Brightstar Lottery PLC (BRSL) 2008 Q2 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's first half results. (Operator instructions)

The meeting will be chaired by Mr. Lorenzo Pellicioli, chairman and executive e officer of Lottomatica Group, together with Marco Sala, managing director of Lottomatica S.p.A., Mr. Jaymin Patel, chief officer of GTECH Corporation, and Mr. Stefano Bortoli, chief financial officer of Lottomatica Group.

May I remind you that an audio webcast presentation is available at the following link, www.gruppolottomatica.it.

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

Thank you. Good evening to everyone and thank you for joining us for the Lottomatica Group's 2008 half year results presentation.

As you know already, with me today are Marco Sala, Jaymin Patel and Stefano Bortoli. I'll begin our presentation [audio gap] and cover the first half of 2008, after which I'll ask Marco and Jaymin to present the highlights of the operating results of their respective businesses, to be followed by a review of the financials by Stefano.

Now let me give you some insight into the progress we have made in meeting the objectives of our plan. During the first half of 2008, we have deliver impressive results. What make these results all the more remarkable is that they have been delivered in the face of difficult economic condition and a challenging business environment. Stefano will give you more insight into the numbers but the highlight I am about to give you tell a very good story.

First of all, group revenues experienced double digit growth versus the same period of the previous year. EBITDA made solid gains as well during a period when we are integrating a number of strategic acquisition into the business. Earning per share and net income have shown remarkable growth. These result were achieve I believe because the management team is successfully executing the strategy that we have for Lottomatica Group, which we outline to you earlier this year. Our success to date gives us confidence in our ability to deliver on our overall 2008 financial commitment and objectives.

As I begin my review, I like to briefly remind you that we pursue our business as an operator adopting a B2C model, or business to consumer model, and as a provider of technology and service which involves a B2B or, if you want, business to business approach. In the core lottery business, the Italian Scratch & Win market continues to be one of the most successful markets in the world. Scratch & Win is a major driver of the group's success and it's now coupled with the remarkable growth we have seen from our Italian sports betting network. I will comment more on that in a moment.

Also in the core lottery business, GTECH signed contract extension with the California Lottery and An Post, the operator of the Irish Lottery. This contract extension underscore the fact that GTECH enjoys solid, long term relationship with its customer who appreciate the quality of our people, product and service.

Same-store revenues in the core lottery business grew according to our expectations. Given the recession on the economic climate, we view our same-store revenues growth as satisfactory and showing sign of further improvement. Our core lottery business, with our economy downturn, fairly well. Government needs new sources of revenue and they look to government-sponsored gaming for that. There were more example of this phenomenon during the past quarter.

In the United States, the lottery in California, Ohio, Rhode Island and Florida has taken steps to expand the gaming revenues. Internationally, countries such as Poland, Belarus, and Ghana are expanding gaming portfolio while many are pursuing or planning to enter the interactive space. Jaymin will provide you with the details on these.

In the gaming solution segment, there has been significant positive activity, particularly in Italy where Lottomatica experienced a healthy increase in wagers over the same period last year. The sports betting segment, as I mentioned, we are seeing very impressive growth in Italy. During the first half, Lottomatica announced acquisition of Totosi sports betting operation which will, once approved, further solidify Lottomatica position in this high-grow area of the Italian market. Our acquisition of Totosi is another example of the advantage we have to balance and adjust investment over our portfolio of businesses.

We were able to redeploy capital intended to be invested in the anticipated Pennsylvania lottery contract and move it to another category and geography to propel growth. We are also beginning to see meaningful contribution from the new businesses we have acquire. Our strategy of diversification has afforded us a sort of natural edge as well as a broad perspective on potential opportunities. Marco will give some more insight into our activities in Turkey.

As CEO of De Agostini, the majority shareholder in Lottomatica, I can tell you that we are confident, as usual, in the Company future because De Agostini has increased its holding of Lottomatica to approximately 60%. In addition, Lottomatica has initiated a share repurchase program that Stefano will discuss.

