Brightstar Lottery PLC (BRSL) 2008 Q1 法說會逐字稿

Good afternoon. This is the conference call operator. Welcome and thank you for joining Lottomatica's conference call to discuss 2008 first quarter results. During the presentation, you will be on listen-only, however, at the end of the call you will have an opportunity to ask questions.

(OPERATOR INSTRUCTIONS)

The meeting will be chaired by Mr. Lorenzo Pellicioli, Chairman and Chief Executive Officer of Lottomatica Group, together with Mr. Stefano Bortoli, Chief Financial Officer of Lottomatica Group. Mr. Marco Sala, Managing Director of Lottomatica SpA and Mr. Jaymin Patel, Chief Executive Officer of GTECH Corporation will join the question and answer session. May I remind you that an audio webcast presentation is available at the link www.gruppolottomatica.it.

At this time, I would like to turn the conference over to Mr. Pellicioli. Please go ahead, Mr. Pellicioli.

Thank you. Thank you to all of you for joining us for the Lottomatica Group 2008 first quarter results presentation. Joining me today is Stefano Bortoli, CFO of the Group, who will provide you with a review of the financial results for the quarter. Also with us is Marco Sala, Managing Director of Lottomatica, and Jaymin Patel, Chief Executive Officer of GTECH.

We have decided to change our format slightly. For the first and third quarter presentations, Stefano and I will present, and Marco and Jaymin will join us only for the Q&A period at the end. During the half-year and the year-end presentation, I'll ask Marco and Jaymin to lead a more detailed discussion on the operating results of their respective business divisions.

Let's begin. We have had the pleasure of seeing many of you at our recent strategic planning presentation in London and during the subsequent road show we carried out to support it. Many of you have been complimentary about our efforts to share a greater amount of information about our various businesses. It is always a balance in trying to operate the business in a highly competitive environment, and to share with you a suitable amount of information about our operation and our plans for the future.

I hope that you appreciate that we are listening to suggestions, and we will do our best to give useful and appropriate insights into our business and its prospects for the future. Having just completed the European segment of our strategic plan presentation, we will try to make good use of your time today and not repeat materials that we have already presented.

Let me start with a brief description of our new logo, tagline and mission statement. Logistical issues prevented me from having the opportunity to do so in London during the business plan presentation, and I apologize with all of you for that. So I'd like to take a moment to do that now. We have changed our logo to better reflect our position as an integrated global gaming operator and technology provider. That's why you see the use of the globe in the logo and the colors and symbols that reflect the entertainment side of our business.

Our new tagline, Responsibly Driving Global Gaming, is indicative of how we approach our business. The vast majority of our business is serving government-sponsored gaming programs, in which responsibility is a critical component. We are already an international player in this industry, and it is our ambition to continue shaping and leading global gaming markets. Our new mission statement is an expansion of those sentiments.

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 the highest level of integrity, responsibility and shareholder value creation. I think the combination of new graphics, tagline and mission statement does a nice job of defining who we are and where we are going.

But now, let me give you an overview of our progress in meeting the objectives of our plan and delivering results. Lottomatica Group's portfolio of business is diversified across businesses and geographies. That affords us a cushion against the cyclical nature of some of our businesses, as well as a natural hedge against foreign exchange fluctuation and seasonality of some of our markets.

There are four major markets that we approach, both as an operator, adopting a B2C, or business-to-consumer approach, and as a provider of technology and services, which involves a B2B, or, if you want, business-to-business approach. The four categories include, first, the core lottery business, including instant and traditional online lotto games. Second, gaming solutions, which is comprised of our activities to supplying and operating gaming machines. Third, sports betting, which includes our management service, as well as technology solution. And, finally, the interactive business which we support and supply regulated Internet gaming operators with content and technology solutions.

In all of these segments, we have made significant progress despite some very difficult economy realities. I'd like to structure my review along the lines of those market segments. In the core lottery business, retail scratch-and-win market continues its remarkable run, with EUR2.5 billion worth of wages in the first quarter, a 15% increase over the same quarter of last year. Scratch-and-win remains a major contributor to the Group's success.

