“Despite a comparison with a very good second quarter last year that benefited from product sales related to the Canadian VLT replacement program and significant jackpot activity, GTECH was able to absorb the loss of those impacts and produce comparable results,” said Marco Sala, CEO of GTECH S.p.A. “That is a significant accomplishment that demonstrates the resiliency and growth potential of our core business.”
“We delivered good results in the second quarter,” said Alberto Fornaro, CFO of GTECH S.p.A. “Cash generation was better than anticipated and we continue feeling very positive about the underlying trend in Net Financial Position (NFP): on a like-for-like basis, the guidance initially provided of €2.47 billion - €2.53 billion is comfortably within reach.”
Consolidated Revenues in the second quarter of 2014 were €751 million, or €768 million when measured at constant currency, compared to €762 million in the second quarter of 2013, notwithstanding the €29 million product sales unfavorable comparison related to the Canadian replacement cycle. At constant currency, service revenues were €695 million, or €15 million higher than the same period last year, showing an approximate 1% increase in Italy. On a comparable foreign exchange basis versus the second quarter of 2013, product sales were €9 million lower, as additional sales in Lotteries compensated for most of the 2013 Canada-related machine deliveries.
EBITDA was €267 million, compared to €273 million in the second quarter of 2013. At constant currency, EBITDA was €270 million.
Operating Income was €156 million compared to €161 million in the second quarter of 2013.
Net Income attributable to the owners was €61 million, compared to €67 million last year.
Diluted Earnings-Per-Share (EPS) was €0.35 versus €0.39 in the second quarter of 2013.
Capital expenditures in the quarter were €53 million.
At June 30, 2014, Consolidated Shareholders’ Equity totaled €2.51 billion. GTECH had a Net Financial Position (NFP) of €2.53 billion, compared to €2.58 billion as of March 31, 2014, and €2.51 billion as of December 31, 2013. During the quarter, GTECH paid €131 million in dividends, or €0.75 a share.
Second-Quarter Results by Segment
Americas
Revenues in the Americas were €250 million in the quarter, and €266 million at constant currency, compared to €261 million in the second quarter of 2013. Product sales in the quarter were €50 million, €13 million lower than the second quarter of 2013 driven largely by the expected decline in Gaming product sales to Canada which was partially offset by higher product sales to other customers. Comparisons to the prior year were also negatively impacted by the record $590 million Powerball jackpot last year which did not repeat this year as well as the impact of foreign exchange rate fluctuations which were substantially offset by higher revenues from Lottery Management Services agreements in New Jersey and Indiana.
Americas Operating Income was also impacted by lower jackpot activity and machine gaming sales.
During the quarter, GTECH signed a two-year contract extension with the West Virginia Lottery, and, more recently, the Tennessee Lottery signed a new seven-year contract with the Company. In Colombia, GTECH is adding 1,000 new terminals to its network, increasing the retailer base by approximately 10%. Sphinx 3D debuted in North America with 600 machines expected to be rolled out by year end.
In Illinois where Northstar continues discussions with the Lottery, as of June 30, 2014, Northstar estimates its combined Net Shortfall payment obligation to the State to be approximately €60 million ($82M). The economic impact of such potential liabilities will be absorbed over the remaining contract term.
International
Revenues from the International segment were €76 million, versus €80 million in the prior year, mainly due to a change in contract terms with a customer which lowered revenue yet increased profit, a lower number of billable hours with a European customer, as well as foreign exchange.
Operating Income in the International segment was in line with last year at €12 million.
SAZKA in the Czech Republic successfully implemented a price increase for its Lotto game from 16CK to 20CK, with encouraging early results. GTECH customers in Slovakia, Czech Republic and Poland have launched, together with the lottery in Hungary, the first multinational V4 instant game, also with encouraging early sales.
GTECH was also recently selected to provide a VLT central system for Greece’s OPAP, which will monitor up to 35,000 VLTs in Greece’s new gaming program.
Italy
Revenues from the Italy segment were €425 million, up from €421 million in the second quarter of 2013. Higher Lotto revenues almost fully offset lower instant-ticket revenues. Growth in sports betting wagers, virtual betting, and a stable payout percentage drove higher revenues which offset lower Machine Gaming and Interactive revenues.
Despite lower late number wagers, total Lotto wagers for the quarter were up approximately 2% to €1.56 billion, compared to €1.53 billion in the second quarter of 2013, driven by 10eLotto wagers. Instant-ticket wagers were €2.31 billion compared to €2.37 billion last year.
Machine gaming revenues were €141 million versus €144 million in the previous year, due to lower productivity.
Revenues from sports betting were €8 million higher than last year at €40 million, benefiting from the introduction of virtual betting and the FIFA World Cup.
Operating Income grew to €143 million versus €140 million last year.
First-Half Consolidated Results
For the first six months of 2014, Revenues were €1.53 billion, compared to €1.56 billion in the first six months of 2013. Revenues at constant currency were in line with last year. Americas Lottery same-store revenues were up over 1% to €258 million. International Lottery same-store revenues were in line with last year at €52 million.
Lotto wagers in Italy were stable at €3.1 billion, and benefited from good 10eLotto performance. Instant-ticket wagers were €4.79 billion, compared to €4.92 billion last year.
EBITDA was €563 million compared to €573 million last year. Operating Income was €337 million versus €353 million in the first half of last year. At constant currency, EBITDA would have been €570 million, and Operating Income would have been €338 million.
The effective income tax rate was in line with last year at 41%.
Net income attributable to the owners was €136 million, compared to €142 million in the same period last year.
Diluted Earnings-Per-Share (EPS) was €0.78, compared to €0.82 in the first six months of last year.
Cash from Operations was €460 million, compared to €354 million in the first six months of 2013, primarily due to changes in working capital.
Capital Expenditures were €121 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.