Now I like to have Marco and Jaymin talk in more detail about their operation, to be followed by Stefano review of the results.

Thank you, Lorenzo. Good evening, everyone.

Results from Italian operations continue to experience very positive trends and contributed significantly to the group's performance in the first half of 2008. Revenues grew approximately 27% to EUR570 million, driven primarily by growth in Scratch & Win gaming solutions and sport betting. In addition, EBITDA was up 17% year-over-year to EUR260 million. Overall, lottery wagers for the half year totaled EUR7.9 billion, up from EUR7.3 billion in 2007.

The continued growth in Scratch & Win has helped reinforce the Italian instant market as the largest in the world and Lottomatica as the number one overall lottery operator in the world. Instant sales of EUR4.9 billion compare to EUR4.2 billion for the similar period last year. To drive this growth, we had taken a number of actions, introducing new games including a new EUR10 ticket and announcing our marketing effort.

The 16% increase in instant helped to upset some minor reduction in Lotto spending over the first half of the year. It should be noted that there has been a quarter-over-quarter improvement in Lotto sales, largely due to wagering on late numbers.

We also continue to [audio gap] 9 million. Excluding pool games wager, we generated approximately EUR67 million in new revenues.

As we mentioned, we also began to consolidate the sports betting market with the planned acquisition of our Totosi sports betting operation, which will significantly increase our market share by the addition of their interactive channel. Our market share has grown to 14%. With the addition of the Totosi operation, we will further solidify our position as the second largest operation in the Italian sports betting market. Considering that the market leader has been in the market since 1998, we are very pleased with our progress to date.

In gaming solutions segment, we continue to generate substantial growth, primarily driven by an increase in gaming machines linked to our system. We now have 41,800 machine, up from approximately 32,200 machines at the end of the previous year. We have experienced quarter-over-quarter growth in wagering, which we view as a promising trend.

Our positive result in this area has also been driven by our strategy of consolidation as well as our effort to place new gaming machines in the market that are owned by Lottomatica, thereby achieving improved economics for us. We are pleased with our progress to date. In a relatively short time, Lottomatica has become the second largest operation in the Italian gaming machine market, which is the largest segment of the overall gaming market in Italy.

As has been reported recently, we are also launching an interactive channel of [bets are off] skilled games using product and services provided by Boss Media, a GTECH subsidiary. We have begun offering a portal game with free play to introduce customers to the concept. We anticipate that wagering for cash prizes will be made available in September. We expect, by the Totosi acquisition, which has a very well established online presence and customer base, to boost our development in this segment.

Turning to our activity outside Italy, as you might be aware, part of my responsibility for the group includes pursuing business opportunities in Europe. In that regard, a prospecting tender was issued in Turkey that has since been amended to allow for greater competition. A response is due in mid August. I should note that there is a well established and common vendor, but we have put together a substantial consortium with [Go On], a prominent local company. We are confident that we will have a competitive offering.

There are also some lottery privatization activities underway in Turkey. The Turkish government has indicated it will begin to deprivatization of the national lottery in August. GTECH is the incumbent vendor to lottery and we are jointly following development in this regard.

To conclude, Italian operations had a successful first half. Instant growth continues to be strong. Our strategy of entering and investing in competitive market segment in Italy is producing result that are sustainable and not subject to arbitrary licensing period.

To that end, we have launched very promising new businesses in sports betting and gaming solution space that we expect to be major long-term contribution to our overall success. All of this give us confidence in being able to deliver result as we have promised.

Now I'll turn the call over to Jaymin.

Thank you, Marco.

GTECH's overall performance for the first half of 2008 was in line with our expectations. Whilst we certainly faced some challenges, we were able to work through them and no doubt, there is room for improvement and there are likely to be some more challenges ahead. But I remain confident in our prospects for the second half of the year.

Now let's look at our performance. On a constant currency basis, GTECH's revenues year-to-date totaled EUR455 million, representing 7% growth. Global same-store revenue growth for the first half of year was 4% in constant currency terms.

