Presentation on theme: "Italian Investor Conference"— Presentation transcript:
1 Italian Investor Conference Company PresentationTokyo, October 7, 2008Italian Investor Conference
2 Safe Harbour Statement DisclaimerThis 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, Lottomatica’s 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 Lottomatica’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.
3 Agenda Group Overview Strategy Market Environment Financials – 1H’08 and GuidanceBackup BP
5 MissionLottomatica 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 The Group Value Chain Lottomatica Group is a leading player in the government-sponsored gaming value chainSYSTEMINSTALLATION &SUPPORTINFRASTRUCTUREDEVELOPMENTSOFTWAREDESIGNCONTENTDEVELOPMENT/MARKETRESEARCHGAMINGOPERATIONSSystem ArchitectureMaster system coding and data warehousingImplementation of large-scale systemsOngoing maintenanceFull Suite of TerminalsNetworkingIntegration in key areas provides platform for substantial growth opportunities
7 Global Player in the Gaming Industry MARKETSEGMENTB2BGTECH COMPANIESB2CLOTTOMATICA BRANDSTraditional Lottery(online)Instant LotteryGaming SolutionsSports BettingInteractive ChannelsCommercial Services
8 Lottomatica Group strengths Global Market Leadership and Balanced portfolio of international contracts59% worldwide lottery market shareConduct business in over 50 countriesDiversified revenues: 49% Italy, 30% US, 21% other countries (FY’07)Sustainable high-margin business combined to a growing market2007 EBITDA margin of 42%Outstanding historical hit rates in the re-bidding processStrong Management Team
9 2007 Revenues BreakdownA well-balanced and diversified revenue portfolio, by geography and by market segmentStable, recurring core lottery business with predictable revenues (2007 €1,661M)Lotteries Italy: Lottomatica manages Lotto and Instant Lotteries businessesLotteries USA: GTECH is the service provider of 26 of the 43 online lottery authoritiesLotteries Rest of World: GTECH provides services to 53 non-US online lotteries in the worldSB and Interactive: In 2007, Lottomatica began operating fixed-odds sports betting in ItalyGaming Solutions: Italy, broader role to become gaming operator – International, gaming and technology machines providerLotteriesRest of World%Italy%USA%Sports Bettingand Interactive40 - 2%Commercial Services97 - 6%Gaming Solutions%Figures in €M
11 Lottomatica Group Strategy Leading systems capabilities and strong cash flow support opportunities in four areasMARKETSEGMENTB2BGTECHB2CLOTTOMATICAContinue to build and accelerate same store sales growthTraditional and Instant Lottery (77%)1Win new jurisdictionsGrow instant ticketprinting capabilitiesPursue Gratta e Vinci model in other European countriesLeverage technology capabilitiesin VLT and traditional carriersPlay a relevant role inConsolidation of Italian marketRefresh/expand Atroniccontent offeringsGaming Solutions (9%)1Utilize server-basedgaming (SBG) capabilitiesGrow presence in thisfast-expanding marketas Service ProviderLeverage on “Better” experienceto build a presence as Operatorin other European countriesSports Betting (8%)1Provide platforms and servicesto operators in fast-growing market segmentExploit full potential of interactive channels in Italy according to new regulationInteractive (2%)1(1) Weight as a % of Group consolidated revenue in 1H2008 – Commercial services revenue weight = 4%
12 White-Label Proposition Some WLA-member operators at present Interactive StrategyStrategic RationaleBOSS MEDIALeading 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, BingoDomain expertise and credibility within Interactive space, specifically Poker, Casino and other P2P gamesStrong, scalable presence in WLA market as well as Commercial marketExpands Boss’s reach into emerging customer bases through access to GTECH/WLA relationships and FinsoftPotential for synergies through content development/R&DST. MINVERLeading provider of White-Label gaming services to blue-chip media brandsClose affiliation with Boss Media through provision of network services and SW platform(s) creates opportunity for significant synergiesDomain expertise and credibility within Interactive space across all target markets (WLA, Commercial OGO’s, Media Brands)up to 100%White-Label PropositionRevenue share of rake in commercial market1%-5%10%-20%up to 40%up to 60%TechnologyPlayer accountGaming controlRisk/event managementERM/CRMGamesLotto/numbe r gamesPokerBingoCasinoInstant gamesSports bettingLive BettingAdvanced ServicePlayer liquidityEvent/risk managementResponsible gamingFraud & CollusionERM/CRMSports servicesInformation ServicesMarketing SupportAffiliates / ChannelsOperatorOperationsLicensingBrandMarketingCustomer ownershipValue chainGTECH at presentSome WLA-member operators at presentGTECHFinsoftBoss MediaSt Minver
14 The Gaming Industry Attractive Fundamentals Strong Barriers to Entry Constant growth in global gaming market and lottery salesSubstantial opportunities to be captured: Approximately 65% of world’s 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 timesStrong Barriers to EntryLong-term government/customer relationshipsLicensing/disclosure requirementsTechnical conversion risk(1) Management estimates
15 GTECH’S Core Business Provides Stable Cash Flow Key Lottery Contracts – Annual Service Revenues(1)(2)Aug. 2011March 2010Oct. 2013Jan. 2019Oct. 2008Sept. 2010Recurring annual lottery service revenue of approximately €600MStable and visible revenuesWeighted average lottery contract length of approximately 6.0 years(2)Approximately 90% of total service revenues under contract for more than two yearsApproximately 60% of aggregate revenues under contract for at least four yearsStrong Government reliance on lottery proceedsApproximately 30% of every wager goes directly to GovernmentsService 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. GTECH’s revenues converted at the CY’08 Outlook exchange rate USD/EUR of 1.50.
