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Company Presentation Tokyo, October 7, 2008 Italian Investor Conference.

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Presentation on theme: "Company Presentation Tokyo, October 7, 2008 Italian Investor Conference."— Presentation transcript:

1 Company Presentation Tokyo, October 7, 2008 Italian Investor Conference

2 2 Safe Harbour Statement Disclaimer This presentation contains forward-looking statements regarding future events and the future results of Lottomatica that are based on current expectations, estimates, forecasts, and projections about the industries in which Lottomatica operates, and the beliefs and assumptions of the management of Lottomatica. In particular, among other statements, certain statements with regard to management objectives, trends in results of operations, margins, costs, return on equity, risk management and competition are forward-looking in nature. Words such as expects, anticipates, targets, goals, projects, intends, plans, believes, seeks, and estimates, variations of such words, and similar expressions, are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Therefore, Lottomaticas actual results may differ materially and adversely from those expressed or implied in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, economic conditions globally, the impact of competition, political and economic developments in the countries in which Lottomatica operates, and regulatory developments in Italy and internationally. Any forward-looking statements made by or on behalf of Lottomatica speak only as of the date they are made. Lottomatica does not undertake to update forward-looking statements to reflect any changes in Lottomaticas expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

3 3 Group Overview Group Overview Strategy Strategy Market Environment Market Environment Financials – 1H08 and Guidance Financials – 1H08 and Guidance Backup BP Backup BP Agenda

4 Group Overview

5 5 Mission Lottomatica Group will be the leading commercial operator and provider of technology in the regulated worldwide gaming markets by delivering best-in-class products and services, with a commitment to highest levels of integrity, responsibility, and shareholder value creation.

6 6 The Group Value Chain Full Suite of TerminalsFull Suite of Terminals NetworkingNetworking SOFTWAREDESIGN System ArchitectureSystem Architecture Master system coding and data warehousingMaster system coding and data warehousing SYSTEM INSTALLATION & SUPPORT Implementation of large-scale systemsImplementation of large-scale systems Ongoing maintenanceOngoing maintenance CONTENTDEVELOPMENT/MARKETRESEARCH GAMINGOPERATIONS Lottomatica Group is a leading player in the government-sponsored gaming value chain Lottomatica Group is a leading player in the government-sponsored gaming value chain Integration in key areas provides platform for substantial growth opportunities INFRASTRUCTUREDEVELOPMENT

7 7 Global Player in the Gaming Industry Traditional Lottery (online) (online) Instant Lottery Gaming Solutions Sports Betting Interactive Channels Commercial Services B2B GTECH COMPANIES MARKETSEGMENT B2C LOTTOMATICA BRANDS

8 8 Lottomatica Group strengths Global Market Leadership and Balanced portfolio of international contracts Global Market Leadership and Balanced portfolio of international contracts 59% worldwide lottery market share 59% worldwide lottery market share Conduct business in over 50 countries Conduct business in over 50 countries Diversified revenues: 49% Italy, 30% US, 21% other countries (FY07) Diversified revenues: 49% Italy, 30% US, 21% other countries (FY07) Sustainable high-margin business combined to a growing market Sustainable high-margin business combined to a growing market 2007 EBITDA margin of 42% 2007 EBITDA margin of 42% Outstanding historical hit rates in the re-bidding process Outstanding historical hit rates in the re-bidding process Strong Management Team Strong Management Team