It is important to note that U.S. domestic sales have begun to experience some positive trends, whilst international same-store sales experienced very healthy double-digit growth at approximately 10% over the same period last year. The performance of the U.S. lottery contract portfolio, which was up 2% quarter-over-quarter, combined with continued strong international same-store revenues helped to offset the relatively low U.S. same-store revenues performance in the first quarter.

In our core lottery business, we have important developments. The California Lottery awarded us a four-year extension that we expect to generate between $220 million and $250 million over its term. We have formed a solid partnership with the lottery's leadership and are committed to help them institute best practices to increase sales.

The extension we received envisions a substantial growth in California's retail network, a step we believe will lay the foundation for enhanced performance. There is a real opportunity for growth in California and we are working closely with the lottery to make it a reality.

Likewise, as Lorenzo mentioned, we were also able to secure a two-year extension of our contract with An Post, the operator of Ireland's National Lottery, which we expect will generate approximately EUR28 million of revenue over its term. This relationship is, again, very important to us strategically in that the Irish Lottery is highly regarded for its management expertise and commitment to innovation.

In addition to these contract extensions, I would also like to highlight some new contract awards, including our announcement regarding a new contract in Ghana, West Africa. We will be launching a fixed odds sports betting program there. To support our customer in this promising emerging market, we will be deploying our new technology GO platform. The simplicity and efficiency of the GO platform is specifically designed to meet the needs of jurisdictions like Ghana.

In total, during the first half of 2008, we have secured approximately EUR400 million of revenues over the life of the respective extensions and new contracts we have won during this period.

As Lorenzo mentioned, governments across the globe are becoming more assertive about expanding their gaming programs to generate greater revenues. In turn, this drives increased revenues to GTECH. The Florida Lottery has announced its intention to join Power Ball, the multistate lottery jackpot game, in January 2009. The Florida Lottery, the example, parallels the experience we had during 2002 when lotteries first began to join in multistate lottery games in response to difficult economic times.

Florida also illustrates another point that we have made previously, that is there is often a time lag between the state responding to economic crises and launching expanded gaming. Some of the examples of governments looking to expand gaming include Poland, where a new Keno game was launched. Belarus is inaugurating a new lottery, the first in that country.

I previously mentioned the new sports betting program in Ghana. The Ohio Lottery is implementing our Keno game. And Rhode Island authorized 24-hour operations on weekends at its racetracks that offer lottery sponsored BLTs, resulting in a 9% lift in revenues. Taken in total, these gaming expansion activities, and similar ones that we anticipate will be forthcoming, provide GTECH a stronger platform from which we can drive same-store revenues.

As I mentioned in my introduction, there were some challenges we encountered in the first half that we worked very hard to overcome. We were not successful in the Ohio Lottery procurements. We are firmly of the view that the evaluation process was flawed and a lawsuit has been initiated which is currently ongoing.

In Kansas, some issues occurred during a conversion that were quickly rectified but created a regrettable situation in which our customer, who's highly valued, was unhappy. We do not take this situation lightly. I have taken a number of important actions to ensure that this will not happen again. I am pleased to report that the lottery has indicated their intent to resume discussions with GTECH regarding the VLT [monitoring] contract in Kansas.

As to pending contract awards, we are anticipating a decision in New Jersey. The lottery has not posted a schedule for that announcement, but it should be forthcoming relatively soon.

In the interactive space, we are beginning to see some contributions from our new businesses. At the end of April 2008, GTECH completed the majority acquisition of two interactive gaming businesses, Boss Media AB and St. Minver Limited, who provide products and services to the online poker, bingo and casino sector. These businesses, along with our Finsoft subsidiary, form the core of our new media business in that space. As previously noted, GTECH has created a new organization dedicated to competing in this high growth market sector.

Whilst GTECH did not control the companies during comparable periods last year, there has been some substantial revenue growth during the second quarter compared to the total results for the similar period last year. Total royalty and management fee revenues from Boss Media and St. Minver were up approximately 30%, driven by a 60% increase in contributions from bingo fees. These results were in line with our expectations. GTECH's Finsoft subsidiary, acquired in July 2007, has achieved considerable growth. Since that time, Finsoft has increased its customer base from 17 to 26 operators and the number of gaming shops that it supports by 40%.