16 Significant Opportunity for Growth in US Lottery Markets Opportunity for Best Practices drive per capita growthMassachusetts leads the US in per capita sales, fueled by high percentage payouts and retail distributionGeorgia and New York are second and third in per capita sales due to a strong game portfolio, retail distribution and a well-balanced payout percentageAdoption of Best Practices by GTECH customers could drive substantial growth similar to GA and NYPotential Additional GTECH Annual Revenue(Based upon Average of GA and NY Best Practices)2007 Weekly Per Capita Sales$M+9-10BN*+4-5BN*+1-3BN*15-20Source: GTECH Lottery Marketing Database*Incremental gross sales potentialGTECH’s US customers have significant room to drive growth,based upon execution of best practices and other factors
17 Interactive Gaming Markets Global Interactive Gaming MarketGGY 1998 to 2012EHigh-Growth Interactive Gaming SegmentCAGR: 11.1%28.2%Interactive Lottery market expected to double in five yearsFast-growing Multiplayer gamesEurope and Asia critical to scale and growth, given regulatory issues in the USOur core customer segment (lotteries) expected to be significant growth driver of interactive gaming16.6%6.7%5-Year CAGRs ( )7.1%14.6%Lotteries PokerCasino Bingo Skill gamesSource: GBGC (Oct 2007)Our strategic investments in new acquisitions position us well to take advantage of the fast-growing interactive gaming market
18 China Opportunity Substantial opportunity to participate in growing Chinese lottery marketLottery 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 individualsAssuming 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 gamesSubstantial opportunity to convert non-regulated market to regulatedCurrent GTECH market positionOnline systems in Beijing and GuangdongRecent joint venture with China LotSynergy for development of nationwide KENO system for CWLCCHINA LOTTERY MARKET’07–‘10CAGR31.7%39.5%26.6%Source: IDC (Jan. 2007)
19 Italian Regulatory Model Licenses for game operations based on two competitive models withregulatory oversight focused on gaming rules and market monitoringEXCLUSIVECONCESSIONAIRE(Lotteries)MULTI-PROVIDERCONCESSIONAIRE(Other Games)LottoInstant lotteriesSuperEnalottoSports Betting and PoolsHorse-race Betting and PoolsGaming machinesBingo
20 Growing Italian Market 2001 – 2007 Wagers TrendKey Market DriversHorse Betting & PoolsCAGR-3%-4%85%16%57%200120022003200420052006200714.415.715.125.027.535.342.151015202530354045LottoSuperenalottoInstant LotteriesSports BettingBingoGaming MachinesCAGR:19.6%€ bnExceptional market growth mainly driven by innovation and portfolio expansion:Gaming Machines wagers reached €18.8B due to legalization processScratch and Win continued increase in consumer penetration: €8B wagersSports Betting grew by 29% (CAGR) in last two yearsNumerical Lotteries maintained their positionsSource: AAMS / Lottomatica
21 Lottery - avg spend per capita Betting - avg spend per capita The Italian Gaming Market in EuropeItaly 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 concessionairesNine major international players25M consumersLottery - avg spend per capitaBetting - avg spend per capita€/year€/yearGTECH has the largest wireless Point of Sale network-8x the size of the 2nd largestGTECH 130KBP / Amoco 15KExxon / Mobile 14KShell / Texaco 12KChevron 8KGM 8KUS Post Office 7KFord 6KDaimler / Chrysler 5KIn short, we are a widely diversified gaming technology company with lottery as our foundation and growing interest in other forms of public and commercial gaming.