9 Revenues Breakdown A well-balanced and diversified revenue portfolio, by geography and by market segment A well-balanced and diversified revenue portfolio, by geography and by market segment Stable, recurring core lottery business with predictable revenues (2007 1,661M) Stable, recurring core lottery business with predictable revenues (2007 1,661M) Gaming Solutions % Commercial Services % Sports Betting and Interactive % Lotteries Rest of World % Lotteries Italy % Lotteries USA % Figures in M Lotteries Italy: Lottomatica manages Lotto and Instant Lotteries businesses Lotteries Italy: Lottomatica manages Lotto and Instant Lotteries businesses Lotteries USA: GTECH is the service provider of 26 of the 43 online lottery authorities Lotteries USA: GTECH is the service provider of 26 of the 43 online lottery authorities Lotteries Rest of World: GTECH provides services to 53 non-US online lotteries in the world Lotteries Rest of World: GTECH provides services to 53 non-US online lotteries in the world SB and Interactive: In 2007, Lottomatica began operating fixed-odds sports betting in Italy SB and Interactive: In 2007, Lottomatica began operating fixed-odds sports betting in Italy Gaming Solutions: Italy, broader role to become gaming operator – International, gaming and technology machines provider Gaming Solutions: Italy, broader role to become gaming operator – International, gaming and technology machines provider

10 Strategy

11 11 Lottomatica Group Strategy Traditional and Instant Lottery (77%) 1 Gaming Solutions (9%) 1 Sports Betting (8%) 1 B2BGTECHMARKETSEGMENTB2CLOTTOMATICA Leading systems capabilities and strong cash flow support opportunities in four areas Continue to build and accelerate same store sales growth Leverage technology capabilities in VLT and traditional carriers Utilize server-based gaming (SBG) capabilities Refresh/expand Atronic content offerings Grow presence in this fast-expanding market as Service Provider Play a relevant role in Consolidation of Italian market Win new jurisdictions Grow instant ticket printing capabilities Interactive (2%) 1 Provide platforms and services to operators in fast-growing market segment Pursue Gratta e Vinci model in other European countries Leverage on Better experience to build a presence as Operator in other European countries Exploit full potential of interactive channels in Italy according to new regulation (1) Weight as a % of Group consolidated revenue in 1H2008 – Commercial services revenue weight = 4%

12 12 Interactive Strategy Revenue share of rake in commercial market Technology Player account Gaming control Risk/event management ERM/CRM Marketing Support Affiliates / Channels Advanced Service Player liquidity Event/risk management Responsible gaming Fraud & Collusion ERM/CRM Sports services Information Services Games Lotto/numbe r games Poker Bingo Casino Instant games Sports betting Live Betting Value chain GTECH at present Boss Media Some WLA-member operators at present GTECH Finsoft 1%-5%10%-20%up to 40%up to 60% up to 100% Operator Operations Licensing Brand Marketing Customer ownership St Minver White-Label Proposition Strategic Rationale BOSS MEDIA – Leading OEM network provider gives GTECH immediate access to a Top 10 poker network (IPN) and the potential to leverage technology, services and liquidity to provide Multi-Jurisdictional Network Games, i.e., Poker, Bingo – Domain expertise and credibility within Interactive space, specifically Poker, Casino and other P2P games – Strong, scalable presence in WLA market as well as Commercial market – Expands Bosss reach into emerging customer bases through access to GTECH/WLA relationships and Finsoft – Potential for synergies through content development/R&D ST. MINVER – Leading provider of White-Label gaming services to blue-chip media brands – Close affiliation with Boss Media through provision of network services and SW platform(s) creates opportunity for significant synergies – Domain expertise and credibility within Interactive space across all target markets (WLA, Commercial OGOs, Media Brands)

13 Market Environment

14 14 The Gaming Industry Attractive Fundamentals Attractive Fundamentals Constant growth in global gaming market and lottery sales Constant growth in global gaming market and lottery sales Substantial opportunities to be captured: Approximately 65% of worlds addressable population not currently served by online lottery (1) Substantial opportunities to be captured: Approximately 65% of worlds addressable population not currently served by online lottery (1) Insulated from negative economic conditions: Governments increase marketing and introduce new products/games to balance budgets in weaker economic times Insulated from negative economic conditions: Governments increase marketing and introduce new products/games to balance budgets in weaker economic times Strong Barriers to Entry Strong Barriers to Entry Long-term government/customer relationships Long-term government/customer relationships Licensing/disclosure requirements Licensing/disclosure requirements Technical conversion risk Technical conversion risk (1) Management estimates