In printed products, the division performed very well during the quarter, with customer acquisitions and RFB contract wins. We have been selected as the ;primary instant ticket vendor in Mexico and are secondary vendor in Florida, Washington and Oregon. We are competing for business in Kansas in the U.S. and internationally, in British Columbia and Portugal.

Finally, our gaming solutions organization integration is proceeding as planned. The division has experienced some softness in the U.S. market, whilst the international market is largely on track. All in all, our progress in delivering results is on track. We are working hard to maintain growth in the U.S. market but at the same time, we are achieving very strong results internationally.

Our acquisitions in the interactive space and the investments we have made in printed products are beginning to contribute to our success. We are confident in the outlook for the remainder of the year.

Now let me turn the call over to our Group CFO, Stefano Bortoli.

Thank you, Jaymin, and good evening, everyone.

As usual, this earnings announcement includes the combined results for Lottomatica and GTECH. I am pleased to report that overall, we delivered solid results in this first half of 2008. Revenues for the first half of the year were EUR928 million, up 11% compared to EUR835 million in the same period last year. On a constant currency basis, revenues would have been approximately EUR972 million, an increase of 16%.

First half EBITDA was approximately EUR399 million compared to EUR381 million in the first half of last year. On a constant currency basis, EBITDA would have been approximately EUR480 million, up 10% over the same period last year. EBITDA margins were 43% compared to 45.6% in the same period last year.

As reported, GTECH revenues were approximately EUR411 million compared to approximately EUR427 million in the first half of 2007. On a constant currency basis, GTECH's revenue would have been EUR455 million. In the first half of 2008, GTECH experienced same-store service revenue growth of 4%, or EUR50 million. I will provide further detail on same-store revenue drivers later.

Net M&A activity accounted for EUR44 million of additional revenue. Offsetting this was lower product sale activity and also the disposition of POLCARD, a EUR19 million impact.

For Lottomatica, revenues grew 27% to EUR517 million from EUR408 million in the first half of last year. This increase was primarily attributable to the expansion of fixed odds sports betting, gaming solutions and Scratch & Win.

GTECH EBITDA was EUR139 million compared to EUR159 million in the same period of 2007. When adjusted for currency fluctuations, EBITDA for the six -- for the first six months would have been EUR158 million. EBITDA was positively impacted by EUR11 million of same-store service revenue growth and EUR9 million mainly in cost savings.

Offsetting these was lower product sales in M&A activity for our product. As we have stated on previous calls, timing of product sales tend to be secret. Moreover, Atronic, as Jaymin said, is experiencing soft U.S. market conditions, as other gaming machine vendors in this segment. Lastly, the disposition of POLCARD in July of 2007 generated a EUR9 million impact.

Lottomatica EBITDA was EUR260 million, up 17% from EUR222 million in the same period last year. This increase was primarily driven by the expansion of fixed odds sports betting, Scratch & Win and gaming solutions.

Let's move onto the next slide where we provide a breakdown of GTECH lottery service revenues between the United States and international. In the second quarter of 2008, U.S. same-store service revenue was up 2% versus the second quarter of last year. Further detail of the second quarter only in available in the appendix.

Overall, for the semester, U.S. service revenue was flat. And this trend we find encouraging. As an example of driving same-store revenue increases to best practices, North Carolina experienced double digit growth due to the change in instant prize payouts in late 2007. Bear in mind that the 2% decline in service revenues from Mega Millions was primarily due to a $390 million jackpot in the first quarter of 2007, which was the highest jackpot over the last 29 months. Powerball states have been performing well. Year-over-year performance was not significantly impacted by jackpot activity.

And international jurisdictions experienced 10% growth. This increase is principally due to gains in jurisdictions such as Columbia, the UK, Poland, Ireland and Morocco. Overall, same-store serviced revenue on a constant currency basis was up 4% compared to first half of 23007.

