Lottomatica announced 2012 third-quarter results

Consolidated financial and business highlights   

•EBITDA growth of 4% in 3Q 2012; on-track to achieve upper range of full-year guidance.
•NFP achieving full-year guidance.
•Private manager opportunities accelerating with Indiana win.

“We are encouraged by the continued growth and positive developments in our International business,” said Marco Sala, CEO of Lottomatica Group. “Despite a difficult local economy, the core of our business in Italy is performing to our expectations. Private manager and operator opportunities are accelerating. Our successful private manager operation in Illinois and our recent win in Indiana position us well for the future.”
 
“Contributions from our Gtech Lottery and Spielo International segments combined with a stabilizing Italian market produced another positive quarter. Overall, the Group is on track to achieve its 2012 financial targets. Due to our progress toward de-leveraging, our Net Financial Position is within the end-of-year guidance range. Cash flow generation remains very healthy,” said Alberto Fornaro, CFO of Lottomatica Group. “When measured at the 1.35 USD/EUR guidance rate, we expect 2012 EBITDA to be in the upper end of the 1,000 - 1,020 million euros range, or slightly above when measured at current exchange rates.”

Third-quarter consolidated results
For the third quarter ended September 30, 2012, Revenues totaled 740.2 million euros, compared to 740.9 million euros in the third quarter of 2011. Strong revenue growth in the GTECH Lottery and SPIELO International segments was offset by lower revenues in the Italian Operations segment resulting from a lower incidence of Lotto late number wagers, unusually high sports betting payouts, and the anticipated increase in video lottery terminal (VLT) taxation.

EBITDA increased 3.8% in the third quarter of 2012 to 246 million euros versus 237 million euros in the same period last year.  At constant currency, EBITDA was 240.1 million euros.

Operating Income was 134.5 million euros in the third quarter, compared to 129.4 million euros in the third quarter of last year, up 3.9%.

Interest expense was down 9.3% to 38.2 million euros in the third quarter of 2012 versus the same period last year, primarily due to lower average debt balances.

Net income attributable to the parent was 48.9 million euros in the third quarter of 2012 versus 58.5 million euros in the third quarter last year, when a 29.7 million euros non-cash foreign exchange gain was recorded.

Diluted Earnings-Per-Share (EPS) was 0.28 euros, compared to 0.34 eurosin the same period last year. When adjusted for purchase-price accounting and foreign exchange impact, net of tax, pro forma EPS was 0.35 euros, up from 0.29 euros in the 2011 third quarter.

At September 30, 2012, Consolidated Shareholders’ Equity totaled 2.64 billion euros. Lottomatica Group had a Net Financial Position (NFP) of 2.62 billion euros, compared to 2.74 billion euros as of December 31, 2011.

Italian Operations
Revenues from Italian operations were 406.5 million euros, compared to 458.5 million euros in the third quarter of 2011. Despite a challenging market environment in Italy, the overall business performance was good.  A number of events impacted top line performance including lower late number Lotto wagers, higher sports betting payouts, and higher taxation on VLTs.

While underlying Lotto wagers, including 10eLotto, were stable, overall Lotto wagers for the quarter were 1.47 billion euros compared to 1.75 billion euros last year. Lotto late number wagers in the third quarter of 2012 were 121.9 million euros, compared to 401.1 million euros in the third quarter of 2011. In the third quarter of 2011, a higher incidence of late numbers occured which did not recur in the third quarter of 2012.

Instant-ticket wagers were in line with expectations at approximately 2.24 billion euros in the quarter, compared to 2.39 billion euros in the same period last year. Approximately 480 million Scratch & Win tickets were sold in the quarter, with an average price point of 4.65 euros.  Lottomatica continues to optimize its retail network as well as diversify its instant-ticket games portfolio. The company introduced a new 10 and 5 euros ticket in September and October, respectively.  Early performance of both games is encouraging.

Revenues from Sports Betting in Italy were 15 million euros due to unusually high sports betting payouts, partially offset by an 11.7% increase in wagers. The approximate 90% payout in the third quarter was the result of several unfavorable soccer match outcomes in September.

Revenues from Machine Gaming were 156.2 million euros versus 167.1 million euros last year. Revenues were impacted by the 4% gaming tax on VLTs, up from 2% last year, resulting in a 35 million euros tax impact in the 2012 third quarter. Machine gaming wagers grew 3% in the third quarter to 2.87 billion euros from 2.79 billion euros in the same period last year. At September 30, 2012, approximately 64,100 AWP machines and 10,600 VLTs were installed.

Interactive wagers totaled 485.4 million euros, compared to 533 million euros in the third quarter of 2011 when there was an initial launch of new games including Poker Cash and Casino games.

GTECH Lottery
GTECH Lottery revenue for the third quarter of 2012 was up 15.4% to 261.1 million euros compared to 226.3 million euroslast year.  On a constant currency basis, revenues grew by 5.6%. GTECH Lottery U.S. same store service revenue grew 7.4% in the third quarter of 2012 versus the same period last year.  It benefited from continued growth of instant-ticket sales which increased 11% year-over-year, driven by instant-ticket sales in California, Illinois and Texas. International Lottery same store service revenue grew 7.7% compared to the third quarter of last year due to strong performance in Colombia and the U.K., as well as the positive sales impact from GTECH’s customer in the Czech Republic.

During the quarter, GTECH announced and/or signed contract extensions with customers in South Dakota and Arizona, as well as signed new contracts with lotteries in New Zealand, Argentina, and Lithuania. Shortly following the close of the third quarter, GTECH signed a 15-year Integrated Services agreement with the Hoosier Lottery in Indiana.

Spielo International
Third-quarter revenues were up 25.6% to 82.7 million euros when compared to the same period last year, primarily due to higher product sales in Canada and Sweden, as well as favorable foreign exchange.

During the quarter, Spielo International increased its market share in Canada by finalizing VLT and/or central system replacement agreements with Western Canada Lottery Corporation (Saskatchewan), Manitoba Lotteries, and Atlantic Lottery Corporation. To date, Spielo International has secured all five central system awards and all four VLT awards in Canada.  A fifth VLT award is in its final approval stage.