Gamenet Group, the Board of Directors approves the results as of September 30, 2019. Total bet at euro 2.2 billion in Q3 ’19 (+0,6%). In 9 months at euro 7.0 billion (+3,7%)

The Board of Directors of Gamenet Group S.p.A. (MTA; Bloomberg ticker: GAME: IM), a company listed on the STAR segment of the Mercato Telematico Azionario organized and managed by Borsa Italiana S.p.A., met today and approved the Interim Consolidated Financial Report as of September 30, 2019. “The results for the first nine months of the year confirm Gamenet Group’s continuing growth trend, fueled mainly by both the retail and online sports betting businesses. The latter, in particular, has benefitted from a particularly broad and innovative product portfolio, which has enabled the Group to significantly out-perform the market. EBITDA too, has continued its double-digit growth”, commented Guglielmo Angelozzi, CEO of Gamenet Group, “This has allowed us to confirm the 2019 EBITDA and Net Financial Position guidance at Euro 155-165 million and around Euro -400 million respectively, as well as the 2020 synergy target of Euro 27.0 million” Key developments and events of Gamenet Group’s business during the first nine months of 2019:  Bet at Euro 7.0 billion, with a particularly positive contribution from the Retail Betting and· Online segments, both of which recorded increases of more than 100% with respect to the same period in the previous year. Specifically: o significant growth in the Retail Betting bet, which increased from Euro 361.9 million in the nine months ended September 30, 2018 to Euro 1,250.6 million in the nine months ended September 30, 2019. The increase was mainly due to the contribution of GoldBet in the first nine months of 2019 and further streamlining of the Intralot Italia retail network (see for example the deployment on the Intralot network of the GoldBet exclusive virtual product offering). Specifically, the sports betting related bet increased from Euro 301.3 million in the nine months ended September 30, 2018 to Euro 757.4 million in the nine months ended September 30, 2019, an increase of more than 100%. A similar result was achieved in the case of the virtual betting related bet (which increased from Euro 52.7 million in the nine months ended September 30, 2018 to Euro 478.2 million in the nine months ended September 30, 2019); o significant growth in the Online bet, which increased from Euro 195.0 million in the nine months ended September 30, 2018 to Euro 1,122.3 million in the nine months ended September 30, 2019. The increase was substantially due to the contribution of GoldBet in the first nine months of 2019 and the related omnichannel model, which was further reinforced from February by the transfer of gaming accounts from the Intralot.it platform to the GoldBet.it platform (which offers a broader range of games, in particular casino games). The sports betting related bet increased from Euro 52.3 million in the nine months ended September 30, 2018 to Euro 347.3 million in the nine months ended September 30, 2019, while the casino games related bet increased from Euro 137.8 million in the nine months ended September 30, 2018 to Euro 679.5 million in the nine months ended September 30, 2019. In addition, bet relating to virtual games, which were not part of the offering in 2018, amounted to Euro 65.6 million in the nine months ended September 30, 2019.Online traffic increased significantly, also in terms of registered users (+60% vs 9M2018 pro forma).  The VLT bet decreased slightly (-1.8%); Comparing the third quarter of 2019 with respect to· the same period of 2018, bet decreased by 7.1% following a decline in bet at market level;  The AWP bet decreased slightly (-2.7%) while average bet per machine increased by 16.6%;· Comparing the third quarter of 2019 with respect to the same period of 2018, bet decreased by 3.8% following a decline in bet at market level.

