International Game Technology PLC (IGT) 2007 Q4 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 2007 Full Year Results.

(OPERATOR INSTRUCTIONS)

The meeting will be chaired by Mr. Lorenzo Pellicioli, Chairman and Chief Executive Officer of Lottomatica Group, together with Mr. Marco Sala, Managing Director of Lottomatica S.p.A., Mr. Jaymin Patel, Chief Executive Officer of GTECH Corporation and Mr. Stefano Bortoli, Chief Financial Officer of Lottomatica Group. Mr. Simona D'Agostino, Head of Investor Relations will attend the conference call. Please follow the instructions on your invitation to view the slide show presentation. At this time, I would like to turn the conference over to Mr. Pellicioli. Please go ahead, Mr. Pellicioli.

Thank you. Sorry for the delay, but we were waiting to be clear on the press release by the Consob. But welcome to everyone and good evening and Lorenzo Pellicioli here. Here with me today is Marco Sala, Managing Director, Italian Operations, Jaymin Patel, CEO of GTECH and Stefano Bortoli, CFO of Lottomatica. As is our custom on these calls, we will refer to Lottomatica when discussing items relating to corporate level performances and we will differentiate between our operating entities by referring to them as Italian operations and GTECH when discussing their performances and contributions.

I would like to structure my comments today around three simple, but important things. First, the evolution of our management team. Second, the delivery of results in keeping with our commitments. And finally, the execution of our strategy. I'll ask Marco and Jaymin to give more detailed briefing on their business units and Stefano will give us a more complete picture of financial results and then I'll wrap up. And of course, we will happy to answer the questions at the end of our presentation.

Let me begin with some insights into where we are as an organization. The integration of Lottomatica and GTECH is complete. The two business units are working together as an integrated whole, producing results that neither could achieve as a stand alone entity. One of the most compelling examples of this is our new sports betting concession that was launched in Italy last year. Through the cooperative efforts of the combined businesses and the configured GTECH Altura product, is being used as the sport betting terminal. To me, this is a very telling example of the level of integration that has been achieved and the value that we have created as a result and more many will come.

During the past year, our management team has evolved. Our CEO, Bruce Turner, retired. I stepped in to take his place at Lottomatica and Jaymin Patel was promoted to CEO of GTECH, a position I had always envisioned for him. Jaymin is a 14-year veteran of GTECH having served as group CFO and later GTECH -- as GTECH President. Along with his wealth of both operational and financial experience, he brings a fresh and dynamic outlook to the business. In Italy, Marco Sala successfully launched a new business like while taking on an expanded role in our dealings with the European Union and driving our new business opportunities in Europe. Stefano Bortoli, previously CFO of our retailing operations moved to the United States to take up the role of CFO of Lottomatica Group.

The results of these changes has been the creation of a new senior management team at Lottomatica that has the energy, capability, experience and vision to meet and hopefully exceed the goals we have set. They understand the complexities of our organization and I am confident that we can bring together the various elements of our businesses to create a world-leading gaming company that can deliver best-in-class technology solutions and unrivaled operational expertise, a unique combination in our industry.

Now let me turn to the next point, the delivery of results. Lottomatica financial performance in 2007 was very strong in what has been a challenging international environment. We have honored our commitments and delivered results in line with our stated goals.

For the full year, Lottomatica revenues were EUR1.66 billion, which was at the midpoint of our guidance range. EBITDA, EBITDA was EUR702 million, which exceeded the high end of our guidance. And the EBITDA margin was 42%. Earnings per share were EUR0.49, which substantially exceeded our guidance of EUR0.35 to EUR0.37. And all in all, I believe that Lottomatica delivered financial results that met and in some notable areas, exceed our aims and expectations.

Our performance was driven by some significant operational achievements. As Jaymin will elaborate, during the past year and including the period to date, GTECH has got some substantial contracts wins since the beginning of 2007, of the EUR1.64 billion of new contract revenues that we have put up for tender, GTECH won EUR1.24 billion, or in other terms, 75% of the total. Underlying GTECH impressive contract wins were some important efforts towards improving the Company's competitive position, produced meaningful results -- that produced meaningful results.

Our Italian operations had another record year. Marco will provide further details, but at a high level, our progress was driven largely by the continuing growth in the scratch and win market, the successful launch of our sport betting network and the expansion of our gaming solution network. The success of the combined business has positively impacted our outlook. The visibility of Lottomatica future earnings has increased as we now have 75% of our recurring revenue under contract with an average contract length of five to six years.

