year - 7,898 - $ 70 Forfeited (133,436) (5,600) $70.00 $ 36.75 Exercised (7,475) (550) $ 11.2 $ 9.17 Outstanding at the end of the year 20,898 161,809 $ 43.54 $ 66.64 Included in the number of options exercised during the year is 6,100 (2017: 550) where a cash alternative was received. The weighted average share price at the date of exercise of options was $9.67. Share options outstanding at the end of the year have the following exercise prices: 2018 2017 Number Number Share options to be expired between 1 June 2020 and 1 August 2022 at an exercise price of $4 per share - 750 Share options to be expired between 1 September 2022 and 1 November 2023 at an exercise price of $12 per share - 4,475 Share options to be expired between 1 December 2024 and 10 March 2025 at an exercise price of $70 per share 13,000 148,686 Share options to be expired between June 2027 and November 2027 at nil cost 7,898 7,898 20,898 161,809 NOTE 12 - PROPERTY, PLANT AND EQUIPMENT Computers Gaming machines Office furniture, equipment and motor vehicles Freehold and leasehold buildings and improvements Total €'000 €'000 €'000 €'000 €'000 Cost At 1 January 2017 83,982 15,224 12,672 32,038 143,916 Additions 15,009 11,816 2,717 5,150 34,692 Acquired through business combinations 101 1 44 - 146 Disposals (1,610) - (415) (1,785) (3,810) Foreign exchange Movements (175) (5) (74) (2) (256) At 31 December 2017 97,307 27,036 14,944 35,401 174,688 Accumulated depreciation At 1 January 2017 55,864 2,787 5,409 6,963 71,023 Charge 14,842 5,835 2,764 3,103 26,544 Disposals (1,490) 66 (251) (1,351) (3,026) Foreign exchange Movements 90 3 36 2 131 At 31 December 2017 69,306 8,691 7,958 8,717 94,672 Net Book Value At 31 December 2017 28,001 18,345 6,986 26,684 80,016 At 31 December 2016 28,118 12,437 7,263 25,075 72,893 Computers Gaming machines Office furniture and equipment Buildings and leasehold buildings and improvements Total €'000 €'000 €'000 €'000 €'000 Cost At 1 January 2018 97,307 27,036 14,944 35,401 174,688 Additions 17,469 24,103 5,674 7,734 54,980 Acquired through business combinations 771 21,539 7,647 288,633 318,590 Disposals (9,371) (9,315) (2,187) (1,767) (22,640) Reclassifications - - (838) 838 - Foreign exchange movements 46 2 23 1 72 At 31 December 2018 106,222 63,365 25,263 330,840 525,690 Accumulated depreciation At 1 January 2018 69,306 8,691 7,958 8,717 94,672 Charge 17,415 15,163 4,348 5,762 42,688 Disposals (9,320) (9,290) (1,914) (1,277) (21,801) Reclassifications - - (427) 427 - Foreign exchange movements 31 1 11 - 43 At 31 December 2018 77,432 14,565 9,976 13,629 115,602 Net Book Value At 31 December 2018 28,790 48,800 15,287 317,211 410,088 NOTE 13 - INTANGIBLE ASSETS Patents, domain names and license Technology IP Development costs Customer list & Affiliates Goodwill Total €'000 €'000 €'000 €'000 €'000 €'000 Cost As of 1 January 2017 79,123 93,983 158,733 391,756 620,257 1,343,852 Additions 1,601 - 50,683 1,460 - 53,744 Disposals (2,838) - (2,349) (28) - (5,215) Assets acquired on business combinations 1,289 9,389 3,336 15,623 98,940 128,577 Assets acquired on business combinations in prior year - - - - 2,017 2,017 Impairment of intangible asset - - - - (7,845) (7,845) Foreign exchange Movements (4,595) (2,619) (2,137) (12,216) (33,793) (55,360) As of 31 December 2017 74,580 100,753 208,266 396,595 679,576 1,459,770 Accumulated amortisation As of 1 January 2017 20,439 26,093 87,657 195,028 - 329,217 Provision 7,909 16,101 27,976 35,001 - 86,987 Disposals - - (2,349) (28) - (2,377) Foreign exchange Movements (627) (779) (822) (3,061) - (5,289) As of 31 December 2017 27,721 41,415 112,462 226,940 - 408,538 Net Book Value As of 31 December 2017 46,859 59,338 95,804 169,655 679,576 1,051,232 As of 31 December 2016 58,684 67,890 71,076 196,728 620,257 1,014,635 Patents, domain names & License Technology IP Development costs Customer list & Affiliates Goodwill Total €'000 €'000 €'000 €'000 €'000 €'000 Cost As of 1 January 2018 74,580 100,753 208,266 396,595 679,576 1,459,770 Additions 5,161 - 58,297 - - 63,458 Disposals - - - - - - Write offs - - (2,850) - - (2,850) Assets acquired on business combinations 117,960 4,593 - 230,520 268,121 621,194 Foreign exchange movements 1,435 880 977 4,510 13,413 21,215 As of 31 December 2018 199,136 106,226 264,690 631,625 961,110 2,162,787 Accumulated amortisation As of 1 January 2018 27,721 41,415 112,462 226,940 - 408,538 Provision 14,010 15,865 36,906 43,397 - 110,178 Disposals - - - - - - Write offs - - (2,850) - - (2,850) Foreign exchange Movements 313 396 479 1,600 - 2,788 As of 31 December 2018 42,044 57,676 146,997 271,937 - 518,654 Net Book Value As of 31 December 2018 157,092 48,550 117,693 359,688 961,110 1,644,133 In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets, including goodwill. Goodwill is allocated to fifteen (2017: thirteen) cash generating units ("CGU"). Management determines which of those CGU's are significant in relation to the total carrying value of goodwill as follows: · Carrying value exceeds 10% of total goodwill; or · Significant acquisitions during the year; or · Significant contingent consideration exists at the balance sheet date. Based on the above criteria in respect of the goodwill, management has concluded that the following are significant: · Markets, with a carrying value of $265.3 million, €232.0 million (2017: $265.3 million, €221.5 million) · Services, with a carrying value of €110.1 million (2017: €95.2 million); · Sport, with a carrying value of €132.5 million (2017: €132.5 million); · Casino product, with a carrying value of €51.7 million (2017: €81.8 million); · Tradetech Alpha, with a carrying value of €65.6 million (2017: €63.5 million); · Sports B2C, with carrying amount of €28.1 million (2017: €0.1 million); · Snaitech, with carrying amount of €211 million (2017: Nil); The recoverable amounts of all the CGUs have been determined from value in use calculations based on cash flow projections from formally approved budgets covering one year period to 31 December 2019 in addition to 2-5 years forecasts. Beyond this period, management has applied an annual growth rate of between 5% and 10% based on the underlying economic environment in which the CGU operates. Management has applied discount rates to the cash flow projections between 10.24% and 21.48% (2017: between 10.53% and 24.53%). No impairment of goodwill has been recognized during the year (2017: €7.8 million). Markets CGU represents the group's individually most significant goodwill balance. The recoverable amount of the Markets CGU has been determined using cashflow forecasts that include annual revenue growth rates of between 0% and 22% over the 2-5 year forecast period. The recoverable amount would equal the carrying amount of the CGU if the annual revenue growth rate was lower by 6% or the discount rate applied was higher by 1.6%. In the prior year there were no reasonably possible changes in any of the key assumptions that would have resulted in an impairment write down in the Markets CGU. Sports B2C CGU is new as a significant CGU for the group. The recoverable amount of the Sports B2C CGU has been determined using cashflow forecasts that include annual revenue growth rates of between 10% and 50% over the 2-5 year forecast period. The recoverable amount would equal the carrying amount of the CGU if the annual revenue growth rate was lower by 13% or the discount rate applied was higher by 1%. In respect of the Tradetech Alpha CGU no impairment has been identified from the impairment review performed. Management do not consider it necessary to disclose any further sensitivity information as no reasonably possible change in any of the key assumptions would result in an impairment write down in the carrying value. Further to this any impairment would result in a reduction of the carrying value of contingent consideration. Management has also reviewed the key assumptions and forecasts for the customer lists, brands and affiliates, applying the above same key assumptions. The results of the reviews indicated there was no impairment of the intangible assets at 31 December 2018. NOTE 14 - INVESTMENTS IN EQUITY ACCOUNTED ASSOCIATES & JOINT VENTURES 2018 2017 €'000 €'000 A. Investment in joint ventures 408 1,255 Investment in equity accounted associates: B. Investment in associates 12,448 19,306 C. Investment in structured agreements 16,785 16,655 29,641 37,216 A. Investment in joint ventures Movements in the carrying value of the investment during the year are as follows: €'000 Investment in joint venture at 1 January 2018 1,255 Share of profit in joint venture 180 Return of investment (1,027) Investment in joint venture at 31 December 2018 408 B. Investment in associates Investment in BGO In August 2014, the Group acquired 33.33% of the shares of BGO Limited, a company incorporated in Alderney, for a total consideration of £10 million (€12.5 million). In 2015 the Group invested additional £0.7 million (€0.9 million). The purpose of this investment is to further enhance BGO gaming applications on the Group's platform and to enable BGO to further invest in its successful brands and grow into international markets. At the reporting date the Group's NBV of investment in BGO totals €7.6 million (2017: €7.9 million). Aggregated amounts relating to BGO Limited are as follows: 2018 2017 €'000 €'000 Total non-current assets - - Total current assets 16,711 16,905 Total non-current liabilities (42) (41) Total current liabilities (3,339) (3,380) Revenues 33,520 39,401 Profit/(loss) and total comprehensive income (836) 3,128 Other individually immaterial investments During the year the Group invested €1.7 million consideration in investment not controlled by the Group (2017: €7.3 million consideration to non-controlling investments acquired in previous years). At the reporting date the Group's NBV of the other investments totals €4.8 million (2017: €11.9 million). Total associates: €'000 Investment in associates at 1 January 2018 19,306 Share of loss (2,771) Investment in associates in the year 1,700 Investment in associates acquired through business combination 1,908 Disposals of equity accounted associates during the year (3,072) Impairment of equity accounted associates (4,623) Investment in associates at 31 December 2018 12,448 C. Investment in structured agreements During the year the Group invested additional €0.1 million in an existing agreement (2017: additional €0.7 million in an existing agreement). During the year the Group impaired €Nil of structured agreements (2017: €7.5 million). Movement in structured agreements: €'000 Investment in structured agreements at 1 January 2018 16,655 Additional investment in structured agreements in the year 130 Investment in structured agreements at 31 December 2018 16,785 NOTE 15 - EQUITY INVESTMENTS Investments previously held as available for sale investments under IAS 39 have been reclassified to equity investments held at fair value through profit and loss (FVTPL) on transition to IFRS 9 on 1 January 2018. 2018 2017 €'000 €'000 Investment in equity investments at 1 January 381,346 230,278 Additions during the period 37,890 - Reclassification on acquisition of Snaitech (37,890) - Proceeds from the disposal during the period (447,194) - Unrealised fair value change recognised in the equity - 157,809 Realised fair value changes on disposal recognised in the statement of comprehensive income 65,691 - Unrealised fair value changes on disposal recognised in the statement of comprehensive income (1,738) (467) Translation gain 3,295 (6,274) Investment in equity investments at 31 December 1,400 381,346 As part of the takeover of Ladbrokes Coral plc ("Ladbrokes") by GVC Holdings plc ("GVC"), the Group exchange its shares in Ladbrokes for €205million of GVC shares and cash consideration of €32million. The Group subsequently sold these GVC shares for net proceeds of €254 million. In addition, the Group sold the shares in Plus500 Limited for net proceeds of €193 million. As a result of these transactions, during the year, the Group realised a gain on disposal of €65.7million being the net of the fair value movements from 1 January 2018 to the date of disposal. Additions during the period relate to purchase of shares in Snaitech prior taking the control on 5 June. Upon taking control, these shares formed part of the cost of investment (see note 29d). 2018 2017 €'000 €'000 Equity investments include the following: Quoted: Equity securities- UK - 378,210 Equity securities- Asia 1,400 3,136 1,400 381,346 The fair value of quoted investments is based on published market prices (level one). The maximum exposure of the equity investments to credit risk at the reporting date is the carrying value of the financial assets classified as equity investments. NOTE 16 - OTHER NON-CURRENT ASSETS 2018 2017 €'000 €'000 Loan to affiliate - 2,208 Rent and car lease deposits 3,155 3,779 Guarantee for gaming licenses 2,713 2,000 Deferred tax 1,794 2,775 Other 8,280 9,231 15,942 19,993 NOTE 17 - TRADE RECEIVABLES 2018 2017 €'000 €'000 Trade receivables 255,527 103,683 Less: provision for impairment of trade receivables (Note 33b) (52,950) (1,430) Trade receivables - net 202,577 102,253 Related parties (Note 31) 7,277 4,912 209,854 107,165 NOTE 18 - OTHER RECEIVABLES 2018 2017 €'000 €'000 Prepaid expenses 25,029 18,857 VAT and other taxes 19,533 11,326 Advances to suppliers 1,275 158 Proceeds from disposal of investment 33,390 39,426 Related parties (Note 31) 4,000 6,524 Security deposits for regulators 35,365 - Other receivables 41,881 17,031 160,473 93,322 During the year the Group provided for receivables totalling €6.4 million, which were included in related party receivables. NOTE 19 - CASH AND CASH EQUIVALENTS 2018 2017 €'000 €'000 Cash at bank 586,878 558,527 Cash at brokers 26,860 17,771 Deposits 8,459 7,659 622,197 583,957 The Group held cash balances which include monies held on behalf of operators in respect of operators' jackpot games and poker and casino operations and client funds with respect to B2C, CFD and client deposits in respect of liquidity and clearing activity. 2018 2017 €'000 €'000 Funds attributed to jackpots 63,714 46,870 Security deposits 24,887 15,805 Client deposits 116,656 71,628 Client funds 104,200 37,074 309,457 171,377 NOTE 20 - SHAREHOLDERS' EQUITY A. Share Capital Share capital is comprised of no par value shares as follows: 2018 2017 Number of Shares Number of Shares Authorised* N/A N/A Issued and paid up 317,344,603 317,344,603 * The Group has no authorised share capital but is authorised under its memorandum and article of association to issue up to 1,000,000,000 shares of no par value. B. Employee Benefit Trust In 2014 the Group established an Employee Benefit Trust by acquiring 5,517,241 shares for a total consideration of €48.5 million. During the year 459,983 shares (2017: 450,110) were issued as a settlement for employee share option exercises with a cost of €3.8 million (2017: €3.8 million), and as of 31 December 2018, a balance of 2,125,580 (2017: 2,585,563) shares remains in the trust with a cost of €17.9 million (2017: €21.6 million). C. Share options exercised During the year 482,428 (2017: 479,799) share options were exercised. The Group cash-settled 14,387 share options during the year (2017: 29,689). D. Distribution of Dividend In June 2018, the Group distributed €75,845,360 as a final dividend for the year ended 31 December 2017 (23.9 € cents per share). In October 2018, the Group distributed €38,398,697 as an interim dividend in respect of the period ended 30 June 2018 (12.1 € cents per share). A number of shareholders waived their rights to receive dividends amounting to €956,327. E. Reserves The following describes the nature and purpose of each reserve within owner's equity: Reserve Description and purpose Additional paid in capital Share premium (i.e. amount subscribed for share capital in excess of nominal value) Equity investment reserve Changes in fair value of equity investments (up to 31 December 2017) Employee Benefit Trust Cost of own shares held in treasury by the trust Put/Call options reserve reserve Fair value of put options as part of business acquisition Foreign exchange reserve Gains/losses arising on retranslating the net assets of overseas operations Convertible bond option reserve Amount of proceeds on issue of convertible debt relating to the equity component (i.e. option to convert the debt into share capital) Retained earnings Cumulative net gains and losses recognised in the consolidated statement of comprehensive income F.Non controlling interest The Group acquired additional interest in a number of subsidiaries in 2018; Tradetech Markets Limited, ECM Holdings Limited, Sunfox Games GmbH and Snaitech S.P.A. The total carrying amount of the subsidiaries net assets in the Group's consolidated financial statements on the date of acquisition was €52.2 million. 