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Company Presentation
Tokyo, October 7, 2008
Italian Investor Conference
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.
2
Agenda
Group Overview
Strategy
Market Environment
Financials – 1H‟08 and Guidance
Backup BP 2008-2010
3
Group Overview
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.
5
The Group Value Chain
Lottomatica Group is a leading player in
the government-sponsored gaming value chain
INFRASTRUCTURE SOFTWARE SYSTEM
DEVELOPMENT DESIGN INSTALLATION &
SUPPORT CONTENT
DEVELOPMENT/ GAMING
• System
• Implementation MARKET OPERATIONS
Architecture
• Full Suite of of large-scale RESEARCH
• Master system
Terminals systems
coding and data
• Networking • Ongoing
warehousing
maintenance
Integration in key areas provides platform
for substantial growth opportunities
6
Global Player in the Gaming Industry
MARKET B2B B2C
SEGMENT GTECH COMPANIES LOTTOMATICA BRANDS
Traditional Lottery
(online)
Instant Lottery
Gaming Solutions
Sports Betting
Interactive Channels
Commercial
Services
7
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
8
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
Italy Lotteries USA: GTECH is the
service provider of 26 of the 43
678 - 41% online lottery authorities
Sports Betting Lotteries Lotteries Rest of World:
and Interactive USA GTECH provides services to 53
non-US online lotteries in the
40 - 2% 442 - 27% world
Commercial Lotteries SB and Interactive: In 2007,
Services Rest of World Lottomatica began operating
97 - 6% fixed-odds sports betting in Italy
303 - 18% Gaming Solutions: Italy,
Gaming broader role to become gaming
Solutions operator – International, gaming
101 - 6% and technology machines provider
9
Strategy
Lottomatica Group Strategy
Leading systems capabilities and strong cash flow support opportunities in four areas
MARKET B2B B2C
SEGMENT GTECH LOTTOMATICA
Continue to build and accelerate same store sales growth
Traditional and Win new jurisdictions
Instant Lottery
(77%)1 Grow instant ticket Pursue Gratta e Vinci
printing capabilities model in other European
countries
Leverage technology capabilities
in VLT and traditional carriers
Play a relevant role in
Refresh/expand Atronic
Gaming Solutions content offerings
Consolidation of Italian
market
(9%)1
Utilize server-based
gaming (SBG) capabilities
Grow presence in this Leverage on “Better” experience
Sports Betting (8%)1 fast-expanding market to build a presence as Operator
as Service Provider in other European countries
Provide platforms and services Exploit full potential of
Interactive (2%)1 to operators in fast-growing interactive channels in Italy
market segment according to new regulation
11
(1) Weight as a % of Group consolidated revenue in 1H2008 – Com mercial services revenue weight = 4%
Interactive Strategy
Strategic Rationale
BOSS MEDIA
up to 100%
– Leading OEM network provider gives GTECH
im m ediate 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
– Dom ain expertise and credibility within
White-Label Proposition Interactive space, specifically Poker, Casino
and other P2P gam es
Revenue share of rake in commercial market – Strong, scalable presence in WLA
market as well as Com m ercial m arket
1%-5% 10%-20% up to 40% up to 60%
– Expands Boss’s reach into emerging
customer bases through access to
Technology Games Advanced Service Operator GTECH/WLA relationships and Finsoft
• Player • Lotto/numbe • Player liquidity • Marketing • Operations
Value chain
– Potential for synergies through content
account r gam es • Event/risk Support • Licensing
• Brand development/R&D
• Gam ing • Poker m anagement
control • Bingo • Responsible • Affiliates / • Marketing ST. MINVER
• Risk/event • Casino gam ing Channels • Custom er
m anagement • Instant • Fraud & Collusion ownership – Leading provider of White-Label
• ERM/CRM gam es • ERM/CRM gaming services to blue-chip m edia
• Sports • Sports services brands
betting • Inform ation – Close affiliation with Boss Media through
• Live Betting Services provision of network services and SW
GTECH at present Some WLA-member operators at present platform (s) creates opportunity for
GTECH
significant synergies
Finsoft
– Dom ain expertise and credibility within
Boss Media St Minver Interactive space across all target m arkets
(WLA, Com m ercial OGO’s, Media Brands)
12
Market Environment
The Gaming Industry
Attractive Fundamentals
— 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
14
GTECH‟S Core Business Provides Stable Cash Flow
Key Lottery Contracts – Annual Service Revenues (1)(2)
Aug. 2011
Recurring annual lottery service March 2010
revenue of approximately €600M
Oct. 2013
Jan. 2019
Stable and visible revenues Oct. 2008
– Weighted average lottery contract Jan. 2019
length of approximately 6.0 years(2)
Sept. 2010
– Approximately 90% of total
service revenues under contract
for more than two years Service Revenues by Renewal Date
– 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
(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.
