IGT hit by service revenue decline in H1

International Game Technology (IGT) has reported a marginal year-on-year decline in revenue for the six months to 30 June, 2019, which resulted in a drop in service revenue over the reporting period.

Total revenue for the first half declined 1.3% to $2.38bn (£1.96bn/€2.14bn), the result of service revenue for the period falling 4.0% to $1.97bn. This was offset in part by a 14.9% increase in product sales, to $408.1m, though not enough to avoid a year-on-year fall.

Operating expenses for the half fell to $1.98bn, down to reductions in costs of sales (to $1.19bn) and research and development (to $131.5m). However due to the lower revenue, operating income for H1 was down 1.0% to $401.9m.

Non-operating expenses rose to $166.4m, with a slight drop in interest expenses to $206.9m offset by a lower foreign exchange gain for the period, of $17.5m. After $116.0m was set aside for income tax, net profit for the half was down 8.6% at $119.5m. Once income attributable to IGT’s non-controlling interests of $74.4m was stripped out, H1 profit was down 22.7% at $45.1m.

This followed a second quarter in which IGT saw revenue rise, but earnings hit by increased costs and foreign exchange losses. Revenue for the three months to 30 June was up 2.7% to $1.23bn, with a drop in service revenue to $980.0m offset by a 30.2% increase in product sales to $254.2m.

Growth was driven by the North America gaming and interactive division – up 8% at $274m – and the International segment, up 20% to $229m. IGT saw more marginal growth in Italy, where revenue rose to $422m, both on a constant currency basis. This offset the North American lottery unit, which saw revenue remain flat at $309m.

However operating costs for the quarter rose to $1.01bn, as a result of increased product sales expenses, selling, general and administrative costs and other operating expenses. This was offset by the revenue growth, leading to a 7.0% increase in operating profit to $223.7m.

Earnings before interest, tax, depreciation and amortisation for the quarter amounted to $454m, up 3% year-on-year.

However, interest expenses and foreign exchange charges weighed on the operator’s bottom line. Interest expenses grew to $103.9m, while the company incurred foreign exchange expenses of $41.1m, compared to a $172.5m foreign exchange benefit in the prior year. This resulted in non-operating expenses soaring to $121.4m.

After income tax provision of $63.3m, net income stood at $39.0m. After $34.1m, related to income from IGT’s non-controlling interests, profit for the quarter stood at $4.9m, down from $161.5m in Q2 2018.

Despite seeing profits fall sharply in the period, IGT chief executive Marco Sala hailed what he called a strong second quarter fo the business.

”We had a strong second quarter, with top-line growth driven by a sharp increase in gaming product sales and impressive gains in global lottery same-store revenues. Profits were up nicely in our North America Gaming and Italy segments,” Sala said. “I am pleased with the broad-based improvement in key performance indicators for our main businesses.

“EBITDA in the quarter was the highest we achieved in three years and translated into substantial free cash flow for the first half,” IGT chief financial officer Alberto Fornaro added. “Recent capital markets activity strengthens our financial structure, enhances flexibility, and positions us well for the coming years.”