And now, moving on to Lottomatica, our Scratch & Win business continues to thrive, with gross wagers of EUR4.9 billion, as Marco said before, compared to sales of EUR4.2 billion the first half of 2007. In the six months ended June 30th, the number of tickets sold was 1.3 billion compared to 1.2 billion last year. Lotto game wagers were EUR3 billion, slightly below the EUR3.1 billion in the first half of 2007.

Revenues from the instant business were approximately EUR172 million compared to approximately EUR148 million during the same period last year, an increase of 16%. Lotto revenues were EUR195 million compared to EUR204 million in the same period last year. Well, games and betting generated EUR70 million, sorry, in revenue from EUR368 million of wagers in the first half this year, due to the strong performance of fixed odds sports betting. Revenues from gaming solutions were up 270% to EUR37 million, driven by the increased placement of AWP machines. At the end of June, as Marco said, there were approximately 42,000 AWPs installed. In our appendix we are providing a separate chart for the second quarter to give you a better understanding of our overall performance.

And now turning to the P&L, operating income was EUR250 million for the first half of 2008 versus EUR239 million in the same period last year. We incurred approximately EUR92 million of financial charges compared to approximately EUR108 million last year, principally driven by the strengthening of the euro against the U.S. dollar because of the natural hedge capital structure of the group and lower interest rate on our senior credit facility. Again, in our appendix, you will see further details on our net interest breakdown.

Income before tax was EUR158 million, up 20% over the same period last year. The tax rate for the first half of 2008 was 34.5% compared to 48.1% in the same period last year, primarily due to a reduction in the Italian income tax rate, as we have commented before, that took place in 2008.

Group net income was EUR104 million compared to EUR68 million last year. Net income plus minority was EUR78 million, bringing our earnings per share to EUR0.51, up 59% over last year.

Now, on the next slide, we provide details on maintenance and gross CapEx and acquisitions. Total CapEx and acquisitions were EUR292 million in the first half of 2008 versus EUR136 million for the same period in 2007. GTECH's acquisitions accounted for EUR202 million in the first half of 2008 versus EUR3 million in the same period last year, attributable to acquisitions activity, including Boss Media, St. Minver and Atronic.

GTECH first half 2008 maintenance and gross CapEx were both comparable to the same period in 2007. For Lottomatica, maintenance CapEx was EUR13 million and gross CapEx in the first half of this year was EUR12 million compared to EUR58 million in 2007 when we acquired sports betting licensing rights.

Looking at the group's cash flow for the first six months of the year, net cash from operating activities was EUR177 million. After CapEx, our unlevered free cash flow totaled EUR90 million, improving by EUR16 million versus the same period in 2007. This was mentioned [in that this brand was achieved] despite the EUR52 million increase in the cash tax paid based upon the profit of 2007.

Cash available at the end of the quarter was EUR155 million after a dividend payment of EUR125 million and the purchase of treasury shares of EUR39 million, or approximately 1.4% of share capital. Our net financial position as of June 30th was EUR2.67 million, including payment of EUR205 million for acquisitions for GTECH, as we mentioned before, and the consolidation of EUR135 million of Atronic's debt.

Turning now to our gross long-term debt, we have taken steps to increase liquidity and the average maturity of our debt profile. In May, GTECH converted a $250 million facility for issuing guarantees into a $250 million borrowing facility. Also in May, Lottomatica entered into a EUR300 million revolver that matures in 2012. The proceeds of the revolver were used to reduce GTECH senior credit facility debt maturing in 2008, 2009 and 2010. As a result of this refinancing, 82% of our long-term debt is now due beyond 2010. This is up from the 71% at the end of 2007.

Our current cash position, combined with available borrowing facilities, provide us with the resources for us to execute our strategic plan. It also allows us the flexibility to careful choose among several options for this refinancing on the EUR360 million bond which will expire in December of this year.

Now, we will now open the line for Q&A and then we will hear closing comments from Lorenzo. Operator?

Excuse me, this is the conference call operator. We will now begin the question and answer session. (Operator instructions)

The first question comes from the line of [Peter Tessa] from [One Investments]. Go ahead, please.