The Group’s total Revenues increased by 20.1%, from Euro 442.2 million in the nine months ended September 30, 2018 to Euro 531.2 million in the same period of 2019. The increase was due to the growth of more than 100% in the Retail Betting and Online segments, both of which recorded increases thanks to the contribution of GoldBet, as well as further streamlining of the retail network and the online customer portfolio migrated from Intralot Italia. Group EBITDA increased to Euro 118.8 million in the first nine months of 2019, from Euro 65.7 million in the same period of the previous year, an increase of 80.8% (+12.1% on a pro forma basis, from Euro 106.0 million). The increase was mainly attributable to the contribution of GoldBet following its consolidation in October 2018, as well as the excellent performance of the Retail Betting and Online segments. Group EBIT in the first nine months of 2019 was Euro 35.2 million, compared to Euro 21.7 million in the same period of the previous year. The 2019 amount includes the effect of amortization relating to the Purchase Price Allocation, amounting to Euro 15.7 million. Net finance expenses amounted to Euro 22.1 million in the first nine months of 2019, a decrease of Euro 1.8 million with respect to the equivalent figure of Euro 24.0 million in the same period of the previous year. The item was impacted by the higher interest costs (Euro 7.2 million) on bond loans and the recognition of finance expenses resulting from the first-time application of IFRS 16 (Euro 1.4 million). It is also recalled that the 2018 figure was impacted by the refinancing of the high yield bond in April, which resulted in both: costs relating to the early reimbursement of the bond issued in 2016 that was due to mature in 2021 (amounting to Euro 6.0 million); and the write-off of the residual amortized cost of such bond (amounting to Euro 4.1 million). Profit before taxes for the nine months ended September 30, 2019 amounted to Euro 13.0 million compared to a loss of Euro 2.2 million for the nine months ended September 30, 2018. The 2019 amount includes the effect of amortization relating to the ex-GoldBet Purchase Price Allocation, amounting to Euro 15.7 million. Net profit for the period ended September 30, 2019 amounted to Euro 5.4 million, as compared to a loss of Euro 4.8 million for the nine months ended September 30, 2018. The figure for the period ended September 30, 2019 includes the effect of the ex-GoldBet Purchase Price Allocation, amounting to Euro -11.1 million. Net of such effect and other extraordinary items, profit for the period would have amounted to Euro 28.0 million. The Net financial position as of September 30, 2019 was Euro -412.0 million (Euro -380.3 million net of the impact of IFRS 16), compared to Euro -179.0 million as of September 30, 2018 and Euro -394.2 million as of December 31, 2018. The increase with respect to the same period in 2018 was mainly attributable to the acquisition of GoldBet, finalized during the month of October 2018, and the impact of IFRS 16, amounting to Euro 31.7 million. The Leverage ratio of Net financial position/pro forma LTM EBITDA was 2.6x, a significant improvement with respect to the ratio of 2.8x for FY’18.

The Retail Betting segment benefitted mainly from the acquisition of GoldBet and the resulting further streamlining initiatives (including, in particular, deployment on the Intralot Italia retail network of GoldBet’s Virtual product). Bet in the nine-month period ended September 30, 2019 increased by more than 100% with respect to the same period in the previous year (from Euro 361.9 million in the first nine months of 2018 to Euro 1,250.6 million in the first nine months of 2019), achieved thanks to a network of operating points of sale comprising 1,371 of betting shops and 240 betting corners (436 and 236 respectively as of September 30, 2018). Retail Betting revenues amounted to Euro 154.2 million for the nine months ended September 30, 2019, an increase of Euro 95.4 million (>100%) with respect to Euro 58.8 million for the nine months ended September 30, 2018. The segment benefitted from the acquisition of GoldBet in October 2018, which contributed to the significant growth in revenues in all areas and in particular in the sports betting and virtual gaming business, as well as further streamlining of the ex Intralot Italia retail network. The Contribution Margin in the nine months ended September 30, 2019 was Euro 54.3 million, approximately 10.2% of total consolidated revenues and 32.5% of the Group’s total contribution margin. The main drivers for the year on year increase were the contribution of GoldBet and the further streamlining of the ex Intralot Italia retail network already referred to above. Retail Betting segment EBITDA for the nine months ended September 30, 2019 amounted to Euro 39.5 million, an increase of more than 100% with respect to the equivalent amount for the corresponding period of the previous year (Euro 9.3 million).