Recently, GTECH signed a new six-year contract for integrated service and technology for the Michigan Lottery, a long-term valued customer. On a somewhat disappointing note, Pennsylvania has initially chosen to stay with its incumbent vendor. That procurement process is ongoing, and our ability to comment on it is limited. We are seeking information as to how the evaluation was conducted to make certain it was conducted fairly.

GTECH Printing Corporation, our newest ticket printing group that was formed from our acquisition of CGI, is gaining traction and momentum. In their 15 months of existence, they have gained 25 new customers. Recently, they won a contract to be the primary supplier of tickets in Mexico, and are finalizing negotiations in four additional jurisdictions, where they have been selected as the primary or secondary supplier.

The group is also working closely with Lottomatica scratch-and-win consortium as a secondary supplier. And same-store revenue in the core business grew by approximately 3%. While we planned for stronger growth, given the recession that is affecting many parts of the world in which we do business, we believe that the same-store revenues growth we are experiencing is respectable for now.

It is important to note that our business tends to pass through economy downturns fairly well. We have traditionally been very resilient during economy slowdowns. The reason for that is simple. Government needs new sources of revenue to meet severe budget shortfalls. Traditionally, they look to government-sponsored gaming, and for the most part their lotteries, for new sources of revenue.

Political barriers to gaming expansion are usually lower during an economic downturn, and our revenues tend to benefit in the process. For example, the state of Rhode Island has recently passed legislation to allow the lottery to operate its video lottery machine 24 hours a day. The state of Ohio has approved adding Keno to its mix of lottery games. California is considering revised price payouts. In each of these cases, GTECH will benefit from the increased gaming revenues this action would generate.

While we can weather economic downturns, there usually is a lag between the time governments are impacted, and the time it takes to pass legislation and implement new programs. It's our view that we are in that lag period now, and we will begin to see expansion later this year. Having said that, we are confident in the guidance we have given about blended same-store revenues for this year.

Moving to the second segment, to the gaming solutions segment, there has been significant positive activity. In Italy, we continue to work toward consolidating that market. Our efforts are paying off.

Admittedly, the introduction of machine monitoring is relatively recent. Nonetheless, Lottomatica experienced a very healthy 240% increase in wages over the same period of last year. The integration of GTECH's Spielo and Atronic subsidiaries is well underway. Recently, we announced the closing and relocation of Atronic manufacturing's operation from Arizona to Spielo manufacturing facilities in Canada. Additionally, Atronic will be expanding its sales and operation activity in Las Vegas.

The companies are pursuing a common platform and content development activity, as well. After the close of the first quarter, it was announced that Spielo was named a successful bidder to supply the Kansas Lottery with a central gaming system. [The word] further solidifies GTECH's position as the global leader in the provision of central monitoring systems for machine gaming programs.

Talking of the third segment, in the sports betting, Lottomatica has made impressive strides in fulfilling its sports betting license in Italy, since the start of the program, which was taken by the Lottomatica Better brand. Retailers have gone to make Lottomatica the second largest operator in the market.

On May 2nd, GTECH launched a sports betting network in Taiwan in partnership with Taipei Fubon Bank and the Hong Kong Jockey Club. Initially, the network began with 272 outlets and it is expected to grow to 1,000 by June of this year. Approval has been granted for Internet and tele-wagering channels which are expected to launch in the next three months.

Interactive space of new media, as the last segment, as some refer to it, we have moved decisively to establish GTECH as the leader of white-label content, products and service to regulate Internet gaming operators through the acquisition of Boss Media and St. Minver. Along with our previously acquired Finsoft subsidiary, we now have a market-leading full array of products and service.

Within GTECH, we have created a dedicated organization to lead our efforts in this area. An integration effort is fully underway, and we were recently encouraged by an award from the Finnish National Lottery for a contract to provide a platform and service for an Internet bingo game. As we have stated in the past, we believe lotteries in Europe will be growing into this space. Winning the Finnish contract was strategically important for us in that they are a respected lottery technology leader.

Let me close with some high-level thoughts about our business. I mentioned earlier, like most businesses, we are experiencing some challenging times. From foreign currency fluctuations to high oil price, that affect consumer spending, we have to navigate this period with a great deal of care.

As Stefano will elaborate later, we have a capital structure that acts as a natural hedge to our foreign exchange uncertainties. In Italy, we have developed some new markets that are fueling our growth, and we have acquired some very attractive business in spaces which our core customers are demanding new and innovative solutions. Clearly, there is good growth to be expected there, as well.