As I stated earlier, it has been an excellent year in which we have delivered an impressive result. Now I will hand over to Jaymin first, then Marco to give you a more detailed review of the operations. And following Stefano's presentation of the financials, I will come back to elaborate on the third theme, which is the execution of our strategy and the guidance for 2008.

Very good, Lorenzo. Thank you very much and welcome everyone and good evening. I would like to start my comments today briefly by talking about GTECH's financial perform for the full year of 2007.

GTECH's total revenues for calendar year 2007 were EUR840 million, of which approximately 90% was derived from services and the balance of 10% from product sales. Again, GTECH delivered performance that was in line with our expectations.

As you know our core lottery business is the principal driver of our growth, where same store revenues grew by approximately 5% globally. GTECH experienced a solid productive year in 2007, during which we had a number of key wins around the world and we furthered our strategic progress in all key areas of our business, lottery, gaming solutions, sports betting and interactive.

In the United States, GTECH won new online lottery contracts in Oregon and Kansas, and received important contract extensions from lotteries in New York, New Jersey and Illinois. Shortly after the close of 2007, GTECH was also awarded new long-term online contracts from the states of Pennsylvania and West Virginia lotteries. It is notable that both lotteries are currently serviced by other vendors.

As we mentioned in our previous call, GTECH is a major technology provider to the Camelot Consortium in the UK, who will provide technology solutions for the operation of the lottery through 2019. Moreover, the company was selected to provide an enterprise series solution to our German customer in Saxony as well as deliver new lottery terminals for customers in Denmark, Belgium and Western Canada. We were also successful in our bid to become the sports betting solutions and service provider for the first legalized sports lottery in Taiwan. This is strategically important for us because we are expanding beyond traditional lottery-based offerings to create a multi-channel sports betting program.

In China, we have partnered with China LotSynergy to create a national gaming network to fulfill their license to offer Keno throughout the country. We hope to use this national platform to offer additional services and products for the welfare lotteries in China.

In the gaming solutions area, Spielo, our subsidiary in the government sponsored market, is providing Svenska Spel to Sweden with a new server-based gaming system and video lottery terminals. Spielo was also selected to supply new gaming machines to Manitoba Lottery and Atlantic Lottery in Canada.

In January of this year, GTECH completed the acquisition of a 50% controlling interest in Atronic and plans to acquire the balance of 50% during 2008. Spielo will continue to concentrate on government sponsored customers and Atronic on its primary market, the commercial gaming market. Both companies will cross-license and distribute each other's content to maximize the variety and size of the game library available to all customers and will also collaborate on and share research and development activities.

GTECH also recently announced it will be acquiring all of the outstanding shares in Boss Media, a leading provider of software platforms and services to the interactive gaming industry in legalized, regulated markets. GTECH is focused on the interactive space, particularly the Internet as an important distribution channel to drive growth in the regulated lottery and gaming markets.

I'd also like to update you on upcoming lottery bids. We have submitted proposals to New Jersey, Columbia, sorry, DC, Ohio, all of which are current GTECH customers and for video lottery monitoring systems in Kansas and Oregon. We are also seeing a great deal of activity in the new media segment where we have submitted bids for interactive systems for customers in Switzerland, Belgium and Canada.

In the coming year, we expect to submit proposals for online systems in New York, Illinois, South Dakota, and Indiana in the United States. In addition, internationally, we have bidding activity in Chile, Portugal, Hungary, Morocco, Malaysia and Singapore.

In the gaming solutions segment, we look forward to the expansion of New York Video Lottery gaming with addition of a major racetrack, Aqueduct, in New York City. Our New York contract entitles us to install 25% of the VLTs under a revenue sharing formula.

With the current economic slowdown and growing budget deficits, states continue to seek new ways to generate revenue through their lotteries. By way of example, the Ohio Lottery Commission, a GTECH customer, recently voted to approve Keno to generate additional revenues for the state. In turn, that action will benefit GTECH.

Privatization remains an ongoing area of focus in the United States. The Governor of Illinois recently announced -- recently renewed, if I may say, his core belief in the lottery and a handful of other states are also looking into privatization of their lotteries. The concept challenge continues to be a challenging one politically. We are more encouraged by examples like Ohio. Nevertheless, we are actively monitoring developments.