The Online segment benefitted mainly from the acquisition of GoldBet and was further reinforced by the transfer of gaming accounts from the Intralot.it platform to the GoldBet.it platform (which, as noted above, offers a broader range of games). Bet in the nine-month period ended September 30, 2019 increased by more than 100% with respect to the same period in the previous year (from Euro 195.0 million in the first nine months of 2018 to Euro 1,122.3 million in the first nine months of 2019). The increase was substantially due to the contribution of GoldBet in the first nine months of 2019. Online revenues amounted to Euro 53.0 million for the nine months ended September 30, 2019, an increase of Euro 45.3 million (>100%) with respect to Euro 7.7 million for the nine months ended September 30, 2018. The main drivers for the year on year increase were the same as those for the increase in bet. The Contribution Margin in the nine months ended September 30, 2019 was Euro 28.9 million, approximately 5.4% of total consolidated revenues and 17.3% of the Group’s total contribution margin. Online segment EBITDA for the nine months ended September 30, 2019 amounted to Euro 21.4 million, an increase of more than 100% with respect to the equivalent amount for the same period of the previous year (Euro 1.5 million).

The average number of AWPs in operation during the nine months ended September 30, 2019 was 28,056, a decrease of 16.6% with respect to the average number in operation during the same period in the previous year. Such decrease was mainly due to the reduction in the number of operating permits effected during the first half of 2018 (as required by the 2016 Budget Law), as well as (temporarily) to the substitution of mother boards (required to adjust the payout level to meet the requirements of the 2018 Budget Law). The substitution of mother boards involves technical changes being made to the machines (and therefore their temporary downtime). Bet decreased from Euro 1,962.2 million in the first nine months of 2018 to Euro 1,908.7 million in the first nine months of 2019. Average bet per machine increased by 16.6%. The reduction in revenues, to Euro 180.7 million for the nine months ended September 30, 2019, from Euro 209.2 million for the nine months ended September 30, 2018 (-13.6%) was mainly due to the temporary misalignment of the increase in the PREU rates (effective mostly from January 2019) and the reduction in payout level (as time is required to substitute the mother boards). Specifically, the increases in the PREU tax rate had a negative impact of Euro 46.2 million, which was partially offset by the positive impact of the reduction in the payout level (still partial as of 30/09/2019 – from 70.3% in the first nine months of 2018 to 69.2% in the first nine months of 2019) amounting to Euro 23.1 million. It is further recalled that: i) the minimum payout is set by law at 68.0%; and ii) by the end of September, Gamenet Group had substituted the mother boards in 71.6% of its owned devices (corresponding to 81.6% of bet generated by owned devices in the month of September). Finally, segment revenues decreased by Euro 5.5 million as a result of the reduction in bet. Notwithstanding the reduction in revenues, the AWP contribution margin increased by 8.6%, from Euro 20.6 million in the nine months ended September 30, 2018 to Euro 22.4 million in the nine months ended September 30, 2019, representing approximately 4.2% of consolidated revenues and 13.4% of the Group’s total Contribution Margin. Such increase was substantially due to the significant reduction in distribution costs, which decreased from Euro 181.0 million to Euro 151.2 million (-16.5%), due both to the distribution insourcing strategy and the pass-through nature of contracts regarding third-party owned AWP machines (which provide that reductions in revenue due to increases in the PREU tax are associated with a decrease in distribution costs). The decrease in distribution costs was partially offset (in the case of owned machines) by the effect of the aforementioned temporary misalignment between the increase in the Preu tax rate and the reduction in payout. AWP segment EBITDA for the nine months ended September 30, 2019 amounted to Euro 17.0 million, an increase of 11.8% with respect to the equivalent amount for the same period of the previous year (Euro 15.2 million).