2018 €'000 Carrying amount of Non-controlling interest acquired 41,176 Consideration paid to Non-controlling interest 86,932 Decrease in equity attributable to owners of the Company 45,756 The decrease in equity attributable to owners of the Company comprised of €45.8million decreased in retained earnings. NOTE 21 - LOANS AND BORROWINGS The main credit facility of the Group is revolving credit facility up to €272.0 million available until April 2021 with option for extension for one year. Interest payable on the loan is based on a margin on Euro Libor rates. As at the reporting date the credit facility drawn amounting to €Nil (2017: €200.0 million). During the year, the Group entered into a Bridge facility up to €1,040.0 and withdrew €412.4 million relating to acquisition of Snaitech S.p.A. This facility was subsequently refinanced by the Bond (see Note 22) and the facility was cancelled. NOTE 22 - BONDS Convertible bonds Snai bond Bond Total €'000 €'000 €'000 €'000 As of 1 January 2018 276,464 - - 276,464 On business combinations - 588,955 - 588,955 Issue of bond - - 523,417 523,417 Repayment of bond - (580,605) - (580,605) Notional interest expenses on convertible bonds 10,685 - 289 10,974 Gain on early repayment of bond - (8,350) - (8,350) As at 31 December 2018 287,149 - 523,706 810,855 Convertible bonds On 12 November 2014 the Group issued €297.0 million of senior, unsecured convertible bonds due November 2019 and convertible into fully paid Ordinary Shares of Playtech plc (the "Bonds"). The net proceeds of issuing the Bonds, after deducting commissions and other direct costs of issue, totaled €291.1 million. The Bonds were issued at par and will be redeemed (if not converted before) on 19 November 2019 at their principal amount. The Bonds bear interest at 0.5% per annum, payable annually in arrears on 19 November. Bondholders are entitled to convert each €100,000 principal amount into one fully paid preference share being allotted at a price equal to the Paid-Up Value. The bondholders are entitled to receive such number of ordinary shares as is determined by dividing the aggregate Paid-Up Value of the preference shares by the conversion price in effect on the relevant conversion date. The initial conversion price of €10.1325 per Ordinary Share, is subject to adjustment in respect of (i) any dividend or distribution by the Company, (ii) a change of control and (iii) customary anti-dilution adjustments for, inter alia, share consolidations, share splits and rights issues. Each Preference Share will, following its issue, be immediately delivered to Playtech plc in consideration for which Playtech plc will deliver to the converting Bondholder fully paid ordinary shares of no par value in the capital of Playtech plc in respect of the Preference Shares. Upon conversion, Bondholders are entitled to receive Ordinary Shares at the conversion price of €8.8542 per Ordinary Share, subject to adjustment in respect of (i) any dividend or distribution by the Company, (ii) a change of control and (iii) customary anti-dilution adjustments for, inter alia, share consolidations, share splits and rights issues. The fair value of the liability component, included in current borrowings, at inception was calculated using a market interest rate for an equivalent instrument without conversion option of 4%. The fair value of the liability component of the bond at 31 December 2018 was €289.2 million (2017: €342.4 million), based on readily available quoted prices. The amortised cost of the liability component of the Bonds (including accrued interest) at 31 December 2018 amounted to €287.1 million (2017: €276.6 million), which was calculated using cash flow projections discounted at 4%. The fair value at inception of the equity component of the bonds at 31 December 2018 was €45.4 million (2017: €45.4 million). Interest expense is calculated by applying the effective interest rate of 4.4% to the liability component. Bond - Snai bond Through the acquisition of Snaitech, the Group obtained bond loans. This debt was recognised at acquisition at the fair value based on the market prices of the loan notes. The bonds were issued on 7 November 2016, with a fixed rate tranche of €320 million (6.375% coupon, maturity 2021) and a floating rate tranche of €250 million (three months Euribor floored at 0% plus a spread of 6%, maturity 2021). Following the acquisition by Playtech, the change of control clause within the bonds required the issuer to offer a repayment opportunity. The early redemption procedure applied in accordance with the "change of control offer" and these bonds were fully repaid by Playtech. Total amount paid was €581 million which gave rise to a gain on the equity redemption of €8.4 million which has been recognised in statement of comprehensive income under finance income. Bond On 12 October 2018, the Group issued €530 million of senior secured notes ('Notes'). The net proceeds of issuing the Notes after deducting commissions and other direct costs of issue totaled €523.4m. Commissions and other direct costs of issue have been offset against the principal balance and will be amortized over the period of the bond. The issue price of Notes is 100% of their principal amount. The Notes bear interest from 12 October 2018 at the rate of 3.750% per annum payable semiannually in arrears on 12 April and 12 October in each year commencing on 12 April 2019. The fair value of the liability component of the bond at 31 December 2018 was €516 million. NOTE 23 - PROVISIONS FOR RISKS AND CHARGES Other provisions Provisions for tax disputes, litigations, contractual risks Total provisions €'000 €'000 €'000 As of 1 January 2018 - - - On acquisitions 1,917 11,339 13,256 Charged to the statement of comprehensive income 309 1,530 1,839 Utilised / realized in the year (773) (2,227) (3,000) 31 December 2018 1,453 10,642 12,095 Due within one year of less 1,453 10,642 12,095 Due after more than one year - - - 1,453 10,642 12,095 Provision for tax disputes, litigations, contractual risks The Group is subject to proceedings regarding complex legal matters, which are subject to a differing degree of uncertainty (also due to a complex legislative framework), including the facts and the circumstances inherent to each case, the jurisdiction and the different laws applicable. Given the uncertainties inherent to these problems, it is difficult to predict with certainty the outlay which will derive from these disputes and it is therefore possible that the value of the provisions for legal proceedings and disputes may vary further to future developments in the proceedings underway. The Group monitors the status of the disputes underway and consults with its advisors and experts on legal and tax-related matters. NOTE 24 -CONTINGENT CONSIDERATION AND REDEMPTION LIABILITIES 2018 2017 €'000 €'000 Non-Current contingent consideration consists: Acquisition of ACM Group (Note 30b) 71,344 66,791 Acquisition of Quickspin AB - 14,670 Acquisition of Eyecon Limited (Note 30a) 1,355 1,315 Acquisition of Rarestone Gaming PTY Ltd (Note 29b) 2,188 - Acquisition of Destres GmbH (note 29c) 10,085 - Other acquisitions (Note 29f) 3,789 4,518 88,761 87,294 Non-Current redemption liability consists: Acquisition of Consolidated Financial Holdings A/S - 22,398 Acquisition of Playtech BGT Sports Limited 20,742 25,934 Acquisition of ECM Systems Holdings Limited 839 1,190 Other acquisitions 181 264 21,762 49,786 Total Non-Current contingent consideration and redemption liability 110,523 137,080 Current contingent consideration consists: Acquisition of ACM Group (Note 30b) 2,403 