We are also working hard to achieve synergies in our newly acquired business. This is evident already in the bold moves we have made in the gaming solutions segment and in our core lottery business we have found that governments need our help to meet budget deficits and we have the solution for their needs.

We have a dedicated team of marketing professionals working with our customers to introduce best practices, ensuring that they can achieve the kind of success enjoyed by the other leading lotteries. For this reason and more, we are confident in the guidance we have given you recently. We are working very hard to deliver results and generate shareholder value to meet and hopefully exceed our expectations.

Finally, I wanted to give you some perspective on an [occurrence in the] stock by senior executives of Lottomatica Group. The Group's various executive incentive plans award restricted stock on the basis of strict performance criteria. I think you would agree that this is the best way to aligning the interest of the leaders of the Company with that of its shareholders. In the next few days, restricted stock held by our executives will vest and create a taxable event for them.

Approximately 200 senior managers participate in the plan, and as is common practice, we afford our executives an option of selling some of the newly acquired shares to cover their tax liability. We anticipate that approximately 150,000 shares will vest and over 50% of that total will be sold to satisfy tax liabilities, or approximately, if you want, 0.1% of the shares outstanding, a negligible amount. But we think that we have to make you aware of it.

Of course, in general, our senior management team members are significant holders of Lottomatica stock. Their upcoming sales of stock to cover tax liability should only be interpreted to mean that they have achieved performance that benefits our shareholders. And, more importantly, the sale is an indication that they will actually be increasing their holding of Lottomatica stock. I wanted you to have that perspective on this upcoming event.

That was the last information from my side. I will now hand over the presentation to Stefano for his review of the financials, and I will be available, together with Jaymin Patel and Marco Sala for the Q&A section.

Thank you, Lorenzo. Good afternoon to everyone. These earnings announcements include the combined results for Lottomatica and GTECH. I am pleased to report that overall we believe we had good results in the first quarter. Revenues for the quarter were EUR449 million, up 3% compared to EUR435 million in the same period last year. On a constant currency basis, revenue would have been up approximately 8%.

First quarter EBITDA was approximately EUR205 million, down slightly from EUR212 million in the first quarter last year. On a constant currency basis, EBITDA would have been approximately EUR260 million, up 2% over the same period last year. EBITDA margins for the quarter were 45.6%, compared to 48.6% in the same period last year.

As reported, GTECH revenues were EUR196 million, compared to EUR224 million in the first quarter of 2007. On a constant currency basis and adjusted for POLCARD, GTECH's revenue would have been EUR228 million.

In the first quarter of 2008, GTECH experienced same-store revenue growth of 3%, or EUR6 million. Offsetting the increase of same-store revenue growth was lower product sales of EUR8 million, excluding the impact of Atronic. We previously noted that the timing of product sales tend to be cyclical.

In M&A, contribution from Atronic accounts for EUR8 million and EUR3 million from Finsoft. For Lottomatica, revenues grew 20% to EUR253 million, from EUR211 million in the first quarter of last year. Growth was primarily driven by the expansion of fixed-odds sports betting. However, it should be noted that all segments of the business experienced growth in the quarter.

GTECH EBITDA was EUR70 million, compared to EUR90 million in the same period of 2007. Adjusted for currency fluctuations and POLCARD, EBITDA for the first quarter would have been EUR86 million. EBITDA was positively impacted by EUR4 million of same-store service revenue growth. Offsetting this was lower contribution from product sales of EUR5 million, excluding the impact of Atronic and the net impact of acquisitions.

Historically, Atronic had an EBITDA generation concentrated at the end of the second semester, when major gaming industry trade shows are typically conducted. In the first quarter of 2007, we recorded the EBITDA associated with approximately EUR[70] million in product sales, primarily from the sale of lottery terminals to customers in Poland, British Columbia and Argentina, and the central system conversion and terminal sale in Switzerland.

Lottomatica's EBITDA was EUR135 million, up from EUR122 million in the same period last year. This increase was primarily attributable to the expansion of the fixed-odds sports betting launched in August 2007.

