GTECH S.p.A.’s Board of Directors, chaired by Mr. Lorenzo Pellicioli, today reviewed both the fourth quarter and full year consolidated results, and approved the financial statements for the year ended December 31, 2014.
“We ended 2014 on another robust quarter, with strong product sales in the Americas and International and steady service revenues overall,” said Marco Sala, CEO of GTECH S.p.A. “We are finalizing the acquisition of IGT, ready to initiate the integration of our two companies, and to consolidate our leadership of the global gaming industry.”
“Our underlying operating performance was very solid in the fourth quarter,” said Alberto Fornaro, CFO of GTECH S.p.A. “Excluding one-off items primarily related to the IGT acquisition, we achieved or exceeded guidance in all our key full-year metrics: EBITDA, CapEx, Operating Income, and Net Financial Position.”
Consolidated Revenues were €809 million, up approximately 5% from €773 million in the fourth quarter of 2013. This increase was principally driven by product sales which rose to €86 million in the quarter from €51 million in the fourth quarter of 2013, chiefly reflecting higher product deliveries in the International and Americas segments. Service revenues were up slightly to €723 million versus the same period last year.
EBITDA was up 7% to €261 million compared to €245 million in the fourth quarter of last year.
Operating Income was €97 million compared to €104 million last year. Operating Income was up 22% to €127 million excluding one-off items which consist of transaction costs of €22 million associated with the pending IGT acquisition and an €8 million adjustment to goodwill related to the sale of the ticketing business in Italy.
Interest Expense was €65 million compared to €42 million last year, the increase being principally due to the bridge facility which was entered into in anticipation of the closing of the IGT acquisition.
Net loss attributable to the owners was €93 million, compared to net income of €1 million in the 2013 fourth quarter, primarily attributable to the make-whole on the early redemption of the 2016 Notes, higher interest expense related to the bridge facility, a higher effective income tax rate primarily related to additional taxation related to the Italian reorganization, as well as the tax settlement and non-deductible costs associated with the IGT acquisition. Diluted loss-per-share was €0.54 compared to income of €0.01 in the fourth quarter of last year. Excluding the one-off items primarily related to the IGT acquisition, net income attributable to the owners was €53 million up from €29 million and Diluted EPS was €0.31 up from €0.17 last year.
Capital Expenditures in the quarter were €66 million.
Fourth Quarter Results by Segment
Americas
Revenues in the Americas segment were up 10% to €262 million in the quarter, compared to €238 million in the fourth quarter of 2013. Product sales in the quarter were €43 million, up €14 million compared to the same period last year, mainly attributable to VLT sales in Oregon. Strong instant ticket sales revenue offset the drop in multistate jackpot activity.
The increase in Operating Income from the Americas segment to €25 million, from €20 million in the fourth quarter of last year, was due to product deliveries in Oregon and Latin America casinos, as well as the contribution from a larger installed base of gaming machines. Operating income was impacted by the settlement related to the termination of Northstar’s private management agreement in Illinois.
During the quarter, Pronosticos Para La Asistencia Publica in Mexico awarded GTECH a new long-term facilities management contract. After the close of the quarter, the Company was also awarded a new contract from the Minnesota Lottery. Additionally, GTECH provided interactive technology and content for the Georgia Lottery’s interactive games, and signed an agreement with MGM Resorts International for GTECH’s first planned Nevada land-based Sports Betting and GTECH OnPremise mobile gaming deployment in the U.S.
International
Revenues in the International segment were €113 million versus €85 million last year, up 34%, driven by product sales in Belgium, higher machine sales to casino customers in EMEA, and higher systems sales in Europe.
International Lottery same store revenues were up approximately 5% compared to the same period in 2013, driven by jackpot game performance across the region and by growth in instant ticket sales in the United Kingdom with the rollout of GTECH’s compact terminals to new retailers. SAZKA in the Czech Republic launched the multijurisdictional game EuroJackpot and also experienced strong instant ticket sales growth.
Operating Income in the International segment was €35 million versus €10 million in the fourth quarter of last year, principally due to higher product sales, the prior year restructuring of a contract in Spain, and cost synergies.
During the quarter, the Company was awarded up to 5,550 of the initial 16,500 VLTs by OPAP in Greece.
Italy
Revenues in Italy were €434 million compared to €450 million in the fourth quarter of 2013, principally due to a higher sports betting payout.
Total Lotto wagers for the quarter were up 4% to €1.75 billion, compared to €1.68 billion last year, driven by 10eLotto, which more than compensated for a weaker late-number pattern. Instant-ticket wagers were up over 1% to €2.44 billion versus €2.41 billion last year, due to the successful launch of a new family of tickets under the brand “Super Settimana,” a new concept of “Annuity” tickets with a weekly prize over a 20-year period.
Machine gaming revenues were €148 million versus €151 million last year.
Revenues from sports betting were €36 million versus €44 million last year, a decrease entirely driven by a higher payout versus the same period last year, while wagers were up 7% mostly driven by virtual betting.
Operating Income of €93 million compared to €115 million last year was impacted by the decrease in gaming machine wagers combined with higher remuneration of the retail chain in order to protect the long term relationships with key partners, and by relevant marketing costs associated with the launch of the new annuity tickets.
Full Year Consolidated Results
For the full year 2014, Revenues were up slightly to €3.07 billion, compared to €3.06 billion in 2013. Service revenues increased by €32 million or over 1% compared to 2013, driven by good performance in the Americas’ segment. Americas’ service revenues grew over 3% to €828 million.
Despite unfavorable jackpot activity, Americas Lottery same store revenues were up slightly to €516 million, benefiting from instant ticket performance in multiple jurisdictions including California, North Carolina, Indiana and Michigan.
International Lottery same store revenues grew 2% driven by continued strong performance in the United Kingdom, Czech Republic and Poland. Product sale revenues were up 9% to €91 million primarily due to a delivery in Belgium.
Lotto wagers in Italy were up 5% to €6.6 billion compared to €6.3 billion last year. 10eLotto wagers grew 22% to €3.6 billion, compared to €3.0 billion last year. Instant-ticket wagers were €9.4 billion, compared to €9.6 billion last year. Total betting wagers were up 15% to €893 million versus the same period last year, driven by the take-up of virtual betting.
EBITDA was up 4% to €1.08 billion versus €1.04 billion last year and Operating Income grew 1.4% to €567 million versus €559 million in the prior year. When excluding the one-time machine gaming settlement and the provision reversal for litigation resolved in the Company’s favor in Italy last year, EBITDA was up 2%. When excluding the aforementioned items, costs relating to the IGT acquisition, and the sale of the ticketing business in Italy, Operating Income was up approximately 3%.
The effective income tax rate was 66.1% compared to 46.8% in the prior year. Excluding one-off items in 2014 and 2013, the effective income tax rate would have been 38% and 39%, respectively.
Net income attributable to the owners was €83 million, compared to €175 million in the same period last year. Diluted Earnings-Per-Share (EPS) was €0.48 versus €1.01 last year. Net income attributable to the owners, when excluding one-off items, was €250 million versus €216 million last year, while Diluted EPS was €1.44 versus €1.25 in 2013.
Net of working capital timing benefits in Italy, Cash from Operations was €821 million, compared to €696 million in the prior year.
Capital Expenditures for the full year were €254 million which includes the previously reported investment in Probability Plc, as well as investments in Americas’ Lotteries and Italy’s Gaming and Lotteries product lines.
At December 31, 2014, Consolidated Shareholders’ Equity totaled €2.62 billion. GTECH had a Net Financial Position (NFP) of €2.59 billion versus €2.51 billion as of December 31, 2013. Excluding one-off items primarily related to the IGT acquisition, NFP would have outperformed guidance at €2.42 billion.
Full Year Stand-Alone Results
GTECH’s stand-alone Net Income in 2014 was €143 million compared to €34 million in 2013. Total Equity and Liabilities in 2014 were €6.17 billion versus €5.53 billion in 2013. Cash and Cash Equivalents at the end of 2014 were €10 million compared to €159 million in 2013.
Other Information
Following payment on January 21, 2015 of the interim dividend as of November 30, 2014, no additional dividend payment shall be proposed to the Annual General Meeting, whose call remains subject to the failure to consummate, within the first half-year period, the cross-border merger of the Company into International Game Technology PLC (formerly Georgia Worldwide PLC), in connection with the acquisition of IGT.
To this aim, the Company and International Game Technology PLC intend to file an application with the High Court of England & Wales for the cross-border merger to take effect on April 7, 2015.
GTECH also announced that those shares for which cash exit rights were exercised and not purchased through the pre-emptive offer ended on January 9, 2015, will not be offered on the Mercato Telematico Azionario organized and managed by Borsa Italiana S.p.A. and will therefore be purchased by GTECH.
GTECH management currently expects the closing of the IGT acquisition on April 7, 2015, subject to the receipt of certain customary regulatory and other approvals, including U.K. Court clearance and NYSE listing authorization, among others.