As of September 30, 2019, the Gamenet Group held 8,570 licenses. The average number of VLTs in operation during the nine months ended September 30, 2019 was 8,330, as compared with an average of 8,353 in operation during the same period in the previous year. The VLT bet decreased from Euro 2,445.9 million to Euro 2,402.3 million. VLT revenues amounted to Euro 132.7 million for the nine months ended September 30, 2019, a decrease of Euro 21.4 million (-13.9%) with respect to Euro 154.1 million for the nine months ended September 30, 2018. As with AWP revenues, the decrease was mainly due to the temporary misalignment of the increase in the PREU rate (effective mostly from January 2019) and the reduction in payout level (which requires the availability of new games from platform suppliers). Specifically: i) the negative impact of the increase in the PREU tax rate amounted to Euro 41.3 million; ii) the negative impact of the reduction in bet amounted to Euro 2.3 million, and iii) the positive impact of the reduction in the payout level (still partial as of 30/09/2019, from 87.8% in the first nine months of 2018 to 86.9% in the first nine months of 2019) amounted to Euro 22.1 million. The Contribution Margin in the nine months ended September 30, 2019 was Euro 37.9 million, approximately 7.1% of total consolidated revenues and 22.7% of the Group’s total contribution margin, a decrease of 10.7% or Euro 4.7 million, net of the year on year impact, amounting to Euro 3.4 million, relating to the partial reversal (which took place in 2019) of a tax credit for the years 2013-2014 (accounted for in 2018). It is recalled in this regard that the partial recovery of the over-payment of VAT in relation to fiscal years 2013-2014 had a negative effect on Contribution Margin but not EBITDA. The decrease in Contribution Margin was mainly due to the impact of the temporary misalignment between the increase in the PREU flat-tax and the reduction in payout described above in relation to revenues. VLT segment EBITDA for the nine months ended September 30, 2019 amounted to Euro 27.8 million, a decrease of 9.2% with respect to the equivalent amount for the same period of the previous year (Euro 30.6 million).

As of September 30, 2019, the Group’s Retail operations included 68 directly managed gaming halls of which 40 under the Gamenet Entertainment brand, 3 under the Billions brand, 21 under the Enjoy the Game brand and 3 under the Easy Play brand. Street Operation activities included 3,438 owned AWPs. Bet in the Retail and Street Operations segment (connected to other concessionaires) decreased by 10.3% (from Euro 300.4 million in the nine months ended September 30, 2018 to Euro 269.3 million in the nine months ended September 30, 2019). After reclassifying bet generated in company-owned gaming halls connected to the Gamenet concessionaire, bet generated in the Retail and Street Operations segment in the nine months ended September 30, 2019 amounted to Euro 810.4 million (2.0% above the Euro 794.3 million generated in the same period of the previous year). The increase was mainly due to the AWP businesses acquired in the Street Operations segment during the period. Revenues from Retail and Street Operations amounted to Euro 10.7 million for the nine months ended September 30, 2019, a decrease of Euro 1.7 million (-13.7%) with respect to Euro 12.4 million for the nine months ended September 30, 2018. The decrease was mainly due to the temporary misalignment referred to above between the increase in AWP and VLT Preu tax rates (effective as of January 2019) and the reduction in the related product payout levels, as well as the shift in bet caused by the transfer in mid-February 2018 of a high performance Group-owned hall to the concessionaire Gamenet S.p.A. (as a result of which the contribution of such hall is included mainly within the VLT and AWP segments). The Contribution Margin in the nine months ended September 30, 2019 was Euro 23.6 million, approximately 4.4% of total consolidated revenues and 14.1% of the Group’s total contribution margin. The increase (of Euro 2.1 million) with respect to the same period in the previous year was mainly due to acquisitions during the period, as well as organic growth and general improvement in the performance of halls, partially offset by the negative year on year impact of the aforementioned temporary misalignment of the increase in the PREU tax rate and the reduction in payout (net impact of Euro 2.9 million). Such overall impact was supplemented by the positive impact resulting from the application of IFRS 16 (Euro 3.8 million).

Total Group Revenues amounted to Euro 174.3 million in the third quarter of 2019, an increase of 20.3% with respect to Euro 144.9 million in the third quarter of 2018. EBITDA in the third quarter of 2019 was Euro 40.2 million, an improvement compared to Euro 22.0 million in the third quarter of 2018, mainly due to the contribution of GoldBet and, as a result, the positive results recorded by sports betting and the introduction of innovative products such as online virtual betting, as well as the excellent continuation of the distribution insourcing strategy. EBIT was Euro 12.8 million, compared to Euro 7.0 million in the third quarter of 2018. The 2019 amount includes the effect of amortization relating to the Purchase Price Allocation, amounting to Euro -5.2 million. Profit for the period amounted to Euro 1.6 million, as compared to Euro 0.8 million in the third quarter of 2018. The result was influenced by the effects of the ex GoldBet Purchase Price Allocation, totaling Euro 3.7 million. Net of extraordinary items during the period and the aforementioned impact of the Purchase Price Allocation, the result for the period would have been a profit of Euro 9.8 million (as compared to a net adjusted profit of Euro 4.2 million in the third quarter of 2018).