Before I turn the call over to Marco, I would like to comment briefly about the competitive enhancement programs GTECH has undertaken. We are making significant progress in reducing the cost of our system delivery and implementation. We continue to take advantage of GTECH's global footprint through a multi-sourcing program to move manufacturing and software developments to the lowest cost development centers around the globe. The end result of these activities is that we will be able to deliver the most competitive solutions to our customers.

Let me summarize by saying that we are pleased with the operating performance of the GTECH business unit in 2007 despite real challenges, such as adverse currency fluctuations. The outlook for 2008 and beyond is promising and we remain excited about the future. Our success in the marketplace over the past 12 months positions us well for growth in the future.

Now I'd like to turn the call over to Marco Sala.

Thank you Jaymin. Good evening to everyone. The results from Italian operations were very good. Revenues for 2007 were EUR821 million, which represents a year-over-year increase of approximately 26%. In addition, EBITDA was up 40% year-over-year.

Lottery wages grew substantially, totaling EUR14 billion, up from EUR10.5 billion in 2006, a 34% increase. The popularity of the Italian instant products continued its remarkable growth pattern, with record sales of EUR7.8 billion compared to the EUR3.9 billion in 2006, a doubling of sales. We are encouraged that there are signs that the trend going forward will continue to be positive, although at a slower pace.

The impressive growth has propelled the Italian instant market to become the largest in the world and Lottomatica to be number one overall lottery operator in the world. The introduction of the EUR10 ticket generated EUR2.3 billion in sales and was the principal driver of our success. In addition, we have started to use recognized brands, such as Spiderman, [Di Mobile] (inaudible) in Italy as it is known to announce sales. The average price point for the year grew to approximately EUR3.4 compared to EUR2.4 in the prior year.

Lotto wagers were at EUR6.2 billion compared to EUR6.6 billion in 2006. As you will recall, the late number phenomenon in 2006 restored the top-line revenue comparison. Core numbers were comparable to last year at EUR5.2 billion.

Our new Italian sports betting network operating under the brand, Better, launched during the third quarter with 1,100 corner locations has allowed us to be the first to market with scale operation. And we believe that this will create a strong brand loyalty. We are supporting our product with an extensive advertising campaign and a new Internet wagering site, which was launched in October and already generates 7% of our sales.

Results are meeting our expectations. Our market share has increased to 12%, improving our overall position to date, the second largest operator in Italy, in the Italian sports betting market.

The gaming solution segment, we experience substantial growth, primarily driven by an increase in gaming machines linked to our system from 10,000 at the end of 2006 to approximately 32,000 at the end of 2007. We have begun to progress along to the value chain to improve our operating margins. We are approaching this in two ways.

The first is to increase the number of Lottomatica supplied machines. The rollout of the sports betting program represented an opportunity in this regard. We have been successful in packaging our products and services. As retailers sign up for sports betting services, he is also able to take the benefits of gaming machine placement from us. It is an example of how our programs complement one another and create growth opportunities. The jump in our population of AWPs is a direct result of the benefit of this sales initiative.

Secondly, we have also been actively consolidating the market and increasing our presence through the acquisition of smaller operators. As Lorenzo mentioned, part of my responsibilities include the new business opportunities in Europe. There are some privatization activities underway that are -- that we are monitoring. The Turkish government has indicated that it would like to have a national lottery privatized by the end of 2008. It has also proposed to launch a sports betting tender. With the operational experience we have gained in the sports betting, we are actively seeking opportunities that could expand our presence in that market segment.

With our colleagues at GTECH who have good insights into the Turkish market and been a supplier for many years, we are confident that we will be able to put together competitive privatization and sports betting bid should the opportunity materialize.

As well in Europe, there is an escalation -- an escalating discussion around deregulation and the opening up of various markets. We are particularly interested in this issue. Recently, we established an office in Brussels to more actively monitor development and participate in the process.

To conclude, the Italian operations had a successful year, exceeding our expectations in many areas. We have been able to capture a good deal of the growth in the overall gaming market in Italy in which we are not -- we now have a 38% market share. And we are confident that in the end, in the year ahead, we will be able to maintain and grow our market-leading position.

Thank you Marco. Good evening, everyone, and good afternoon afternoon for those overseas. These earnings announcements include the combined results for Lottomatica and GTECH while the results for 2006 include the 12 months of Lottomatica Italian operations and only four months of GTECH operations. I am pleased to report that overall we experienced good results.