4,601 Acquisition of Quickspin AB 14,536 9,440 Acquisition of Playtech BGT Sports Limited 5,000 4,958 Acquisition of Rarestone Gaming PTY Ltd (note 29b) 2,932 - Other acquisitions 1,599 1,593 26,470 20,592 Current redemption liability consists: Acquisition of Consolidated Financial Holdings A/S 21,846 - 21,846 - Total Current contingent consideration and redemption liability 48,316 20,592 The maximum contingent consideration and redemption liability payable is as follows: 2018 €'000 Acquisition of ACM Group 126,706 Acquisition of Quickspin AB 14,637 Acquisition of Eyecon Limited 27,825 Acquisition of Rarestone Gaming PTY Ltd 8,476 Acquisition of Destres GmbH 15,000 Acquisition of Playtech BGT Sports 100,000 Acquisition of Consolidated Financial Holdings A/S 63,890 Other acquisitions 6,434 362,968 NOTE 25 - TRADE PAYABLES 2018 2017 €'000 €'000 Suppliers 63,829 30,554 Fair value of open B2B financial trading positions - 25,739 Customer liabilities 9,127 5,091 Other 629 585 73,585 61,969 NOTE 26 - DEFERRED TAX LIABILITY The deferred tax liability is due to temporary differences on the acquisition of certain businesses. The movement on the deferred tax liability is as shown below: 2018 2017 €'000 €'000 At the beginning of the year 31,283 40,443 Arising on the acquisitions during the year (Note 29) 47,278 781 Reversal of temporary differences, recognised in the consolidated statement of comprehensive income (5,553) (4,592) Reversal of deferred tax upon sale of intangible asset recognised in the consolidated statement of comprehensive income - (3,824) Foreign exchange movements 384 (1,525) At the end of the year 73,392 31,283 Split to: Deferred tax liability on acquisitions 103,534 31,283 Deferred tax asset (30,142) - 73,392 31,283 Deferred tax assets and tax were offset only when there was a legal enforceable right to set off, according to IAS 12. On 31 December 2018, the Directors recognised deferred tax assets arising from temporary differences and tax losses carryforward. The recognition is based on the business plan projections of future positive results. NOTE 27 - OTHER PAYABLES 2018 2017 €'000 €'000 Non current liabilities Payroll and related expenses 6,671 - Non current guarantee deposits 1,585 - Other 5,825 474 14,081 474 Current liabilities Payroll and related expenses 62,403 41,322 Accrued expenses 46,686 17,923 Related parties (Note 31) 76 402 VAT payable 11,976 6,292 Other payables 16,560 4,325 137,701 70,264 NOTE 28 - CORPORATE, GAMING AND OTHER TAXES PAYABLE 2018 2017 €'000 €'000 Income tax payable 39,751 18,254 Gambling tax 105,154 167 144,905 18,421 NOTE 29 - ACQUISITIONS DURING THE YEAR A. Acquisition of Seabrize Marketing Limited (ex. Easydock Investments Limited) On 1 March 2018, the Group acquired 100% of the shares of Seabrize Marketing Limited ("Seabrize"), a provider of marketing services to online gaming operators. The Group paid total cash consideration of €12.0 million and maximum additional consideration capped at €10.0 million in cash will be payable in 2019 if the performance of the business in the period from acquisition date until 31 December 2018 meets or exceeds Group's expectations. During November 2018, the contingent consideration was settled at €8.0 million which also accorded to managements best estimate of the amount payable at acquisition. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows: Fair value on acquisition €'000 Intangible assets 10,520 Trade and other receivables 707 Cash and cash equivalent 173 Trade payables and other payables (798) Net identified assets 10,602 Goodwill 8,987 Fair value of consideration 19,589 €'000 Cash consideration 12,000 Contingent consideration paid 8,000 Finance cost arising on discounting of contingent consideration (411) Fair value of consideration 19,589 Cash purchased 173 Net cash payable 19,416 Adjustments to fair value include the following: Amount Amortisation €'000 % Customer relationships 10,520 6.67% The main factor leading to the recognition of goodwill with respect to Seabrize acquisition is customer relationships that does not meet either the contractual-legal or the separable criterion of the accounting standards and, therefore, would not be recognised as a separate intangible asset from the goodwill and cost synergies. The acquisition forms part of the Services CGU and in accordance with IAS36, the Group will regularly monitor the carrying value of its interest in Seabrize. The key assumptions used by management to determine the value in use of the Customer relationships within Seabrize are as follows: § The MPEEM income approach. § The discount rate assumed is equivalent to the WACC for the Customer relationship. § No growth rate and attrition rates was assumed Management has not disclosed Seabrize contribution to the Group profit since the acquisition nor has the impact the acquisition would have had on the Group's revenue and profits if it had occurred on 1 January 2018 been disclosed, because the amounts are not material. B. Acquisition of Rarestone Gaming PTY Ltd (ex. Studio 88 Pty Ltd) On 26 March 2018, the Group acquired 100% of the shares of Rarestone Gaming PTY Ltd("S88") which creates content and online games. The Group paid total cash consideration of €3.4 million (US$ 4.2 million) and maximum additional consideration capped at €7.3 million (US$9.0 million) in cash will be payable in 2019, 2020 and 2021 based on launch date of the games and royalty income from the subject games Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows: Fair value on acquisition €'000 Property, plant and equipment 15 Intangible assets 3,623 Cash and cash equivalent 62 Deferred tax liability (593) Trade payables and other payables (1,660) Net identified assets 1,447 Goodwill 6,978 Fair value of consideration 8,425 €'000 Cash consideration 3,435 Non-current contingent consideration 2,435 Current contingent consideration 3,003 Finance cost arising on discounting of contingent consideration (448) Fair value of consideration 8,425 Cash purchased 62 Net cash payable 8,363 Adjustments to fair value include the following: Amount Amortisation €'000 % IP Technology 3,623 16.7 The main factor leading to the recognition of goodwill is the future games to be developed by the R&D team, assembled work force with vast experience and strong records and cost synergies. The acquisition forms part of the Casino CGU and in accordance with IAS36, the Group will regularly monitor the carrying value of its interest in S88. The key assumptions used by management to determine the value in use of the IP Technology within S88 are as follows: § The MPEEM income approach. § The discount rate assumed is equivalent to the WACC for the IP Technology. Management has not disclosed S88 contribution to the Group profit since the acquisition nor has the impact the acquisition would have had on the Group's revenue and profits if it had occurred on 1 January 2018 been disclosed, because the amounts are not material. C. Acquisition of Destres GmbH On 1 April 2018, the Group acquired 100% of the shares of Destres GmbH ("Destres") which operates betting shops in Austria. The Group paid total cash consideration of €15.4 million and maximum additional consideration capped at €25 million in cash will be payable based on a multiple of the 2020 Adjusted EBITDA. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows: Fair value on acquisition €'000 Property, plant and equipment 1,502 Intangible assets 173 Trade and other receivables 646 Cash and cash equivalent 2,538 Loans and borrowings (280) Deferred tax liability (43) Trade payables and other payables (1,520) Tax liabilities (248) Net identified assets 2,768 Goodwill 25,925 Fair value of consideration 28,693 €'000 Cash consideration 15,358 Current contingent consideration 15,000 Finance cost arising on discounting of contingent consideration (1,665) Fair value of consideration 28,693 Cash purchased 2,538 Net cash payable 26,155 Adjustments to fair value include the following: Amount Amortisation €'000 % Betting licences 173 14 The main factor leading to the recognition of goodwill is high synergies, existing customer base and further strategic aspects. The business will form a new CGU in the B2C segment of the Group and in accordance with IAS36, the Group will regularly monitor the carrying value of its interest in Destres. Management has not disclosed Destres contribution to the Group profit since the acquisition nor has the impact the acquisition would have had on the Group's revenue and profits if it had occurred on 1 January 2018 been disclosed, because the amounts are not material. D. Acquisition of Snaitech SpA On 5 June 2018, the Group acquired 70.6% of the shares of Snaitech S.p.A. ("Snaitech"), the leading operator on the Italian retail betting market and one of the main players on the gaming machines market. Up to 5 June 2018, the Group had also separately acquired approximately 9% of Snaitech's issued share capital through market purchases. On the 26th of July, the Group has completed the acquisitions of an additional 15.1% of Snaitech's shares through a mandatory tender offer and additional purchase of shares in the market. On 3rd of August, the Group has completed the acquisition of 100% of Snaitech and delisted the company from the Borsa Italia. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration in respect of the acquisition date of 5 June and goodwill, are as follows: Fair value on acquisition €'000 Property, plant equipment 316,499 Intangible assets 336,000 Investment in equity accounted associates & joint venture 1,908 Other non-current assets 4,658 Total non-current assets 659,065 Trade receivables (net of provisions of €50 million) 94,834 Other receivables 86,306 Cash and cash equivalent 154,947 Total current assets 336,087 Loans and borrowings (493) Bond loan (588,955) Deferred tax liability (46,642) Other non-current liabilities (10,242) Total non-current liabilities (646,332) Loans and borrowings (483) Trade payables (17,609) Progressive operators' jackpots, security deposits (21,742) Client funds (15,308) Tax liabilities (94,673) Deferred revenues (1,192) Contingent consideration (1,230) Provisions (13,278) Other payables (35,422) Total current liabilities (200,937) Non-controlling interest (29,832) Net identified assets 118,051 Goodwill 211,014 Fair value of consideration 329,065 €'000 Cash consideration 291,175 Fair value of equity holding previously held 37,890 Fair value of consideration 329,065 Cash purchased 154,947 Net cash payable 174,118 Adjustments to fair value include the following: Amount Amortisation €'000 % Concession rights 116,000 11% Customer Relationship - Gaming Machines 43,000 11% Customer Relationship - Retail Betting 163,000 11% Customer Relationship - Online 14,000 25% Property, plant and equipment 187,000 3% The main factor leading to the recognition of goodwill is goodwill is the assembled work force which has vast experience and strong records, as well as other future revenue and cost synergies. In accordance with IAS36, the Group will regularly monitor the carrying value of its interest in Snaitech. The fair value of the property, plant and equipment acquired was determined by an external, independent property valuer having appropriate professional qualification and recent experience in the location and nature of the property being valued. The methodologies used to determine the fair value were value in use for San Siro Racetrack and market value for the remaining properties. The key assumptions used by management to determine the value in use of the Concession within Snaitech are as follows: § The Greenfield method. § The discount rate assumed is equivalent to the WACC for the Concession. § The growth rates and attrition rates were based on market analysis. § The valuation is based on the management's projections that the license will be renewed. The key assumptions used by management to determine the value in use of the Customer relationships within Snaitech are as follows: § The Excess Earnings method. § The discount rate assumed is equivalent to the WACC for the Customer relationship. § The growth rates and attrition rates were based on market analysis. A non-controlling interest was recognised based on the non-controlling proportionate share in the recognised amounts of the net assets of Snaitech. This has subsequently been acquired in full at the fair value of €83.7 million resulting in a transfer of €52.8 million to retained earnings. For seven month since the acquisition, Snaitech contributed revenue of €511.9 million and a profit of €62.7 million to the Group's results. If the acquisition had occurred on 1 January 2018, management estimates that the consolidated revenue would have been €894.8 million and the consolidated profit for the year would have been €21.8 million. In determining these amounts, management has assumed that the fair value adjustments determined provisionally, that arose on the date of the acquisition would have been the same if the acquisition had occurred on 1 January 2018. Acquisition related costs include in the statement of comprehensive income within administrative expenses total €13.9 million. E. Acquisition of Piazza Hosting Services S.R.L. On 30 November 2018, the Group acquired 100% of the shares of Piazza Hosting Services S.R.L. ("Piazza") which provides hosting services.. The Group paid total cash consideration of €6.5 million. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows: Fair value on acquisition €'000 Property, plant and equipment 553 Other non current assets 238 Trade and other receivables 411 Cash and cash equivalent 395 Tax liability (8) Trade payables and other payables (1,031) Net identified assets 558 Goodwill 5,942 Fair value of consideration 6,500 €'000 Cash consideration Fair value of consideration 6,500 Cash purchased 395 Net cash payable 6,105 The main factor leading to the recognition of goodwill is the saving in future payments regarding hosting services and exclusivity and hardware in provision of the hosting services. The acquisition forms part of the Services CGU and in accordance with IAS36, the Group will regularly monitor the carrying value of its interest in Piazza. Management has not disclosed Piazza contribution to the Group profit since the acquisition nor has the impact the acquisition would have had on the Group's revenue and profits if it had occurred on 1 January 2018 been disclosed, because the amounts are not material. F. Other acquisitions During the period, the Group acquired 100% of the shares of various companies. The Group paid total cash consideration of €13.1 million and additional consideration will be payable based on 2019 and 2021 EBITDA multiple. Also, the Group signed an Asset Purchase Agreement to which the Group acquired 100% of the business for a total consideration of €7.3 million. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, are as follows: Fair value on acquisition €000 Net identified assets 3,073 Goodwill 10,264 Total fair value of consideration 13.337 €'000 Cash consideration 13,122 Non-current contingent consideration 250 Finance cost arising on discounting of contingent consideration (35) Fair value of consideration 13,337 Cash purchased 3,014 Net cash payable 10,323 The main factor leading to the recognition of goodwill is assembled workforce, with vast experience and strong record and other future revenue and cost synergies. In accordance with IAS36, the Group will regularly monitor the carrying value of its interest in these acquisitions. Management has not disclosed other acquisitions contribution to the Group profit since these acquisitions nor has the impact the acquisition would have had on the Group's revenue and profits if it had occurred on 1 January 2018 been disclosed, because the amounts are not material. NOTE 30 - ACQUISITIONS IN PREVIOUS YEAR A. Acquisition of Eyecon Limited On 7 February 2017, the Group acquired 100% of the shares of Eyecon Limited and Eyecon PTY (together "Eyecon"), an Australian supplier of online gaming slots software. The Group paid total cash consideration of €27.7 million (GBP 23.7 million) and additional consideration capped at €29.0 million (GBP 25.0 million) in cash will be payable based on an EBITDA multiple less initial consideration paid, and is payable in 2020. Post period end the earnout agreement with Eyecon