15 15 GTECHS Core Business Provides Stable Cash Flow Recurring annual lottery service revenue of approximately 600M Recurring annual lottery service revenue of approximately 600M Stable and visible revenues Stable and visible revenues – Weighted average lottery contract length of approximately 6.0 years (2) – Approximately 90% of total service revenues under contract for more than two years – Approximately 60% of aggregate revenues under contract for at least four years Strong Government reliance on lottery proceeds Strong Government reliance on lottery proceeds – Approximately 30% of every wager goes directly to Governments Key Lottery Contracts – Annual Service Revenues (1)(2 ) Aug March 2010 Oct Jan Oct Jan Sept Service Revenues by Renewal Date (1) Figures represent proportion of historical revenues for which the underlying contracts are expected to expire within the periods stated. (2) Analysis assumes all extension options are exercised. GTECHs revenues converted at the CY08 Outlook exchange rate USD/EUR of 1.50.

16 16 Significant Opportunity for Growth in US Lottery Markets Opportunity for Best Practices drive per capita growth Opportunity for Best Practices drive per capita growth – Massachusetts leads the US in per capita sales, fueled by high percentage payouts and retail distribution – Georgia and New York are second and third in per capita sales due to a strong game portfolio, retail distribution and a well-balanced payout percentage Adoption of Best Practices by GTECH customers could drive substantial growth similar to GA and NY Adoption of Best Practices by GTECH customers could drive substantial growth similar to GA and NY GTECHs US customers have significant room to drive growth, based upon execution of best practices and other factors GTECHs US customers have significant room to drive growth, based upon execution of best practices and other factors Source: GTECH Lottery Marketing Database Potential Additional GTECH Annual Revenue (Based upon Average of GA and NY Best Practices) 2007 Weekly Per Capita Sales BN* *Incremental gross sales potential $M +4-5BN*+1-3BN*

17 17 Interactive Gaming Markets Interactive Lottery market expected to double in five years Interactive Lottery market expected to double in five years Fast-growing Multiplayer games Fast-growing Multiplayer games Europe and Asia critical to scale and growth, given regulatory issues in the US Europe and Asia critical to scale and growth, given regulatory issues in the US Our core customer segment (lotteries) expected to be significant growth driver of interactive gaming Our core customer segment (lotteries) expected to be significant growth driver of interactive gaming Our strategic investments in new acquisitions position us well to take advantage of the fast-growing interactive gaming market High-Growth Interactive Gaming Segment Global Interactive Gaming Market GGY 1998 to 2012E LotteriesPoker CasinoBingoSkill games CAGR: 11.1% Source: GBGC (Oct 2007) 5-Year CAGRs ( ) 28.2% 16.6% 6.7% 7.1% 14.6%

18 18 China Opportunity Lottery highly regulated under Ministry of Finance; two national bodies: – China Welfare Lottery Issuance Centre (CWLC) – China Sports Lottery Administration Centre (CSLA) Retail market substantially under-penetrated – 150K POS among 1.4 billion individuals – Assuming 1 POS per 2,000 persons, potential POS penetration of 700K [plus 550K] Market expected to grow at healthy pace driven by expanding sales network and the introduction of new games – Substantial opportunity to convert non-regulated market to regulated Current GTECH market position – Online systems in Beijing and Guangdong – Recent joint venture with China LotSynergy for development of nationwide KENO system for CWLC 07–10 CAGR 31.7% 39.5% 26.6% Source: IDC (Jan. 2007) CHINA LOTTERY MARKET Substantial opportunity to participate in growing Chinese lottery market Substantial opportunity to participate in growing Chinese lottery market

19 19 Italian Regulatory Model EXCLUSIVE CONCESSIONAIRE (Lotteries) MULTI-PROVIDER CONCESSIONAIRE (Other Games) Lotto Instant lotteries SuperEnalotto Sports Betting and Pools Horse-race Betting and Pools Gaming machines Bingo Licenses for game operations based on two competitive models with regulatory oversight focused on gaming rules and market monitoring