Consolidated Group Revenues in the nine months ended September 30, 2019 amounted to Euro 531.2 million, compared to Euro 574.1 million on a pro forma basis in the same period of the previous year (-7.5%). The decrease was due to the temporary misalignment between the increase in AWP and VLT Preu tax rates and the reduction in the related product payout levels (it is recalled that in the case of AWP machines, reductions in revenue due to increases in the PREU tax are associated with a decrease in distribution costs). Group EBITDA increased to Euro 118.8 million in the nine months ended September 30, 2019, from Euro 106.0 million on a pro forma basis in the same period of the previous year, an increase of 12.1%. The reasons for the increase are the same as those described in relation to the previous point. Group EBIT for the nine months ended September 30, 2019 was Euro 35.2 million, compared to Euro 41.7 million on a pro forma basis for the same period of the previous year. The item includes the effect of the aforementioned Purchase Price Allocation, amounting to Euro -15.7 million for both periods. Profit before tax for the nine months ended September 30, 2019 amounted to Euro 13.0 million compared to Euro 20.6 million on a pro forma basis for the same period in the previous year. The item includes the effect of the aforementioned Purchase Price Allocation, amounting to Euro -15.7 million for both periods. Net profit for the nine months ended September 30, 2019 amounted to Euro 5.4 million, as compared to a profit of Euro 11.2 million on a pro forma basis for the same period of the previous year. The item includes the effect of the aforementioned Purchase Price Allocation, amounting to Euro -11.1 million for both periods.

2019 EBITDA guidance is confirmed in the range Euro 155-165 million and net financial position is expected to be around Euro -400 million. This guidance takes into account the application of IFRS 16 with effect from January 1, 2019. It is recalled that application of IFRS 16 has a positive impact of around Euro 7 million on EBITDA on a full-year basis and a negative impact of around Euro 30 million on the Net financial position at the end of the year.

The Board of Directors approved a partial early redemption (the “Partial Redemption”) of the Euro 225,000,000 Senior Secured Floating Rate Notes due 2023 issued on September 20, 2018 (the “September 2018 Notes”). The principal amount of the September 2018 Notes to be redeemed will be equal to Euro 18.5 million. The redemption price will be equal to 101% of the principal amount of the notes being redeemed. The Company will announce the final terms and conditions of the Partial Redemption by means of a notice (the “Notice of Redemption”) that will be published on the Company’s website, on the website of the Luxembourg Stock Exchange and sent to the holders of the September 2018 Notes through the clearing systems. Based on the currently available financial information, the Partial Redemption will allow the Group to reduce its Consolidated Leverage Ratio ((as defined under the Indentures of the September 2018 Notes and of the Euro 225,000,000 Senior Secured Floating Rate Notes due 2023 issued on April 27, 2018 (the “April 2018 Notes”), collectively the “Indentures”) below 2.75:1.00. Therefore, it is expected that the envisaged consummation of the acquisition announced on October 23, 2019 by Gamma Bidco S.r.l. of 48.67% of the shares of the Company (the “Acquisition”) will not constitute a Change of Control under the Indentures. As a consequence, to the extent that immediately prior to at the date of consummation of the Acquisition and immediately thereafter the Consolidated Leverage Ratio will continue to be below 2.75:1.00, the Company will not be required to make a Change of Control Offer (as defined under the Indentures) to the holders of the April 2018 Notes and the September 2018 Notes. In any case, the reduction of the Consolidated Leverage Ratio below the aforementioned threshold will need to be assessed immediately before and immediately after the envisaged consummation of the Acquisition. lp/AGIMEG

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