Revenues for the full year were EUR1.66 billion, which represents a year-over-year increase of approximately 77%. And full year EBITDA was approximately EUR702 million, an increase of around 94% versus the same year last year. EBITDA margins for the year were 42.2% compared to 38.5% in 2006.

Now comparing revenues as reported for 2007 with those of 2007, GTECH experienced same store revenue growth of approximately 5% over the same period last yea. Revenues from Italian operations, as Marco has already mentioned, increased approximately 26% when compared to the same period last year. Overall, revenues from Italian operations in 2007 contributed EUR821 million, while GTECH operations contributed approximately EUR840 million.

We would like now to present a more detailed comparison of 2006 and 2007, including GTECH and the Italian operations. Revenues and EBITDA for full year 2007 compared to 2006 pro forma figures. As reported, revenue grew by 5% and EBITDA by 9% at group level. Please bear in mind that Brazilian operations have been excluded from the 2006 numbers.

To allow for a more meaningful analysis of GTECH in the two periods, 2007 figures are then restated at 2006 constant currency. GTECH revenues restated were EUR896 million compared to EUR931 million, mostly impacted by lower product sales, which decreased from EUR122 million to EUR84 million. In fact, in 2006, we had significant sales of systems, ITVMs and terminals to Spain, France, Germany, New Zealand and Sweden. GTECH EBITDA restated was EUR336 million versus EUR338 million in 2006. At the group level, we saw an EBITDA increase of 14% on a constant currency basis.

To allow for a better understanding of our performance, we have presented a variance analysis of GTECH and Italian operations between pro forma 2006 data and 2007, both for revenue and EBITDA.

GTECH revenues of EUR840 million compared to EUR875 million in 2006, adjusted for currency fluctuations. Lottery revenues grew by EUR41 million because of same stores revenue growth and decreased by EUR25 million because of contract losses. Reductions in product sales and the sale of POLCARD, brought total revenue to EUR840 million. In Italy, revenue growth was driven by lottery, scratch and win, and an increasing gaming solution and improved games and sports betting revenues.

GTECH EBITDA of EUR311 million compared to EUR330 million in 2006, adjusted for currency fluctuations. Lottery EBITDA was positively impacted by EUR27 million due to same store revenue growth, countered by a reduction of EUR10 million owing to contract losses. Lower product sales and the sale of POLCARD brought total EBITDA for the year to EUR311 million. Italian operations reported margin improvement due to scratch and win performance, while the start-up costs in sports betting generated a negative variance of EUR4 million.

As for GTECH, we now provide a breakdown of lottery service revenues by United States and international regions. To better appreciate the U.S. business strength, please refer to U.S. dollar values. Jackpot activity in the MEGA Millions game was positive, particularly in New York, California, Georgia, Michigan, New Jersey and Illinois, while the Powerball game experienced lower levels of jackpot activity. The second half of the year was more heavily impacted by the euro appreciation versus the dollar, with an average foreign exchange rate of, for the six months, of approximately 1.42. International lottery revenues were driven by solid performance in countries such as Poland, the Czech Republic, Ireland and Morocco.

Moving on to Italian operations, lotto game wagers were EUR6.2 billion compared to EUR6.6 billion in 2006. Lotto revenues were EUR398 million compared to EUR411 million in the same period last year, protected by the decalage mechanism. Our scratch and win performance continues to be impressive, with gross sales of EUR7.8 billion compared to sales of EUR3.9 billion in 2006. For the 12 months, revenues for the instant business were approximately EUR278 million compared to EUR139 million during the same period last year, almost double.

Now, turning to P&L, operating income was EUR395 million for the 12 months, up 80% over the same period last year. Amortization of intangible assets related to the acquisition of GTECH amounted to EUR85 million for the full year, lower than anticipated due to foreign exchange impact. Income before taxes amounted to EUR196 million. We incurred approximately EUR199 million of financial charges compared to EUR186 million in 2006, which included only six months of interest on capital securities and on our senior credit facility. You can find in our appendix more details on our net interest breakdown.

As you may recall, 2007 figures were substantially impacted by non-operating cash, foreign exchange losses of approximately -- non-cash, sorry, foreign exchange losses of approximately EUR32 million related to the inter-group loan set up as part of the acquisition financing. This loss should be evaluated in connection with the value of the U.S. debt.