20 20 Growing Italian Market Source: AAMS / Lottomatica 2001 – 2007 Wagers Trend Key Market Drivers Exceptional market growth mainly driven by innovation and portfolio expansion: –Gaming Machines wagers reached 18.8B due to legalization process –Scratch and Win continued increase in consumer penetration: 8B wagers –Sports Betting grew by 29% (CAGR) in last two years –Numerical Lotteries maintained their positions

21 21 The Italian Gaming Market in Europe Italy is one of the most penetrated gaming markets in Europe, representing a unique balance between a regulated model and a highly-transparent, competitive environment:Italy is one of the most penetrated gaming markets in Europe, representing a unique balance between a regulated model and a highly-transparent, competitive environment: More than 100 authorized concessionairesMore than 100 authorized concessionaires Nine major international playersNine major international players 25M consumers25M consumers Lottery - avg spend per capita Betting - avg spend per capita /year

22 22 Italy – Scratch&Win and Lotto Scratch&Win Wagers LTO management State management CAGR:151% bn Gratta e Vinci today is the most popular game in Italy (more than 14M consumers) and the first Instant Lottery in the world (8BN wagers) Lotto is among the top-performing Numerical Lotteries in the world, despite the strong growth of Gratta e Vinci and other emerging games Gratta e Vinci today is the most popular game in Italy (more than 14M consumers) and the first Instant Lottery in the world (8BN wagers) Lotto is among the top-performing Numerical Lotteries in the world, despite the strong growth of Gratta e Vinci and other emerging games Lotto Wagers Core Wagers Core Wagers Late Numbers Venice 53 phenomenon 3 rd drawing introduction, bn

23 23 Italy – Betting and Gaming Machines June 2008 – Betting Total Market Sports Betting: Lottomatica quickly reached overall a solid second position in this growing market, while being the largest operator in the new network Gaming Machines: in 2007 started an aggressive growth plan to play a leading role in this market consolidation process Sports Betting: Lottomatica quickly reached overall a solid second position in this growing market, while being the largest operator in the new network Gaming Machines: in 2007 started an aggressive growth plan to play a leading role in this market consolidation process Gaming Machines Wagers and Market Share , ,000 1,500 2,000 LTO market share (EoY) Total mkt licences (EoY, K) 6% 180 6% % 300 M June 2008 – Betting New Network

24 Financials 1H08 and Guidance

25 25 Financial Highlights 1H08 Top line growth in Italy of 27% driven by Sports betting, Gaming solutions and Scratch & Win Top line growth in Italy of 27% driven by Sports betting, Gaming solutions and Scratch & Win B2B Lottery same store revenue growth of 4%, strategic extensions in California and Ireland B2B Lottery same store revenue growth of 4%, strategic extensions in California and Ireland Steady 43% EBITDA margin reflects fast-growing businesses contribution Steady 43% EBITDA margin reflects fast-growing businesses contribution Revenues Note: $/ FX average: 1.33 in 1H07; 1.54 in 1H08 EBITDA Margin % 45.6% 43.0% 43.0% +16% +11% +10% +5%

26 26 Cash Position 1H08 Figures in M Note: (1) Net of the escrow payment of 40 million for Totosi acquisition Healthy unlevered free cash flow before acquisitions of 90M, increasing 16M versus comparable 2007 data Solid cash position of 155M having already completed the majority of the acquisition plan for 08, paid dividends, taxes and repurchased shares for 1.4% of outstanding capital Net Financial Position as of June 30 of 2,670M (2,229 as of December 31, 2007) includes completed acquisitions of 205M and Atronic debt consolidation of 135M (1) - 2.1M shares avg. price

27 27 Gross Long-Term Debt Figures in M 2.5x Net Debt/EBITDA Ratio Target in 2010 (adjusted for Hybrid, Net Debt / EBITDA Ratio 1.75) 2.5x Net Debt/EBITDA Ratio Target in 2010 (adjusted for Hybrid, Net Debt / EBITDA Ratio 1.75) Group committed to maintaining financial discipline (S&P BBB- stable, Moodys Baa3 stable) Group committed to maintaining financial discipline (S&P BBB- stable, Moodys Baa3 stable)