Yes, thank you. two questions, please. One, can you just please outline what your plans are and your stance on the coming opportunity in Turkey?

And secondly, can you give a sense in terms of what you think your opportunities are internationally for - did Boss Media send in their plan - platform -- beyond your comments you'd made on this -- ?

On the first question, Marco Sala. On the second, Jaymin Patel.

Well, regarding Turkey, the opportunity is very near. The point is we have to submit an offer to the Spor Toto organization, that is, the governmental body that supervise the sports betting business in Turkey. On August 12, before we will start our cycle, there will be a submission and after a re-launch, one re-launch, as it is forecasted in the tender.

The opportunity there is an opportunity for being the exclusive concessionaire of sports betting activity for 10 years. Is a quite interesting business because it is expected to develop over time, considering the Turkish economy and the population of the country. Having said that, now we have the conditions to participate of -- to participation -- to participate to the tender in two weeks. I think we are right position to place a competitive offer there.

So the question on Boss Media and St. Minver. So with the acquisition of those two companies, we now have a very solid position as a white label services provider in the poker networks in Europe as well as bingo. So Boss Media provides the -- or is the driver of the independent poker network and St. Minver runs a cross-border bingo network. So we're looking to build both networks substantially over the next several years. We believe that there is some product development required on both the technologies to improve the player experience we're proactively working on.

As you saw from my comments, the overall volumes in both poker and bingo for Boss Media and St. Minver combined were up 30% for the second quarter of 2008 versus 2007, so we're very pleased with the underlying growth performance in those two businesses. And we are looking to build scale and that would involve trying to add on commercial clients to our independent networks as well as working with our WLA lottery clients to add them to the poker and bingo networks as those lottery customers adopt interactive gaming.

So this has become a very, I think, important part of our growth strategy, particularly as lottery customers in Europe look for ways to expand beyond traditional retail gaming into the interactive space.

Okay. So just one question back on the Turkish situation. Given the presence of the incumbent as a competitor and given that they've been fairly price aggressive internationally, would you anticipate this to be a fairly price aggressive auction in Turkey?

I don't think so. I mean, this is the key of our process and we are making our evaluation and we can comment after the deal date.

Okay, thank you.

Second question comes from the line of Adam Cochrane from JPMorgan. Go ahead, please.

Good afternoon and congratulations on your results. A couple of questions. Firstly, can you go into some more detail on the gaming solutions business? I thought that you might do a little bit better in Q2, so if you can sort of talk about the trends from Q1 and Q2 just on Atronic and Spielo and what you may be seeing going forwards with regards to the U.S. replacement cycle, et cetera.

Secondly, with regards to your working capital, you seem to have had an increase, a significant increase in fact, in inventories and debtors. Can you just explain why this has come about, if you can, please?

And thirdly, can you just confirm that the Imagine terminal is going to be ready for all the contracts that you've promised that you've already submitted and won the tenders for, please?

One and three, Jaymin. And question two, Stefano.

Okay, so let me start with question one, your question on gaming solutions. The overall gaming solutions business in the GTECH portfolio is actually doing quite well. Our performance in the government sponsored Spielo division for the first half of year has been very much in line with our expectations. We've been pleased with the performance in both product sales to government customers as well as the participation business that we have in states like Rhode Island, New York, Delaware and a few other places internationally. So very comfortable there.

With regard to Atronic, the international business of Atronic, the business outside of North America, is actually doing quite well. Again, in line with our acquisition expectations and we expect that the full year will perform in accordance with expectations.

The U.S. business is a little bit soft for us at this time because sales to casinos, as well as new placements for participation revenue, are down slightly versus our expectations because, as you understand, many casinos in the United States have slowed down their buying given the economic environment. So we are probably in the same position as the other significantly larger suppliers than us, but overall the gaming business is in line with where we expected, save the U.S. market, which is slightly soft.