Limited was extended to end of June 2021, with a minimum consideration of €5 million payable and no change to the maximum earnout. B. Acquisition of ACM Group Assets On 1 October 2017, the Group acquired technology, intellectual property and certain customer assets (together "the assets") from ACM Group Limited to enhance its financial division's B2B offering to deliver a bespoke risk management and trading solution to B2B customers. The Group paid total consideration of €4.2 million ($5.0 million) and additional consideration capped at of €122.7 million ($145.0 million) in cash will be payable based on 2017, 2018 and 2019 EBITDA multiple and is payable annually over the time. During 2018, the Group paid €1.7 million based on the 2017 EBITDA. C. Other acquisitions During the prior period, the Group acquired the shares of various companies for a total consideration of €14.4 million. One of these subsidiaries was acquired in steps additional 45% acquired in the year previous consideration of €0.8 million paid to acquire the previously recognized 35% interest in associate. A fair value movement was required on conversion to a subsidiary of €0.1 million. NOTE 31 - RELATED PARTIES AND SHAREHOLDERS Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party's making of financial or operational decisions, or if both parties are controlled by the same third party. Also, a party is considered to be related if a member of the key management personnel has the ability to control the other party. On 23 November 2018, Brickington Trading Limited ("Brickington") decreased its holding to 0% (31 December 2017: 6.3%) of Playtech plc shares and the relationship agreement terminated. From this date Brickington no longer meets the definition of a related party. Accordingly, the following companies are not accounted as related parties from the same date: Skywind Holdings Limited ("Skywind"), SafeCharge Limited, Crossrider Technologies Ltd ("Crossrider"), Royalfield Limited, Selfmade Holdings, Glispa GmbH ("Glispa"), Anise Development Limited and Anise Residential Limited (together "Anise"). The transaction amounts with the abovementioned companies reflects the period ended 27 June 2017, when they ceased to be related parties. Mr Teddy Sagi, the ultimate beneficiary of Brickington, provided advisory services to the Group for a total annual consideration of €1.The agreement terminated on 23 November 2018. The joint ventures and the structured agreements are associates of the Group by virtue of the Group's significant influence over those arrangements. The following transactions arose with related parties: 2018 2017 €'000 €'000 Revenue including revenue from associates Skywind - 720 Structured agreements and associates 29,453 21,294 Share of profit in joint venture 180 464 Share of loss in associates (1,987) (662) Operating expenses SafeCharge Limited - 3,612 Crossrider - 1,314 Structured agreements 1,221 9 Anise - 518 Skywind, net of capiltalised cost - 334 Glispa GmbH - 165 Interest income Structured agreements and associates 225 85 The following are the year-end balances: Structured agreements and associates 11,104 11,246 Associates and joint ventures 173 190 Total current related party receivables 11,277 11,436 Structured agreements 76 402 Total related party payables 76 402 The details of key management compensation (being the remuneration of the directors) are set out in Note 7. NOTE 32 - SUBSIDIARIES Details of the Group's principal subsidiaries as at the end of the year are set out below: Name Country of incorporation Proportion of voting rights and ordinary share capital held Nature of business Playtech Software Limited Isle of Man 100% Main trading company of the Group, owns the intellectual property rights and licenses the software to customers. OU Playtech (Estonia) Estonia 100% Designs, develops and manufactures online software Techplay Marketing Limited Israel 100% Marketing and advertising Video B Holding Limited British Virgin Islands 100% Trading company for the Videobet software, owns the intellectual property rights of Videobet and licenses it to customers. OU Videobet Estonia 100% Develops software for fixed odds betting terminals and casino machines (as opposed to online software) Playtech Bulgaria Bulgaria 100% Designs, develops and manufactures online software PTVB Management Limited Isle of Man 100% Management Evermore Trading Limited British Virgin Islands 100% Holding company Playtech Services (Cyprus) Limited Cyprus 100% Activates the ipoker Network in regulated markets. Owns the intellectual property of GTS, Ash and Geneity businesses VB (Video) Cyprus Limited Cyprus 100% Trading company for the Videobet product to Romanian companies Techplay S.A. Software Limited Israel 100% Develops online software Technology Trading IOM Limited Isle of Man 100% Owns the intellectual property rights of Virtue Fusion business Gaming Technology Solutions Limited UK 100% Holding company of VS Gaming and VS Technology Virtue Fusion (Alderney) Limited Alderney 100% Online bingo and casino software provider Virtue Fusion CM Limited UK 100% Chat moderation services provider to end users of VF licensees Playtech Software (Alderney) Limited Alderney 100% To hold the company's Alderney Gaming license Intelligent Gaming Systems Limited UK 100% Casino management systems to land based businesses VF 2011 Limited Alderney 100% Holds license in Alderney for online gaming and Bingo B2C operations PT Turnkey Services Limited British Virgin Islands 100% Holding company of the Turnkey Services group PT Turnkey EU Services Limited Cyprus 100% Turnkey services for EU online gaming operators PT Entertenimiento Online EAD Bulgaria 100% Poker & Bingo network for Spain PT Marketing Services Limited British Virgin Islands 100% Marketing services to online gaming operators PT Operational Services Limited British Virgin Islands 100% Operational & hosting services to online gaming operators Tech Hosting Limited Alderney 100% Alderney Hosting services Paragon International Customer Care Limited British Virgin Island & branch office in the Philippines 100% English Customer support, chat, fraud, finance, dedicated employees services to parent company CSMS Limited Bulgaria 100% Consulting and online technical support, data mining processing and advertising services to parent company TCSP Limited Serbia 100% Operational services for Serbia S-Tech Limited British Virgin Islands & branch office in the Philippines 100% Live games services to Asia PT Advisory Services Limited British Virgin Islands 100% Holds PT Processing Advisory Ltd PT Processing Advisory Limited British Virgin Islands 100% Advisory services for processing & cashier to online gaming operators PT Processing EU Advisory Limited Cyprus 100% Advisory services for processing & cashier for EU online gaming operators PT Network Management Limited British Virgin Islands 100% Manages the ipoker network Playtech Mobile (Cyprus) Limited Cyprus 100% Holds the IP of Mobenga AB Playtech Holding Sweden AB Limited Sweden 100% Holding company of Mobenga AB Mobenga AB Limited Sweden 100% Mobile sportsbook betting platform developer Geneity Limited UK 100% Develops Sportsbook and Lottery software Factime Limited Cyprus 100% Holding company of Juego Juego Online EAD Bulgaria 100% Gaming operator. Holds a license in Spain. PlayLot Limited British Virgin Islands 100% Distributing lottery software PokerStrategy Ltd. Gibraltar 100% Operates poker community business Videobet Interactive Sweden AB Sweden 100% Trading company for the Aristocrat Lotteries VLT's V.B. Video (Italia) S.r.l. Italy 100% Trading company for the Aristocrat Lotteries VLT's PT Entertainment Services LTD Antigua 100% Holding gaming license in the UK Tradetech Markets Limited Isle of Man 98.62% Owns the intellectual property rights and marketing and technology contracts of the financial division Safecap Limited Cyprus 98.62% Primary trading company of the Financial division. Licensed investment firm and regulated by Cysec TradeFXIL limited Israel 98.62% Financial division sales, client retention, R&D and marketing ICCS BG Bulgaria 98.62% Financial division back office customer support Magnasale