15
Significant Opportunity for Growth in
US Lottery Markets
Opportunity for Best Practices drive per capita growth
– Massachusetts leads the US in per capita sales, f ueled by high percentage payouts and retail distribution
– Georgia and New York are second and third in per capita sales due to a strong game portf olio, 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
2007 Weekly Per Capita Sales
(Based upon Average of GA and NY Best
Practices)
$M
+9-10BN* +4-5BN* +1-3BN*
110-130
100-120
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
16
Interactive Gaming Markets
Global Interactive Gaming Market
GGY 1998 to 2012E High-Growth Interactive
Gaming Segment
5-Year CAGRs (2007-12)
28.2%
16.6% Interactive Lottery market
6.7% expected to double in five
years
7.1%
Fast-growing Multiplayer
games
14.6%
Europe and Asia critical to
scale and growth, given
regulatory issues in the US
Our core customer segment
Lotteries Poker
Casino Bingo Skill (lotteries) expected to be
games
Source: GBGC (Oct 2007)
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
17
China Opportunity
Substantial opportunity to participate in growing
Chinese lottery market
Lottery highly regulated under Ministry of
Finance; two national bodies:
– China Welf are Lottery Issuance Centre (CWLC)
CHINA LOTTERY MARKET
‟07–„10
– China Sports Lottery Administration Centre CAGR
(CSLA)
31.7%
Retail market substantially under-penetrated –
150K POS among 1.4 billion individuals 39.5%
– Assuming 1 POS per 2,000 persons, potential
POS penetration of 700K [plus 550K]
26.6%
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 f or Source: IDC (Jan. 2007)
development of nationwide KENO system f or
CWLC
18
Italian Regulatory Model
Licenses for game operations based on two competitive models with
regulatory oversight focused on gaming rules and market monitoring
EXCLUSIVE MULTI-PROVIDER
CONCESSIONAIRE CONCESSIONAIRE
(Lotteries) (Other Games)
Lotto Sports Betting and Pools
Instant lotteries Horse-race Betting and Pools
SuperEnalotto Gaming machines
Bingo
19
Growing Italian Market
2001 – 2007 Wagers Trend Key Market Drivers
Exceptional market growth
CAGR:19.6%
€ bn mainly driven by innovation and
CAGR portfolio expansion:
45 42.1 – Gaming Machines wagers
Gaming Machines 57% reached €18.8B due to
40
35.3 legalization process
35 Bingo 16%
– Scratch and Win continued
30 27.5 increase in consumer
25.0 Sports Betting 16%
25
penetration: €8B wagers
Horse Betting & Pools -3% – Sports Betting grew by 29%
20
15.7 15.1 (CAGR) in last two years
14.4
15
Instant Lotteries 85% – Numerical Lotteries
10 maintained their positions
Superenalotto -4%
5
0 Lotto -3%
2001 2002 2003 2004 2005 2006 2007
Source: AAMS / Lottomatica
20
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
21
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 Lotto Wagers
€, bn
€ bn 12.5 Venice 53
CAGR:151% 11.7 phenomenon
10
10.0
8.0 3 rd drawing
8 introduction
7.9
7.5 7.3 7.3
6.9 6.6
6 6.2
3.9 5.0
4
2 1.5 2.5
0.2 0.2 0.2 0.4
0 0
2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007
State m anagement LTO m anagem ent
Late Numbers Core Wagers
22
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
€M
2,000 1,616
1,500
1,000 630
June 2008 – Betting New Network 480
500
0 2005 2006 2007
Total mkt
180 230 300
licences
(EoY, K)
LTO market
share (EoY) 6% 6% 14%
23
Financials
1H’08 and Guidance
Financial Highlights 1H‟08
Revenues EBITDA
+16% +10%
+11%
+5%
Margin % 45.6% 43.0% 43.0%
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
25
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
Note: (1) Net of the escrow payment of € 40 million for Totosi acquisition
26
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)
27
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
28
2008 -2010 Guidance
CAGR 2007-
2006 2007 2008 2010
2010
Revenues 1,5812 1,661 1,950 - 2,050 2,400 - 2,500 13% - 15%
EBITDA 6362 702 750 - 765 900 - 935 9% - 10%
Operating Income 395 420 - 435 600 - 650 15% - 18%
Operating Income Margin 23% 20% - 22% 24 - 27 %
Amortization of
85 65 - 75 55 - 65
Intangibles
Effective tax Rate 46% 38% - 36% 38% - 36%
EPS as Reported (in €) .49 .75 - .85 1.45 - 1.55
Free cash Flow Unlevered1 257 220-250 550-600
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 1.50
(1) FCF unlevered pre-acquisitions, pre-dividends and pre-debt amortization. 2007 pre-
Polcard proceeds 29
(2) Pro-forma
Contacts
Lottomatica Group web site
http://www.gruppolottomatica.it/eng/index.htm
Investor Relations Office
ir@lottomatica.it
Lottomatica S.p.A
Viale del Campo Boario, 56d
00154 Roma
Italy
30
Backup BP 2008-2010
Key Assumptions
GTECH Drivers Lottomatica Drivers
Lottery Lottery
• Same store sales growth of 5–6% • Lotto – steady
• Maintain existing contracts; one new • S&W – low single-digit growth
small contract, one medium Sports Betting
Gaming Solutions • Maintain market share in a growing
• Expansion in participation markets. Peak market
of replacement cycle in North America in Gaming Solutions
2010.
• Wagers to top €3.5BN by 2010
Interactive and Sports Betting
Commercial Services
• Growing to €90M by 2010
• 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 € = $1.50
32
USD Sensitivity
2007-2010 Business Plan @ USD/€ 1.50
Approximately 30% of USD denominated Revenues
Depreciation of USD has a positive impact on Net Income
US$/€ Revenues EBITDA Net
Income
1.55 -1.1% -0.9% +1.3%
1.60 -2.1% -1.8% +2.6%
Note: % change compared to 2008 base case @ USD/€ 1.50
33
2007 - 2010 Revenue Targeted Growth
Revenue CAGR between 9 and 11% leveraging organic growth and
new business development opportunities
Reported 1,661M
Acquisitions 211M
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)
34
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
Reported 702M
Acquisitions 25M
Disposals (11)M
---------
716M
Note: Includes €25M aggregated „07 EBITDA from newly-acquired companies (Finsoft, Atronic, Boss
Media, St Minver)
35
2008 – 2010 Cash Flow
Plan focused on allocating cash flows to selected
investment opportunities and create return to shareholders
Including
€250-300M
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)
36