Question number three, if I can jump there before I give the microphone to Stefano, the [Laser] -- the project -- the Imagine terminal -- I'm saying Laser because that's the internal name. The Imagine terminal is very much on track for delivery into production in the fourth quarter of this year, as we had promised. We have some very positive in-house tests taking place that give me confidence that we're going to be able to deliver the terminal as expected, on time. And so we'll be in a position to deliver in accordance with the commitments that we've made in bids.

Before you go, can I just follow up on the gaming solutions answer? It's obviously loss-making at the moment. What do you need to do or what needs to happen for that business in order to return it to profitability?

Well, I don't think you should jump to the conclusion it's loss-making. I think that in the first -- as we've said consistently, in the first half of the year the Atronic business has lower sales volumes because the orders tend to come in the third and fourth quarter, which is consistent with Atronic's history over the last five years. And if you combine it with the Spielo business, actually the overall unit is on track.

Okay.

So as I said before, I think that the international business at Spielo is doing well. We have some softness in the U.S. market and we have to work our way through that.

Can you split the international versus the domestic U.S. out at all in terms of what proportion?

Well, no, I mean we don't -- we don't intend to give that level of detail in our financial statements. And I think if you have any questions on the details you should talk to Stefano later because I think it's very difficult for us to break down the business on these calls.

Okay. Thank you.

This is the operator. We currently have no further questions. (operator instructions)

Operator, sorry, it's Stefano Bortoli speaking. I have to answer the last question from Adam Cochrane of JPMorgan and it's about the increase in inventory, which is mostly related to the consolidation of Atronic, which is bringing inside the perimeter inventory in the range of EUR70 million as well as the ongoing activity that we are developing at the GTECH level for the UK contract and the Swedish contract for gaming solutions. The billings related to those contract will be later accounted for from, let's say, the end of 2008 for the Swedish contract while for UK it will be starting in 2009.

So it's just an inflow coming from 2009 with regards to -- ?

Naturally those increase in inventory are mostly backed by an increase in advance payment from customers.

Okay.

We have a question from the line of Andrew Lee from Dresdner. Go ahead, please.

Hi. Just one question on the acquisitions. You've obviously given us the Q2 revenue that you've got from the acquisitions [in the pack]. Is that -- should we assume for the full year that that's a good representation or is there some seasonality or timing of revenues in there that we need to bear in mind?

Well, let me say that -- Stefano again speaking. About the new acquisition of Boss Media and St. Minver, the second quarter represent only a portion of the three months. So it's basically two months so it's not a relevant period. And more importantly about Atronic, it's a business where revenues are very much concentrated towards the end of the year, most likely in the fourth quarter. So the evidence you have from the second half are not fully representative of the impact on the 2008 expected revenue profile contributed from these new acquired companies.

Okay, great. So it would be reasonable to assume, as I have, that you would, on an annualized rate, expect to get more than a couple hundred million from the acquisitions, then? In a year.

No. I think that number is overstated.

Yes. If you -- if you combine those acquisitions in 2008, they are not going to contribute 200 millions. The 200 millions I think was the contribution for the GTECH part we had given as a rough indication by 2009, 2010.

Yes, sorry, I meant in a full year.

Yes. Let's say, as I said, once we had developed the plan for growth that we have for those new companies, yes.

Great. Thanks very much.

The next question comes from the line of Evros Constantinou from Credit Suisse. Go ahead, please.

Hi. Good afternoon. I've got a couple of questions. One is to clarify a statement that you made at the beginning of the conference that you are confident that you will meet your objectives for the second half, that it's looking (inaudible) that you are keeping guidance, I suppose, yes, for 2008?

And I also had a question of if you can give us some color on current setting, in particular, in Italy when it comes to the instant lotteries business, if there is a comment from you on this one, please?

Okay. On the first question, yes, we confirm our guidance. It will be my final wrap-up. I anticipate it, yes. We will confirm our guidance.

And on the second question, I leave it to Marco. Of course, (inaudible) is always very color.

Regarding (inaudible), what we can say is the following. We are very pleased to see the success of the activities we have implemented since the beginning of the year. The point there and the reason for the success is once again is that we have identified, very precisely, the space to improve the -- our offer to the final customers.

