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Italian Investor Conference

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Presentation on theme: "Italian Investor Conference"— Presentation transcript:

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

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, 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 Guidance Backup BP

4 Group Overview

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 The Group Value Chain Lottomatica Group is a leading player in
the government-sponsored gaming value chain SYSTEM INSTALLATION & SUPPORT INFRASTRUCTURE DEVELOPMENT SOFTWARE DESIGN CONTENT DEVELOPMENT/ MARKET RESEARCH GAMING OPERATIONS System Architecture Master system coding and data warehousing Implementation of large-scale systems Ongoing maintenance Full Suite of Terminals Networking Integration in key areas provides platform for substantial growth opportunities

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

8 Lottomatica Group strengths
Global Market Leadership and Balanced portfolio of international contracts 59% worldwide lottery market share Conduct business in over 50 countries Diversified revenues: 49% Italy, 30% US, 21% other countries (FY’07) Sustainable high-margin business combined to a growing market 2007 EBITDA margin of 42% Outstanding historical hit rates in the re-bidding process Strong Management Team

9 2007 Revenues Breakdown A well-balanced and diversified revenue portfolio, by geography and by market segment Stable, recurring core lottery business with predictable revenues (2007 €1,661M) 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 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 Gaming Solutions: Italy, broader role to become gaming operator – International, gaming and technology machines provider Lotteries Rest of World % Italy % USA % Sports Betting and Interactive 40 - 2% Commercial Services 97 - 6% Gaming Solutions % Figures in €M

10 Strategy

11 Lottomatica Group Strategy
Leading systems capabilities and strong cash flow support opportunities in four areas MARKET SEGMENT B2B GTECH B2C LOTTOMATICA Continue to build and accelerate same store sales growth Traditional and Instant Lottery (77%)1 Win new jurisdictions Grow instant ticket printing capabilities Pursue Gratta e Vinci model in other European countries Leverage technology capabilities in VLT and traditional carriers Play a relevant role in Consolidation of Italian market Refresh/expand Atronic content offerings Gaming Solutions (9%)1 Utilize server-based gaming (SBG) capabilities Grow presence in this fast-expanding market as Service Provider Leverage on “Better” experience to build a presence as Operator in other European countries Sports Betting (8%)1 Provide platforms and services to operators in fast-growing market segment Exploit full potential of interactive channels in Italy according to new regulation Interactive (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 Strategy 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 Boss’s 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 OGO’s, Media Brands) up to 100% White-Label Proposition Revenue share of rake in commercial market 1%-5% 10%-20% up to 40% up to 60% Technology Player account Gaming control Risk/event management ERM/CRM Games Lotto/numbe r games Poker Bingo Casino Instant games Sports betting Live Betting Advanced Service Player liquidity Event/risk management Responsible gaming Fraud & Collusion ERM/CRM Sports services Information Services Marketing Support Affiliates / Channels Operator Operations Licensing Brand Marketing Customer ownership Value chain GTECH at present Some WLA-member operators at present GTECH Finsoft Boss Media St Minver

13 Market Environment

14 The Gaming Industry Attractive Fundamentals Strong Barriers to Entry
Constant growth in global gaming market and lottery sales Substantial 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 times Strong Barriers to Entry Long-term government/customer relationships Licensing/disclosure requirements Technical conversion risk (1) Management estimates

15 GTECH’S Core Business Provides Stable Cash Flow
Key Lottery Contracts – Annual Service Revenues(1)(2) Aug. 2011 March 2010 Oct. 2013 Jan. 2019 Oct. 2008 Sept. 2010 Recurring annual lottery service revenue of approximately €600M 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 Approximately 30% of every wager goes directly to Governments 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. 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 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 Potential 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* 15-20 Source: GTECH Lottery Marketing Database *Incremental gross sales potential GTECH’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 Market GGY 1998 to 2012E High-Growth Interactive Gaming Segment CAGR: 11.1% 28.2% Interactive Lottery market expected to double in five years Fast-growing Multiplayer games 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 16.6% 6.7% 5-Year CAGRs ( ) 7.1% 14.6% Lotteries Poker Casino Bingo Skill games Source: 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 market 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 CHINA LOTTERY MARKET ’07–‘10 CAGR 31.7% 39.5% 26.6% Source: IDC (Jan. 2007)