We are now providing a breakdown of lottery service revenues by the United States and international regions for GTECH. Powerball has been performing well, with comparable jackpot activity quarter over quarter. Service revenue from Mega Millions declined only 3% from the same period last year, primarily due to a $390 million jackpot in the first quarter of 2007, which was the highest jackpot over the last 27 months. These trends give us confidence for the remainder of 2008.

Same-store service revenues on a constant currency basis were up 3% compared to the first quarter of 2007, principally due to gains in certain international jurisdictions, primarily in Colombia, the UK, Ireland, Mexico and Slovakia. We are particularly encouraged by the positive growth in the UK during the first quarter this year, up 9% compared to the same period last year.

Moving on to Lottomatica, our scratch-and-win performance continues to be impressive, with gross sales of EUR2.5 billion, compared to sales of EUR2.1 billion in the first quarter of 2007. The number of tickets sold in the three months to March 31 was 679 million, compared to 636 million last year. Lotto game wagers were EUR1.5 billion, compared to EUR1.6 billion in the first quarter of 2007.

This change is due to a decline in wagers for late numbers. For the quarter, lotto revenues were EUR97 million, compared to EUR104 million in the same period last year. Revenues for the instant business were approximately EUR88 million, compared to EUR77 million during the same period last year, an increase of 15%.

We've also seen positive performance from the EUR10 and EUR5 price points. Pool games and sports betting generated EUR33 million in revenue from EUR194 million of wagers in the first quarter of this year, due to the strong performance of the fixed-odds sports betting operations, which commenced in August 2007.

Revenues from gaming solutions were up 278%, to EUR50 million, driven by the increased placement of AWP machines. At the end of March, there were approximately 38,000 AWPs installed.

Turning now to P&L, operating income was EUR135 million for the first quarter, versus EUR140 million in the same period last year. Income before tax was EUR85 million, in line with last year. We incurred approximately EUR50 million of financial charges, compared to EUR55 million last year, principally driven by lower interest expense due to lower interest base on our senior credit facility, as well as the strengthening of the euro against the U.S. dollar because of the natural hedge capital structure of the Group, as Lorenzo mentioned earlier.

In our appendix, you will see further detail on our net interest breakdown. The tax rate for the quarter was 34.5%, compared to 47.2% in the same period last year, primarily due to a reduction in the Italian income tax rate in 2008. Group net income was EUR55 million, compared to EUR45 million last year. Net income plus minority was EUR43 million, bringing our earnings per share to EUR0.28.

In the next slide, we provide further detail of maintenance and growth CapEx and acquisitions. Total CapEx and acquisitions were EUR155 million in the first quarter of 2008, versus EUR89 million for the same period in 2007. GTECH CapEx for acquisition was EUR118 million in the first quarter of '08, versus EUR4 million in the same period last year, attributable to the acquisition activities, including Boss Media.

GTECH's first quarter 2008 maintenance and growth CapEx were both comparable to the same period of 2007. For Lottomatica, maintenance CapEx was equal to the first quarter 2007 expenditure at EUR3 million. Growth CapEx in the first quarter of the year was EUR7 million, down from EUR55 million in 2007, when we acquired sports betting licensing rights.

Looking at the Group's cash flow for the quarter, net cash from operating activities was EUR63 million. After CapEx, our unlevered free cash flow totaled EUR26 million. Cash available at the end of the quarter was EUR296 million. Our net financial position as of the end of the quarter was EUR2.43 billion. Our current cash position, combined with available borrowing facilities, provides with the resources to execute our strategic plan.

To summarize, our first quarter results were good and we are pleased with the underlying strength of the business. We have a well-balanced portfolio of products and services in over 45 countries around the globe. As I mentioned earlier, seasonality of product sales is mostly concentrated in the second half of the year. We also expect to see contributions from our recent acquisitions beginning later in this year.

The cost-saving measures we implemented at the end of last year are expected to positively impact the full-year 2008. We are encouraged by the positive trends we are seeing in our Italian business segments, particularly with our sports betting and gaming operations. Please note that in the fourth quarter of 2007, the launch of fixed-odds sports betting generated a negative EBITDA.

Same-store revenue growth is slightly behind expectation, but a certain line in gaming expansion was expected. It is worth mentioning that a percentage point in same-store revenue has an approximately EUR4 million EBITDA impact only.