28 28 Capital structure Maintain investment grade rating Preserve optimal weighted average cost of capital Maintain sufficient financial flexibility to pursue growth Free cash flow deployment priorities Investments in existing business Scheduled debt repayments Dividend policy Share repurchase program Disciplined approach to capital allocation Investments must be consistent with Corporate Strategy of maximizing value Acceptable level of return: risk adjusted hurdle rate + spread Key Financial Policies

29 Guidance (1)FCF unlevered pre-acquisitions, pre-dividends and pre-debt amortization pre- Polcard proceeds (2)Pro-forma CAGR Revenues 1, ,661 1, ,050 2, ,500 13% - 15% EBITDA % - 10% Operating Income % - 18% Operating Income Margin 23% 20% - 22% % Amortization of Intangibles Effective tax Rate 46% 38% - 36% EPS as Reported (in ) Free cash Flow Unlevered Net Financial Position (2,484)(2,229) (2,670) - (2,570) (2,350) - (2,250) Dividends USD/EURO Rate Figures in M

30 30 Contacts Lottomatica Group web site Investor Relations Office Lottomatica S.p.A Viale del Campo Boario, 56d Roma Italy

31 Backup BP

32 32 Capex Maintenance capital approximately 5% of annual revenues Maintenance capital approximately 5% of annual revenues Growth capital approximately 3% of annual revenues Growth capital approximately 3% of annual revenues Maintain competitive dividend policy 1 = $1.50 Lottery Lotto – steady Lotto – steady S&W – low single-digit growth S&W – low single-digit growth Sports Betting Maintain market share in a growing market Maintain market share in a growing market Gaming Solutions Wagers to top 3.5BN by 2010 Wagers to top 3.5BN by 2010 Commercial Services Approximately 80M by 2010 Approximately 80M by 2010Lottery Same store sales growth of 5–6% Same store sales growth of 5–6% Maintain existing contracts; one new small contract, one medium Maintain existing contracts; one new small contract, one medium Gaming Solutions Expansion in participation markets. Peak of replacement cycle in North America in Expansion in participation markets. Peak of replacement cycle in North America in Interactive and Sports Betting Growing to 90M by 2010 Growing to 90M by 2010 Key Assumptions Lottomatica Drivers Other Drivers GTECH Drivers

33 33 USD Sensitivity US$/ RevenuesEBITDA Net Income %-0.9%+1.3% %-1.8%+2.6% Note: % change compared to 2008 base USD/ Business USD/ Business USD/ 1.50 Approximately 30% of USD denominated Revenues Approximately 30% of USD denominated Revenues Depreciation of USD has a positive impact on Net Income Depreciation of USD has a positive impact on Net Income

34 Revenue Targeted Growth Figures in million Revenue CAGR between 9 and 11% leveraging organic growth and new business development opportunities Revenue CAGR between 9 and 11% leveraging organic growth and new business development opportunities Note: Includes 216 M aggregated 07 revenues (of which 5M already consolidated in 07 by LTO) from newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver) 1, – 230 2, , Reported 1,661M Acquisitions 211M Disposals (22)M ,850M

35 Solid EBITDA Profitability Figures in million EBITDA CAGR between 8% and 10%, maintaining high margins in traditional markets and developing new business EBITDA CAGR between 8% and 10%, maintaining high margins in traditional markets and developing new business Limited price pressure and costs streamlining Limited price pressure and costs streamlining Note:Includes 25M aggregated 07 EBITDA from newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver) Reported 702M Acquisitions 25M Disposals (11)M M –

36 – 2010 Cash Flow Figures in million Plan focused on allocating cash flows to selected investment opportunities and create return to shareholders Plan focused on allocating cash flows to selected investment opportunities and create return to shareholders 1,950 – 2, Including M Acquisitions Note: OCF, Operating Cash Flow after change in NWC Acquisitions: newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver) Acquisitions: newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver) OCF CapexNet interest Levered Cash Flow


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