Limited Cyprus 98.62% Financial division. Licensed and regulated investment firm Stronglogic Services Limited Cyprus 98.62% Maintains the financial division marketing function for EU operations Yoyo Games Limited UK 100% Casual game development technology Quickspin AB Sweden 100% Owns video slots intellectual property Best Gaming Technology GmbH Austria 100% Owns sports betting intellectual property solutions and primary trading company for sports betting ECM Systems Ltd UK 93.33% Owns bingo software intellectual property and bingo hardware Consolidated Financial Holdings AS Denmark 75.86% Owns the intellectual property which provides brokerage services, liquidity and risk management tool CFH Clearing Limited UK 75.86% Primary trading company of CFH Group Eyecon Limited Alderney 100% Develops and provides online gaming slots Tradetech Alpha Limited Isle of Man 100% Regulated FCA broker providing trading, risk management and liquidity solutions Seabrize Marketing Limited BVI 100% Marketing services Rarestone Gaming PTY Ltd Australia 100% Development company Destres GmbH Austria 100% Operating shops in Austria Snaitech SPA GmbH Italy 100% Italian retail betting market and gaming machine market Piazza Hosting Services S.R.L Italy 100% Hosting services NOTE 33 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Group is exposed to a variety of financial risks, which results from its financing, operating and investing activities. The objective of financial risk management is to contain, where appropriate, exposures in these financial risks to limit any negative impact on the Group's financial performance and position. The Group's financial instruments are its cash, equity investments, trade receivables, loan receivables, bank borrowings, accounts payable and accrued expenses. The main purpose of these financial instruments is to raise finance for the Group's operation. The Group actively measures, monitors and manages its financial risk exposures by various functions pursuant to the segregation of duties and principals. The risks arising from the Group's financial instruments are credit risk and market price risk, which include interest rate risk, currency risk and equity price risk. The risk management policies employed by the Group to manage these risks are discussed below. A. Market risk Market risk changes in line with fluctuations in market prices, such as foreign exchange rates, interest rates, equities and commodities prices. These market prices affect the Group's income or the value of its holding in financial instruments. Exposure to market risk In the financial trading division, the Group has exposure to market risk to the extent that it has open positions. The Group's exposure to market risk at any point in time depends primarily on short-term market conditions and client activities during the trading day. The exposure at each reporting date is therefore not considered representative of the market risk exposure faced by the Group over the year. The Group's exposure to market risk is mainly determined by the clients' open position. The most significant market risk faced by the Group on the CFD products it offers changes in line with market changes and the volume of clients' transactions. Interest rate risk Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group's income and operating cash flows are substantially independent of changes in market interest changes. The management monitors interest rate fluctuations on a continuous basis and acts accordingly. Where the Group has generated a significant amount of cash, it will invest in higher earning interest deposit accounts. These deposit accounts are short term and the Group is not unduly exposed to market interest rate fluctuations. B. Credit risk Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date. The Group closely monitors the activities of its counterparties and controls the access to its intellectual property which enables it to ensure the prompt collection of customers' balances. The Group's main financial assets are cash and cash equivalents as well as trade and other receivables and represent the Group's maximum exposure to credit risk in connection with its financial assets. Wherever possible and commercially practical the Group invests cash with major financial institutions that have a rating of at least A- as defined by Standard & Poors. While the majority of money is held in line with the above policy, a small amount is held at various institutions with no rating. The Group also holds small deposits in Cypriot and Spanish financial institutions, as required by the respective gaming regulators that have a rating below A-. The Group holds approximately 13% of its funds (2017: 3%) in financial institutions below A- rate and 2% in payment methods with no rating (2017:8%). Total Financial institutions with A- and above rating Financial institutions below A- rating and no rating €'000 €'000 €'000 At 31 December 2018 622,197 527,698 94,499 At 31 December 2017 583,957 520,147 63,810 Trade and other receivables are carried on the balance sheet net of provisions estimated by the Directors based on prior year experience and an evaluation of prevailing economic circumstances. The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 90 days month before 31 December 2018 or 1 January 2018 respectively and the corresponding historical credit losses experienced within this period. On that basis, no loss allowance as at 31 December 2018 and 1 January 2018 (on adoption of IFRS 9) was determined other than the provision for bad debts for trade receivables. Tradetech has no credit risk to clients since all accounts have an automatic margin call, which relates to a guaranteed stop such that the client's maximum loss is covered by the deposit. The Group has risk management and monitoring processes for clients' accounts and this is achieved via margin calling and close-out process. The ageing of trade receivables that are past due but not impaired can be analysed as follows: Total Not past due 1-2 months overdue More than 2 months past due €'000 €'000 €'000 €'000 At 31 December 2018 209,854 52,394 26,997 130,463 At 31 December 2017 107,165 82,517 16,075 8,573 The above balances relate to customers with no default history and management estimate full recoverability given the provision below. A provision for doubtful debtors is included within trade receivables that can be reconciled as follows: 2018 2017 €'000 €'000 Provision at the beginning of the year 1,430 1,132 Charged to income statement 4,764 565 Provision acquired through business combination 50,126 - Utilised (3,370) (267) Provision at end of year 52,950 1,430 Related party receivables included in Note 17 are not past due. C. Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Foreign exchange risk arises because the Group has operations located in various parts of the world. However, the functional currency of those operations is the same as the Group's primary functional currency (Euro) and the Group is not substantially exposed to fluctuations in exchange rates in respect of assets held overseas. Foreign exchange risk also arises when Group operations are entered into, and when the Group holds cash balances, in currencies denominated in a currency other than the functional currency. In EUR In USD In GBP In other currencies Total €'000 €'000 €'000 €'000 €'000 Cash and cash equivalents 289,398 242,714 63,520 26,565 622,197 Client funds (108,922) (199,940) - - (308,862) Cash and cash equivalents less client funds 180,476 42,774 63,520 26,565 313,335 The Group's cash balances are mostly denominated in EUR and USD. Despite the fact that the Group has large amounts in USD, those balances are hedged by the fact that these balances are client's money. The Group's policy is not to enter into any currency hedging transactions. D. Equity price risk The Group's balance sheet is exposed to market risk by way of holding some investments in other companies on a short term basis (Note 14). Variations in market value over the life of these investments will have an immaterial impact on the balance sheet and the statement of comprehensive income. E. Capital