As you may recall from our strategic plan presentation, while we may be negatively impacted at the revenue and EBITDA levels due to a weakening dollar against the euro, we have a positive variance on net income. This is due to costs below EBITDA which are denominated in U.S. dollars, principally interest expense on the U.S. dollar debt we have mentioned previously. All of that gives us confidence in our ability to deliver as committed in our 2008, 2010 guidance.

We will now open the lines for Q&A, after which we will hear closing comments from Lorenzo. Operator?

(OPERATOR INSTRUCTIONS) Luca Orsini from One Investments.

Yes, good afternoon, Lorenzo. I just have three questions. The first question, just looking at your GTECH results, and can you tell us what happened on the profitability? Because even if one takes the number adjusted for the currency, we still see a slowdown in that division. And my question is that because we are seeing the rollout of old contracts replaced by new contracts? Is that the reason, or if there is another reason, if you can elaborate on that? Then I have a -- other two questions, if I may?

Luca, hi, this is Jaymin Patel speaking.

Hi, Jaymin.

Hello, how are you?

I am very well. Sorry, I'm in the car. Let me park. Okay, good.

Sorry, good. Okay, go ahead. We don't want you to have an accident, please park.

No, no, it's fine. I'm on loudspeaker.

Good. Anyway, with respect to GTECH's results, what I can tell you is the following. Our results quarter over quarter are a little bit lower than expected or perhaps what you might expect on a trend line for three key reasons. First of all, if you look at the impact of product sales, we had a fairly low volume of product sales in the first quarter versus what we typically expect.

As we discussed earlier in the prepared remarks by Stefano, product sales are quite cyclical in our business and we tend to have a higher volume towards the second half of the year, so in the second, third and fourth quarter you will see a significant acceleration of product sales. But product sales in the first quarter of '08 versus '07 were lower by approximately EUR8 million to EUR9 million.

The second reason is U.S. same-store sales growth. As you saw again in the presentation, same-store sales growth in the U.S. market were quite weak, driven principally by the lack of jackpot activity. In the first quarter of 2007, we had a substantial amount of jackpot activity. In fact, there was a Mega Millions jackpot of close to $380 million in the first quarter of last year, versus much lower activity this year, which drove a much lower level of same-store sales growth.

The third reason is Atronic. We began to record the results of Atronic beginning in February 2008, and what happens in Atronic is that in the first and second quarter the performance is typically lower because we ship more product in the third and fourth quarter, when the business becomes quite profitable. So my confidence level in the second, third and fourth quarter picking up versus the first quarter is quite high.

Okay, thank you. If I can have another question, just looking at the accounts, it's something -- I don't know which page it is because it doesn't show, but just looking at the Lottomatica Group and subsidiary interim consolidated statement, and you're going through your cost for services, raw materials and other costs, we have an increase from EUR152 million to EUR177 million.

And that is including the currency, which should have been a positive, in relation to a growth in revenues which was lower than that, because it was from 435 to 448. You increased your revenues by 12 million, you increased your costs by something like 25, if my math is correct, 27. Can you tell us what's going on there?

Well, the reason for that is the consolidation of Atronic, which was not in the perimeter of 2007, and that has been consolidated for two months in 2008, which is explaining the difference in that item of the P&L.

Can you tell us the cost without Atronic?

Well, the cost without Atronic is not the kind of detail we can disclose now. We can add that later in --

Fine no problem, it was more for housekeeping. And then last and finally, an easy question. Can you tell us today how much is your gross debt, and how much of that is in U.S. dollars? I'm talking gross debt.

Gross debt is, as you can easily calculate, a little bit more than EUR2.7 billion equivalent, out of that we have $2.1 billion equivalent debt.

Okay, are you going to keep this rather aggressive position in dollar, or are you going to reduce that in the course of the year? (multiple speakers)

We are considering the situation, and carefully evaluating how to take a safe position for the Group in this environment.

So they did pay very well, but there is more dollar debt than dollar -- yes, you have more assets in euros and more debt in dollars, which did play well but it's not particularly equilibrated.

That is, let's say, a positive element for us, and we will -- so far, and we will try to, let's say, not to lose the benefit that we have accumulated at this point in time.