As I mentioned on other occasions, the point is that we have identified a different segment of customers in this field and we were able to provide them a product in line with their expectations. In fact, very much the success of these first step is driven by the new launches, the EUR10, the EUR2, that we launched at the beginning of the year, that are somehow very much incremental to the rest of the portfolio. And so we are experiencing a quite modest level of cannibalization within [this prize] segment of the product portfolio.

Having said that, we are also optimizing our promotional efforts both to consumers as well as to the trade while enlarging quite productively the distribution. That are the main -- the main reasons of the growth we are experiencing in this [model].

Right. So we might be a bit more confident, then, because we're entering right now a quarter which is typically lower compared to the first two quarters.

Well, the other year -- the performance has to be compared against last year. The point is if we are able to maintain the goal. It's clear that there. We have -- we are now in good shape but you are right. I mean, now we are entering in a phase where generally we have a slight decline versus the previous quarter. Having said that, it happens all year and therefore, it's something that we can keep under control.

Okay. I also have another question on an announcement that I've seen from China LotSynergy that they have obtained approval for the expansion of Keno operations in eight provinces in China. Does that modify at all the number of Keno terminals that you have been talking about in the original announcement on the joint venture?

Evros, this is Jaymin speaking. Actually, that announcement is the one that we were expecting, the one I think I referred to on the year-end conference call where I explained to our investors that we were waiting for the Ministry of Finance to approve the rollout of Keno outside of gaming holds in China, which has now been approved with this declaration. So what it does is it gives us confidence that the outlook that we provided, which is that we'll have 30,000 or thereabouts terminals in the Keno business in China by the end of '09, beginning of 2010. Our confidence level has improved greatly as a result of this announcement.

All right. Okay, thank you. That's all I had to ask.

This is the operator speaking. (Operator instructions). We have a question from the line of Mariya Gancheva from Merrill Lynch. Go ahead, please.

Yes, hi. This is Mariya from Merrill. Just a quick question on your bond. Are you still -- are you still saying that you're going to be paying the bond from bank facilities? Do you still find it difficult to actually show a bond? And I guess, could you just clarify a bit more on how much undrawn facilities you still have? 'Cause I can see you've drawn down on the 300 million [RCF]. Thank you.

Well, as I said in my comment, we are considering several options to refinance the bond, which is expiring December 22nd, 2008. So the timing on market conditions and our confidence is to be able to choose the best option available, either refinancing the bond or with other available options.

In terms of undrawn lines, we have, the time being, some undrawn lines which are in the range of -- I'm just checking -- in the range of $300 million. [For the senior current] facility and there are some additional euro lines available, which are in the range of EUR100 million.

So am I right to understand that you would also possibly value an option of issuing a bond if conditions permit, of course?

Yes, we are definitely considering that. As you might have read, we have had the approval of the board of directors to consider that as possible solution.

Okay. Thank you very much.

As we have no more questions, I'd like to hand back to your host of the day to wrap up today's conference. Thank you.

Thank you. So before I wrap up, I'd very quickly like to make one minor administrative point. As I said also in the last conference, it happens time to time that our management exercise restrict the stock to cover tax liabilities. It's going to happen again in August. This stock was part of the original purchase of GTECH and they will vest now. So is really something minor and executive that we'll exercise them in the measure which is needed to cover tax liabilities.

Coming back to today announcement, I'd like to close reiterating a few key points. Hopefully, you better appreciate that Lottomatica Group can and will produce reliable results. The fact that we are performing well in the current market condition and environment, I hope, give you some confidence in our future.

The second half of the year will hold its own challenges for us. But we are confident, based on the performance of our business today and based off the first outlook that we have, that we will meet the guidance that we provided for the full year, as I stated before. Of course, we will continue to work on [this mark to generate announced] shareholder value and to continue to meet our result.

Thank you again for your time. See you -- not see you. We will be on the phone three months from now. Thank you.

Ladies and gentlemen, the conference is now over and you can disconnect your phones. Thank you.