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

20 Growing Italian Market
2001 – 2007 Wagers Trend Key Market Drivers Horse Betting & Pools CAGR -3% -4% 85% 16% 57% 2001 2002 2003 2004 2005 2006 2007 14.4 15.7 15.1 25.0 27.5 35.3 42.1 5 10 15 20 25 30 35 40 45 Lotto Superenalotto Instant Lotteries Sports Betting Bingo Gaming Machines CAGR:19.6% € bn 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 Source: AAMS / Lottomatica

21 Lottery - avg spend per capita Betting - avg spend per capita
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: More than 100 authorized concessionaires Nine major international players 25M consumers Lottery - avg spend per capita Betting - avg spend per capita €/year €/year GTECH has the largest wireless Point of Sale network -8x the size of the 2nd largest GTECH 130K BP / Amoco 15K Exxon / Mobile 14K Shell / Texaco 12K Chevron 8K GM 8K US Post Office 7K Ford 6K Daimler / Chrysler 5K In 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 games Scratch&Win Wagers LTO management State management 2001 2002 2003 2004 2005 2006 2007 0.2 0.4 1.5 3.9 8.0 2 4 6 8 10 CAGR:151% € bn Lotto Wagers Core Wagers Late Numbers 2001 2002 2003 2004 2005 2006 2007 7.3 7.9 6.9 11.7 6.6 6.2 2.5 5.0 7.5 10.0 12.5 Venice 53 phenomenon 3rd drawing introduction €, 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 network Gaming Machines: in 2007 started an aggressive growth plan to play a leading role in this market consolidation process June 2008 – Betting Total Market Gaming Machines Wagers and Market Share 2005 2006 2007 480 630 1,616 500 1,000 1,500 2,000 LTO market share (EoY) Total mkt licences (EoY, K) 6% 180 230 14% 300 € M June 2008 – Betting New Network

24 Financials 1H’08 and Guidance

25 Financial Highlights 1H’08
Revenues EBITDA +16% +10% +11% +5% Margin % % % % 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 Steady 43% EBITDA margin reflects fast-growing businesses contribution Note: $/€ FX average: 1.33 in 1H’07; 1.54 in 1H’08

26 Cash Position 1H’08 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 2.1M 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 €135M Figures in €M Note: (1) Net of the escrow payment of € 40 million for Totosi acquisition

27 Gross Long-Term Debt 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, Moody’s Baa3 stable) Figures in €M

28 Key Financial Policies
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

29 2008 -2010 Guidance 2006 2007 2008 2010 CAGR 2007-2010 Revenues 1,5812
1,661 1, ,050 2, ,500 13% - 15% EBITDA 6362 702 9% - 10% Operating Income 395 15% - 18% Operating Income Margin 23% 20% - 22% % Amortization of Intangibles 85 Effective tax Rate 46% 38% - 36% EPS as Reported (in €) .49 Free cash Flow Unlevered1 257 Net Financial Position (2,484) (2,229) (2,670) - (2,570) (2,350) - (2,250) Dividends 120 125 150 USD/EURO Rate 1.37 1.50 Figures in €M FCF unlevered pre-acquisitions, pre-dividends and pre-debt amortization pre-Polcard proceeds Pro-forma

30 Lottomatica Group web site Investor Relations Office
Contacts Lottomatica Group web site Investor Relations Office Lottomatica S.p.A Viale del Campo Boario, 56d 00154 Roma Italy

31 Backup BP

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

33 USD Sensitivity 2007-2010 Business Plan @ USD/€ 1.50
Approximately 30% of USD denominated Revenues Depreciation of USD has a positive impact on Net Income US$/€ 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 opportunities 2, ,500 200 – 230 1,850 Reported 1,661M Acquisitions M Disposals (22)M 1,850M 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) Figures in € million

35 2007 - 2010 Solid EBITDA Profitability
EBITDA CAGR between 8% and 10%, maintaining high margins in traditional markets and developing new business Limited price pressure and costs streamlining 65 – 75 716 Reported 702M Acquisitions 25M Disposals (11)M 716M Note: Includes €25M aggregated ‘07 EBITDA from newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver) Figures in € million

36 2008 – 2010 Cash Flow Plan focused on allocating cash flows to selected investment opportunities and create return to shareholders 1,950 – 2,000 Figures in € million Including € M Acquisitions OCF Capex Net interest Levered Cash Flow Note: OCF, Operating Cash Flow after change in NWC Acquisitions: newly-acquired companies (Finsoft, Atronic, Boss Media, St Minver)

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