Okay, thank you for your time.

Thank you, Luca.

Evros Constantinou from Credit Suisse.

Hi. I had a couple of questions. One is on that EUR10 million of unrealized currency lost, which you include in your net interest, is that relating again to the intercompany loan?

Sorry.

Let me refer to the slide. On slide number 23, for the first quarter, you have the 10 million of unrealized foreign exchange loss. Is that referring to the intercompany loan on GTECH -- to GTECH level?

No, it's an intercompany loan which is originated by the proceeds of the sale of POLCARD, which is accounting-wide only residents in our Polish subsidiary, and we will move from an accounting point of view that proceed, so through an economic move in 2009. From a financial point of view, so as far as cash flow is concerned, the cash has been redeployed immediately after the collection of the proceeds of the sale of POLCARD.

So it's the same as the last year's item, then. It's a non-cash item, and we should adjust for it.

It is a fully non-cash item.

Okay, so we should adjust our numbers for this one, then. My second question is for Mr. Sala. On the Italian scratch-and-win performance, which it's really incredible in terms of how these are selling, what is the [read through] for the following quarters?

We have 15% year on year growth for the first quarter, but what are you seeing there in terms of our numbers? Because I guess most of us out there, we have lower numbers when it comes to growth, and I just want to get a feel of how confident should we be in terms of raising our growth estimates for that.

Evros, I think we were very positive in launching the EUR10 million that are explained very well the reason of this great start. Now, as always, we have to look at how the products will maintain the current performance. So it's difficult to make now a prediction regarding the trend. It's clear -- let me say in this way. That was a real important quarter for our sales in order to be confident with the guidance we have done.

What we are seeing in the first quarter on scratch-and-win is very positive, because this is the result of the success of the new products we have launched that are based on the investigation, the deep investigation we have done on our consumer bases in order to optimize our product offer. Now, it's difficult. We feel comfortable with the guidance we have given so far, and we will see for the rest of the year which will be the performance of the new launches we have in plan.

One of these is the Indiana Jones product that we have just launched, and so according to the performance of the new launches, we can judge the performance that we are experiencing. Because just to stress this point, this is the result of the product that we have just launched, so it depends how successful we will be in launching the rest of the product line that we have planned for this year. Having said that, it's clear that it is a very positive sign.

Okay, thank you. Okay, that's my questions. Thank you.

Yes.

(OPERATOR INSTRUCTIONS) Domenico Ghilotti from Euromobiliare.

Good afternoon. I have a few questions. I'm sorry for my voice. The first is already to sport betting. If I understand correctly, you mentioned from sport pool and sport better an impact of around EUR8 million positive contribution from EBITDA, so this can be extrapolated as the EBITDA coming from this business in Q1, considering that you had a very small contribution in '07. And I wonder if this, let's say, potential projection for the EBITDA contribution also from coming quarters, considering the [planned] progression in the volumes.

And my second question is [really] on the process ongoing in Turkey, if you can give us any kind of update. And the last question is more related to the consolidation of the new acquisitions. I would like to check, when do you expect to consolidate Boss Media and St. Minver.

I answered for the two questions, the two first questions. The first, regarding the sports betting, it's clear that the great part of the contribution is coming from the fixed-odds betting, and the comparison with the first quarter of last year is because we started our operation in September this year. So sports pools are very poor in terms of performance, and for the revenues that we are experiencing in the first quarter are for three quarters, coming from fixed-odds sports betting.

Regarding the EBITDA, it's clear that that depends very much on the payout that we can achieve over the next quarters. And for the time being, we are totally aligned with our expectation and the [pool], it's very good.

You have to keep in mind that sports betting is going to have seasonality, and so you cannot project the first quarter for the rest of the year because the summer period will experience a slowdown, even though partially mitigated this year because of the European championship. But, having said that, it's clear that we have to expect a decline for the -- especially for the third quarter.

Sure.

Regarding Turkey, I have to confirm what I've already said during the previous meetings. I mean, the situation there is that there is the commitment that is reconfirmed from the [sports total] regarding the sports betting and also regarding the possible privatization of Milli Piyango. There is the willingness to go out with an RFP in the next weeks, but it's clear -- next week, month. But it's clear that we are not managing this process.