disclosures The Group seeks to maintain a capital structure which enables it to continue as a going concern and which supports its business strategy. The Group's capital is provided by equity and debt funding. The Group manages its capital structure through cash flow from operations, returns to shareholders primarily in the form of dividends and the raising or repayment of debt. F. Liquidity risk Liquidity risk arises from the Group's management of working capital and the financial charges on its debt instruments. At the end of 2018 the company has met the financial covenants of the RCF which are: · Leverage: Net Debt/Adjusted EBITDA 3:1 · Interest cover: Interest/Adjusted EBITDA 5:1 Financial division liquidity risk Positions can be closed at any time by clients and can also be closed by the Group, in accordance with the Group's margining rules. If after closing a position a client is in surplus, then the amount owing is repayable on demand by the Group. When client positions are closed, any corresponding positions relating to the hedged position (if applicable) are closed with brokers. Liquidity risk arises if the Group encounters difficulty in meeting obligations which arise following profitable positions being closed by clients. This risk is managed through the Group holding client funds in separately segregated accounts whereby cash is transferred to or from the segregated accounts on a daily basis to ensure that no material mismatch arises between the aggregate of client deposits and the fair value of open positions, and segregated cash. Through this risk management process, the Group considers liquidity risk to be low. 2018 2017 €'000 €'000 Client deposits 138,418 43,741 Open positions (34,218) (6,667) Client funds 104,200 37,074 CFH trades on a matched principal basis and financial instruments are used to hedge all client positions. The management of market risk in respect of matching of derivatives is through automated tools, together with active monitoring and management by senior personnel under the supervision of its directors. CFH's liquidity obligations are monitored daily and it is adequately capitalised with a steady revenue stream to meet its day to day obligations. CFH client deposits balance as at 31 December 2018 was €116.6 million (2017: €71.6 million). The following are the contractual maturities (representing undiscounted contractual cash flows) of the Group's financial liabilities: Total Within 1 year 1-2 years 2-5 years €'000 €'000 €'000 €'000 2018 Trade payables 73,585 73,585 - - Progressive and other operators' jackpots 88,601 88,601 - - Client deposits 116,656 116,656 - - Client funds 104,200 104,200 - - Contingent consideration and redemption liability 158,839 48,316 98,097 12,426 Other payables 151,781 151,781 14,080 - Loans and borrowings 695 489 206 - Bonds 810,855 287,149 - 523,706 Provisions 12,095 12,095 - - 2017 Trade payables 61,969 61,969 - - Progressive and other operators' jackpots 62,675 62,675 - - Client deposits 71,628 71,628 - - Client funds 37,074 37,074 - - Contingent consideration and redemption liability 157,672 42,990 114,682 - Other payables 70,544 70,544 - - Loans and borrowings 200,000 200,000 - - Bonds 276,638 - 276,638 - G. Total financial assets and liabilities The fair value together with the carrying amount of the financial assets and liabilities shown in the balance sheet are as follows: 2018 2018 2017 2017 €'000 €'000 €'000 €'000 Fair value Carrying amount Fair value Carrying amount Cash and cash equivalent 622,197 622,197 583,957 583,957 Equity investments 1,400 1,400 381,346 381,346 Other assets 286,502 386,502 198,848 198,848 Deferred and contingent consideration and redemption liability 158,839 158,839 157,672 157,672 Bonds 810,806 810,855 342,000 276,638 Loans and borrowings 695 695 200,000 200,000 Other liabilities 225,367 225,367 164,369 164,369 Equity investments are measured at fair value using level 1. Refer to Note 15 for further detail. These are the Group's only financial assets and liabilities which are measured at fair value. NOTE 34 - CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES Non-cash items At 1 January 2017 Financing cash flows Acquisition of subsidiary (note 29) Other changes At 31 December 2017 €'000 €'000 €'000 €'000 €'000 Loans and borrowings (Note 21) 200,000 - - - 200,000 Convertible bonds (Note 22) 266,230 1,485 - 8,923 276,638 Contingent consideration (Note 24) 174,290 2,312 77,674 (146,390) 107,886 Redemption liabilities (Note 24) 34,837 (3,300) - 18,249 49,786 Total liabilities 675,357 497 77,674 119,218 634,140 Non-cash items At 1 January 2018 Financing cash flows Acquisition of subsidiary (note 29) Other changes At 31 December 2018 €'000 €'000 €'000 €'000 €'000 Loans and borrowings (Note 21) 200,000 (200,481) 1,176 - 695 Convertible bond (Note 22) 276,464 (1,485) - 12,710 287,649 Snai bond (Note 22) - (580,605) 588,955 (8,350) - Bond (Note 22) - 523,417 - 289 523,706 Contingent consideration (Note 24) 107,886 - - 55,655 163,541 Redemption liabilities (Note 24) 49,786 - - (1,470) 48,316 Total liabilities 634,136 (259,154) 590,131 58,834 1,023,947 NOTE 35 - CONTINGENT LIABILITIES As part of the Board's ongoing regulatory compliance process, the Board continues to monitor legal, tax and regulatory developments and their potential impact on the Group. Further details in respect of the relevant judgments and estimates are included in note 3. The Group is involved in proceedings before civil and administrative courts, and other legal actions related to the regular course of business. On the basis of the information currently available, and taking into account existing provisions for risks (as disclosed in Note 23), the Group considers that such proceedings and actions will not result in any material adverse effects upon the Financial Statements. Management is not aware of any other contingencies that may have a significant impact on the financial position of the Group. NOTE 36 - OPERATING LEASE COMMITMENT The Group has a variety of leased properties. The terms of property leases vary from country to country, although they tend to be tenant repairing with rent reviews every 2 to 5 years and many have break clauses. Total operating lease cost before capitalization in the year was €14.8 million (2017: €17.9 million). The total future value of minimum lease payments is due as follows: 2018 2017 €'000 €'000 Not later than one year 27,347 15,564 Later than one year and not later than five years 56,365 38,606 Later than five years 76,565 9,185 160,277 63,355 NOTE 37 - EVENTS AFTER THE REPORTING DATE On 28 January 2019, the Group acquired 100% of Areascom SpA for a total consideration of €15.5 million. Areascom is an Italian betting operator which directly manages 24 betting shops which are located in Tuscany. The principal reason for the acquisition is to develop the directly managed retail network as part of the ongoing vertical integration strategy. As at the date of the authorization of these financial statements a detailed assessment of the fair value of the identifiable net assets has not been completed. Playtech has agreed a multi-year extension with News UK to operate Sun Bingo, one of the UK's largest and most popular bingo sites. The collaboration with News UK was originally established in 2015, but under the new contract has been expanded to include new product verticals and has also been extended for a period of up to 15 years. [1] Following the completion of the acquisition of Alpha, and transition of the customers from ACM to TradeTech Alpha, certain trading balances and client money protections were transferred in January 2018. As a result, additional client funds are recognised in H1-18 which, at FY-17, were eligible counterparty balances (within accounts payable) and not subject to client money rules. [2] The comparative figures of 2017 were adjusted following a reclassification, reflecting a more correct presentation of the Research and development and Operations costs. [3] The cost includes intercompany B2B software charges This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com. END FR QFLBLKLFBBBQ
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