22 Italy – Scratch&Win and Lotto 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 gamesScratch&Win WagersLTO managementState management20012002200320042005200620070.20.41.53.98.0246810CAGR:151%€ bnLotto WagersCore WagersLate Numbers20012002200320042005200620077.37.96.91184.108.40.206.55.07.510.012.5Venice 53phenomenon3rd drawingintroduction€, bn
23 Italy – Betting and Gaming Machines Sports Betting: Lottomatica quickly reached overall a solid second position in this growing market, while being the largest operator in the new networkGaming Machines: in 2007 started an aggressive growth plan to play a leading role in this market consolidation processJune 2008 – Betting Total MarketGaming Machines Wagers and Market Share2005200620074806301,6165001,0001,5002,000LTO marketshare (EoY)Total mktlicences(EoY, K)6%18023014%300€ MJune 2008 – Betting New Network
25 Financial Highlights 1H’08 RevenuesEBITDA+16%+10%+11%+5%Margin % % % %Top line growth in Italy of 27% driven by Sports betting, Gaming solutions and Scratch & WinB2B Lottery same store revenue growth of 4%, strategic extensions in California and IrelandSteady 43% EBITDA margin reflects fast-growing businesses contributionNote: $/€ FX average: 1.33 in 1H’07; 1.54 in 1H’08
26 Cash Position 1H’08Healthy unlevered free cash flow before acquisitions of €90M, increasing €16M versus comparable 2007 dataSolid 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 capital2.1M shares€18.24 avg. price(1)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 €135MFigures in €MNote: (1) Net of the escrow payment of € 40 million for Totosi acquisition
27 Gross Long-Term Debt2.5x 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, Moody’s Baa3 stable)Figures in €M
28 Key Financial Policies Capital structureMaintain investment grade ratingPreserve optimal weighted average cost of capitalMaintain sufficient financial flexibility to pursue growthFree cash flow deployment prioritiesInvestments in existing businessScheduled debt repaymentsDividend policyShare repurchase programDisciplined approach to capital allocationInvestments must be consistent with Corporate Strategy of maximizing valueAcceptable level of return: risk adjusted hurdle rate + spread
29 2008 -2010 Guidance 2006 2007 2008 2010 CAGR 2007-2010 Revenues 1,5812 1,6611, ,0502, ,50013% - 15%EBITDA63627029% - 10%Operating Income39515% - 18%Operating Income Margin23%20% - 22%%Amortization of Intangibles85Effective tax Rate46%38% - 36%EPS as Reported (in €).49Free cash Flow Unlevered1257Net Financial Position(2,484)(2,229)(2,670) - (2,570)(2,350) - (2,250)Dividends120125150USD/EURO Rate1.371.50Figures in €MFCF unlevered pre-acquisitions, pre-dividends and pre-debt amortization pre-Polcard proceedsPro-forma
30 Lottomatica Group web site Investor Relations Office ContactsLottomatica Group web siteInvestor Relations OfficeLottomatica S.p.AViale del Campo Boario, 56d00154 RomaItaly
32 Key Assumptions GTECH Drivers Lottomatica Drivers Other Drivers LotterySame store sales growth of 5–6%Maintain existing contracts; one new small contract, one mediumGaming SolutionsExpansion in participation markets. Peak of replacement cycle in North America in 2010.Interactive and Sports BettingGrowing to €90M by 2010LotteryLotto – steadyS&W – low single-digit growthSports BettingMaintain market share in a growing marketGaming SolutionsWagers to top €3.5BN by 2010Commercial ServicesApproximately €80M by 2010Other DriversCapexMaintenance capital approximately 5% of annual revenuesGrowth capital approximately 3% of annual revenuesMaintain competitive dividend policy1 € = $1.50
33 USD Sensitivity 2007-2010 Business Plan @ USD/€ 1.50 Approximately 30% of USD denominated RevenuesDepreciation of USD has a positive impact on Net IncomeUS$/€ Revenues EBITDA Net Income% -0.9% +1.3%% -1.8% +2.6%Note: % change compared to 2008 base USD/€ 1.50
34 2007 - 2010 Revenue Targeted Growth Revenue CAGR between 9 and 11% leveraging organic growth and new business development opportunities2, ,500200 – 2301,850Reported 1,661MAcquisitions MDisposals (22)M1,850MNote: 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)Figures in € million
35 2007 - 2010 Solid EBITDA Profitability EBITDA CAGR between 8% and 10%, maintaining high margins in traditional markets and developing new businessLimited price pressure and costs streamlining65 – 75716Reported 702MAcquisitions 25MDisposals (11)M716MNote: Includes €25M aggregated ‘07 EBITDA from newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver)Figures in € million
36 2008 – 2010 Cash FlowPlan focused on allocating cash flows to selectedinvestment opportunities and create return to shareholders1,950 – 2,000Figures in € millionIncluding€ MAcquisitionsOCFCapexNet interestLeveredCashFlowNote: OCF, Operating Cash Flow after change in NWCAcquisitions: newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver)