GTECH S.p.A.’s Board of Directors, chaired by Mr. Lorenzo Pellicioli, today reviewed the third-quarter and nine-month consolidated results, and approved the financial statements for the nine-month period which ended September 30, 2014.
“In a solid quarter, we were able to make up for the significant product sales of 2013 and for lower jackpot activity this year, and deliver stable revenues and higher profitability, thanks to the diversity of our revenue base,” said Marco Sala, CEO of GTECH S.p.A. “Our planned acquisition of IGT is progressing on schedule.”
“We are well on track to deliver our 2014 synergy target of €40 million,” said Alberto Fornaro, CFO of GTECH S.p.A. “With continued significant generation of operating cash flow, we anticipate that, excluding costs related to the IGT acquisition, we should comfortably meet our year-end Net Financial Position guidance of €2.47 to €2.53 billion.”
Consolidated Revenues were €728 million, compared to €730 million in the third quarter of 2013. Service revenues grew 3% to €680 million, driven by a higher contribution from Italy, partially offset by a revenue reduction related to Lottery Management Services. Product sales of €48 million in the quarter were impacted by the expected decline in Canadian product sales, partially offset by sales to U.S. based customers.
EBITDA was €252 million compared to €219 million in the third quarter of last year which included a €30 million provision for the machine gaming litigation settlement in Italy.
Operating Income was €133 million compared to €102 million. Transaction costs of €10 million associated with the pending IGT acquisition, which were incurred in the quarter, were more than offset by the gain from the sale of the Company’s sports and events ticketing business in Italy.
Interest Expense was in line with the same period last year at €41 million, when excluding the €17 million incurred in the quarter on the Bridge Facility which was entered into in anticipation of the IGT acquisition.
Net Income attributable to the owners was €40 million, compared to €32 million in the 2013 third quarter.
Diluted Earnings-Per-Share (EPS) was €0.23, compared to €0.18 in the third quarter of last year.
Capital Expenditures in the quarter were €67 million.
At September 30, 2014, Consolidated Shareholders’ Equity totaled €2.76 billion. GTECH had a Net Financial Position (NFP) of €2.58 billion, compared to €2.51 billion as of December 31, 2013. After adjusting for certain IGT acquisition related items, NFP totaled €2.49 billion.
Third-Quarter Results by Segment
Americas
Revenues in the Americas segment were €234 million in the quarter, compared to €251 million last year. Strong instant ticket performance across multiple jurisdictions in the United States was more than offset by lower multistate jackpot activity, and a decrease in service revenue from Lottery Management Services due to a €14 million revenue reduction to reflect an anticipated shortfall in Indiana for the Hoosier Lottery’s 2014 and 2015 fiscal years. Product sales in the quarter were €36 million, or €12 million lower than the same period last year, with VLT sales to GTECH’s customer in Oregon that offset a good portion of the expected decline in Gaming product sales to Canada.
Americas Operating Income of €7 million compared to €28 million in the third quarter of last year was principally related to lower service revenues from Lottery Management Services and lower product sales.
After the close of the quarter, GTECH was awarded new long-term facilities management contracts with lotteries in Missouri, Washington state, and Mexico.
Additionally, the new U.S. draw-based game, Monopoly Millionaires’ Club, launched in October in 23 states.
International
Revenues in the International segment were €70 million versus €81 million last year. The decrease was principally due to lower product sales.
Same store revenues were up 4% compared to the same period in 2013, driven by instant ticket sales growth in the United Kingdom, due to an enhanced payout and the continued rollout of GTECH’s compact terminals to new retailers. Totalizator Sportowy in Poland experienced strong growth in Club Keno due to an improved payout.
Operating Income in the International segment was €11 million versus €15 million last year, principally due to lower product sales, partially offset by a change in contract terms with a European lottery customer that lowered revenue yet increased profit, and cost efficiencies.
SAZKA in the Czech Republic joined the multistate Eurojackpot game in October. The National Lotteries Board in South Africa named ITHUBA as the preferred applicant to begin negotiations for the next lottery operating license, with GTECH as a technology provider to ITHUBA.
Italy
Revenues in Italy were up 7% to €424 million compared to €398 million in the third quarter of last year, driven by significant growth in Lotto wagers and Sports Betting wagers.
Total Lotto wagers for the quarter were up 16% to €1.75 billion, compared to €1.52 billion last year, driven by product innovation in 10eLotto, which more than compensated for a weaker late-number pattern. Instant-ticket wagers were €2.18 billion versus €2.24 billion last year.
Machine gaming revenues were up over 1% to €138 million versus €136 million last year.
Revenues from sports betting were up 59% to €40 million due to a 12% increase in wagers and a lower payout percentage.
Operating Income of €151 million benefited from a €14 million increase associated with the sale of the sports and events ticketing business during the quarter, versus €83 million in the same period last year, when a €30 million Machine Gaming provision was recorded. Operating Income also benefited from a €11 million increase associated with the Lotto game.
First Nine-Month Consolidated Results
For the first nine months of 2014, Revenues were €2.26 billion, compared to €2.29 billion in the first nine months of 2013. Service revenues increased by €31 million or 1.5% compared to the same period in 2013, driven by good performance in the Italy segment. Americas’ service revenues grew 3% to €609 million.
Lotto wagers in Italy were up 5% to €4.9 billion compared to €4.7 billion last year. 10eLotto wagers grew 19% to €2.6 billion, compared to €2.2 billion last year. Instant-ticket wagers were €7 billion, compared to €7.2 billion last year. Total betting wagers were up 18% to €643 million versus the same period last year.
EBITDA was up over 3% to €817 million compared to €792 million in the 2013 nine-month period. Operating Income grew 3% to €470 million versus €455 million last year. EBITDA and Operating Income were up 4% at constant currency.
The increase in the effective income tax rate to 41% compared to 39.8% in the prior year reflects non-deductible acquisition costs on the pending acquisition of IGT.
Net income attributable to the owners was €176 million, compared to €174 million in the same period last year.
Diluted Earnings-Per-Share (EPS) was in line with last year at €1.01.
Cash from Operations was €641 million, compared to €497 million in the first nine months of 2013, primarily due to changes in working capital.
Capital Expenditures were €188 million in the first nine months which includes the previously reported investment in Probability Plc, as well as investments in Americas’ Lotteries and Italy’s Gaming and Lotteries product lines.
Other Information
Following the November 4 shareholders’ meeting approval of the cross-border merger of GTECH S.p.A. into Georgia Worldwide PLC, GTECH shareholders who did not vote in favor of the merger are entitled to exercise cash exit rights. Should GTECH resolve the payment of any dividends, of whatever kind, following the exercise of cash exit rights, shareholders exercising cash exit rights will not be entitled to such dividends.