Regarding our position there, the only thing I can elaborate a little bit is that we have signed an MOU with Dogan to participate jointly for the sport betting bid. It is a good move for us because we have complementary competencies that should position ourselves quite comfortably in [phases] of the next steps of this process.

As far as the new acquisitions are concerned, the consolidation should take place by the month of May for Boss Media and St. Minver.

Okay, thank you.

Laura Pennino from Banca Leonardo.

Hello. I have just two questions. Regarding the Pennsylvania contract, which I had understood was included in your guidance, now that maybe it is not awarded, should we -- is it correct to assume that EUR40 million of CapEx should be cut off from your guidance?

And another thing, regarding the Imagine terminals, can you please give an update on this? And I had understood that you were going to sell to the UK Lottery or you were going to offer the Altura terminals. In this case, would we expect it then for the product sales line or in the next quarters, or when should we expect this contribution?

So, Laura, Stefano speaking. I will answer about the CapEx. All other CapEx being confirmed, the Pennsylvania outcome for us is a reduction of our growth CapEx by EUR40 million, as you were assuming. And I'll turn to Jaymin to answer the other part.

Yes, with respect to the Imagine terminals, the development of the revised Imagine terminal is going very well. We feel confident that it will be rolled out later this year, and we are in the process of rolling out Altura terminals in the UK. They have accepted the Altura terminal as the terminal for retail selling.

We have actually planned to record the entire UK product sale over a ten-year period, so you shouldn't expect to have a significant product sale occurring in any one quarter or financial period, since we intend to spread that over multiple years, consistent with IFRS practice. And this will actually -- the accounting for the UK contract will begin in 2009, when the new contract with the National Lottery Commission for Camelot goes live.

And there's no change in our guidance as a consequence of that, because we feel confident with the original guidance. Just as a clarification for you, as well, Pennsylvania, there's no revenue or profit impact of Pennsylvania in 2008, and there's no material change to our outlook in 2009 and beyond, so our guidance remains the same for the long term.

Okay, and just another thing. Regarding the New Jersey and the Illinois concessions that are going to be renewed shortly, can you just give an update on that?

Yes, with respect to New Jersey, the RFP, or the responses to the RFP are currently being evaluated. We expect to hear about a decision let's say in the next four to eight weeks. There's no set timetable for when they expect to announce a decision. With respect to Illinois, they haven't even issued an RFP yet, so I don't think we'll see an RFP for some time. You may be referring to Ohio, in which case we're expecting to hear from Ohio within the next few weeks, as well.

Okay, thank you, sorry.

Adam Cochrane from JPMorgan.

Hi, good afternoon. Just two questions. Firstly, you talked about the seasonality in Italy with regards to sports betting. Can you just remind me what the seasonality looks like with regard to lottery sales and whether there may be some potential offsetting there. And, secondly, for Jaymin, do you think that what you're seeing in the U.S., you may see same-store sales recover to sort of the longer-term average of maybe sort of 2% to 3% by the year end? Thanks.

Regarding the seasonality in our portfolio, the seasonality is to take into account the Italian approach towards August and July, as well. And therefore we experience seasonality regarding sports betting because of the event, the foreign offer being the championship in place during summer. That's the reason why there is a slowdown in that business historically.

Regarding lotteries, we are experiencing a soft third quarter, especially regarding scratch-and-win, much less regarding lotto that has a more constant pace across the quarters.

So does that mean that you'll see the sports betting will be soft at the same time as scratch-and-win, as opposed to a different quarter. Is that fair?

Yes, but all the quarters and there is for the sports betting, for sure, but also a minor seasonality regarding scratch-and-win, almost no seasonality regarding lotto. That's the range.

Thank you. Our next question --

Sorry, just there's one more question to answer on U.S. same-store sales growth. With respect to your question on the United States, I think it's important first of all to understand that the performance in the first quarter was heavily impacted by lack of jackpot activity in the first quarter of '08 versus first quarter of '07. We typically see a lag.

When you have an economic slowdown, it takes many state governments several months to approve new forms of legislation or rules to allow for expansion of gaming. And what I can tell you is that there are several initiatives taking place around the country today that I think will help to accelerate same-store sales growth or help them to rebound versus where they are in the first quarter.

I think, as Lorenzo mentioned, Ohio has approved Keno, which we expect to go live in the third quarter of this year, and there are a few other jurisdictions like Kansas that are expanding gaming as we speak. So I think that we should expect a couple of quarters of time lag between weak sales and governments relaxing legislation to really drive performance as a way of helping state budgets.

The one thing you mustn't forget here is that the U.S. business today is approximately $500 million -- this is U.S. dollars -- of recurring service revenue. So if same-store sales this year is off by 1% for three quarters of the year -- we have three quarters left, of course, we are talking about $4 million or less of service revenue impact, which is less than EUR3 million, so I think that the impact is certainly weather-able and we're confident that when these states begin to approve new forms of gaming, sales will pick up.

Okay, thank you.

Carmen Hummel of UniCredit.

Yes, good evening. It's Carmen Hummel from UniCredit. I have a fixed-income question, and this one refers to a rating commitment or potential rating commitment. If I look at Moody's, for example, they would expect an improvement of your debt ratios at the end of 2008. On the other hand, you planned with higher net debt at the end of the year. So if I try to make a simple calculation, then I would end up with weaker debt ratios at the end of the year.

Can you say something about this or is there actually a rating commitment? I have the feeling that there is one, but I'm not quite sure about it.

As far as the debt is concerned, the guidance we have given for the 2008 year end are such that we will be in compliance with all the non-written agreements that I think should allow the Group to maintain the rating, and that is a commitment that the Group has taken, it's confident to meet.

Okay, I understand that you are in quite close relationship or talks with rating agencies. Is that correct?

Yes, of course. We continue to have an open dialogue with the rating agencies and I've been personally in touch with them in the last 12 months and I see no reasons for concern.

Okay, thank you very much.

Claudio Giacomiello from Akros Bank.

Yes, I would like to ask you a question about what is the sustainable same-store sales growth in GTECH for the second half? Because you said that there will be an acceleration of this in the second half as a consequence of government gaining extension activities. So if we expect a weak Q2 in same-store growth, I mean, what is what you think the sustainable growth rate or accelerated rate in the second half?

Well, certainly in the second half of this year, we expect same-store sales growth in the U.S. market to be positive. In the first quarter, excluding jackpot activity, same-store sales were slightly above -- were slightly positive, so 0.2%, 0.3%. So I expect that by the second half of the year, the run rate will grow to approximately 3%, maybe slightly lower than 3%, but in line with the long-term plan. If you decompose the long-term planned growth rate of 5% to 6%, you mustn't forget that we had always projected the U.S. to grow at approximately 3% to 4% and the international business to grow by 6% to 7%.

So if you look at the first quarter, the international business actually grew by 10%, which is very positive and the U.S. business was flat, excluding jackpots. So my point is that if we can get the U.S. back to around 3% growth rate by the second half of the year and the first half of next year, our confidence level in achieving the overall 5% to 6% growth rate is still very high.

Okay, thank you.

Thank you. That was our final question today, so I will now hand you back to your hosts to conclude today's conference call.

Okay, thank you to all of you. Thank you for your questions. I hope that we have been clear enough in answering to those questions. What I would like to conclude is with some comments.

When we acquired GTECH and created the Lottomatica Group of Companies, we did so with a clear view that diversification is a critical goal for us. Not just geographic diversity that's fairly easy to achieve sometimes, but the repositioning our business to create market-leading organization in the growth areas across the entire spectrum of the gaming market, both as an operator and a supplier.

Today, our group is ready to [help] government generate new revenues during times of critical need in the United States and outside of the United States. We are capitalized on the new surge in sports betting and Internet wagering in Europe. We are launching a state-of-the-art downloadable machine gaming program in Sweden, and we have become a market leader in all segments of the retail and gaming market, far beyond our traditional lottery core.

It is vitally important for us to have a balanced portfolio of businesses that provide a substantial defense against the risk of regional economies, of the cyclical nature and seasonality of various business segments and markets. I hope you appreciate that while we are well positioned for growth, we are also well insulated from uncertainty, and this is how I invite you to judge our other business, looking how balanced is our portfolio and consequently how balanced are our risks.

Thank you again for being here tonight. Thank you.

Ladies and gentlemen, the conference is now over, and you may disconnect your telephones. Thank you.