As a result of the plan to optimize treasury, since the last quarter of 2007, different accounting has been put in place so that gains and losses on this loan are now recorded as an equity adjustment. Moreover, let me remind once again that on a true-cash basis, the group has no meaningful exposure at the net income level to foreign exchange changes. The tax rate for the full year was 46% and group net income was EUR106 million compared to EUR0.8 million last year. Net income plus minorities was EUR74 million, bringing our earnings per share to EUR0.49.

In the next slide, we have presented some further details of maintenance and gross CapEx excluding acquisitions and disposals. Total CapEx was EUR247 million in 2007, versus EUR257 million for 2006. GTECH 2007 maintenance CapEx was EUR125 million versus EUR142 million in 2006. Gross CapEx was EUR22 million in 2007 versus EUR62 million in the previous year.

At our Italian operations, maintenance CapEx was EUR40 million in 2007 versus 2006 expenditure of EUR42 million. Growth CapEx in 2007 totaled EUR86 million, up from EUR11 million for 2006, an increase that was attributable to the sports betting, including rights and all other investments.

On the next slide, we illustrate how we have redeployed capital resources to fund our growth. We received proceeds of EUR167 million from the disposal of POLCARD and we have redeployed these funds in the acquisitions of ThinSoft, CGI and the joint venture in China totaling EUR62 million and in our growth CapEx requirements of EUR188 million. Strong cash generation of EUR37 million also allowed the group to reduce its net debt to EUR2.23 billion, to an increased cash balance, a positive impact from the lower value of the dollar denominated debt and debt prepayments.

Looking more specifically at the group's cash flow for the year, net cash from operating activities amounted to EUR504 million, up EUR296 million on last year. After CapEx, our unlevered free cash flow totaled EUR257 million, excluding acquisitions and disposals. Cash available at the end of the period was EUR434 million.

To summarize, the underlying performance of our business remained strong. We are well invested in our core areas of focus and strongly positioned to take advantage of opportunities. I will now turn the discussion back to Lorenzo to talk you through the execution of our strategies.

Thank you very much, Stefano. Let me provide you with some thoughts on our overall business and the execution of our strategy. I'd like to reiterate a point we have made on previous calls that the fundamentals of our core business continue to experience positive growth. We have built a sustainable high-margin business that is based upon long-term contracts and we find that very encouraging.

The past year provides a preview of what I believe Lottomatica can achieve going forward now that we are one organization. The examples are many. Here, existing accounts we have secured and some new contracts we have won from competitors. We successfully entered a new line of business, including sports betting in Italy and Taiwan. And we disposed of non-core assets, devoting that capital to growth while improving our net financial position.

In spite of the challenging business environment and our internal restructuring and integration process, we have consistently met our commitment to return capital to shareholders through a substantial dividend program. Today, the Lottomatica board recommended a 2008 dividend for approval by the shareholders of EUR0.825 per share for a total dividend distribution of more than EUR125 million.

In addition, the Board also recommended a first annual share buyback plan authorizing the purchase of up to 10% of the share capital, or approximately if you want, 16 million shares at today's share value. Moreover, there are significant opportunities that await us as governments throughout the world continue to be challenged to find new sources of revenue, Lottomatica is in a unique position of strength to provide solutions.

Privatization efforts generate a lot of media coverage. Regardless of the success of those efforts, the fact that governments are focused on lotteries as an expanded revenue source, creates an environment in which we have a natural partner in creating new revenue. We are a natural partner, sorry, in creating new revenue generating programs. However, our ability to offer the combination of best-in-class technology and unrivaled operational expertise gives us a unique advantage in this area.

Emerging markets such as China and Russia also offer great promise. Governments have been enacting regulations and bringing order to these markets, critical steps for the success government sponsored gaming program. We have been making steady progress in penetrating these markets through competitive procurements and acquisition of license holders.

We have also added to our group where we felt an acquisition could add value and propel our growth. Recently we have announced our anticipated acquisition of Boss Media, a major supplier of technology and content to the regulated, interactive wagering markets. Together with the GTECH-ThinSoft subsidiary, they form the core of our approach towards what is commonly referred to as the new media market segment in gaming, an era of significant market expansion.

When I look at the opportunities across the continuum of gaming through lotteries to casisnos and internet wagering and mesh them to the Lottomatica core competencies, there is a tremendous convergence. Technology is the underlying driver across the gaming value chain and we are known to be a world leader in innovation. Content drives player acceptance and we have the operational experience to bring the right games to the market at the time and place that customers demand them.

So our plan is fairly simple. Make sure we are positioned to capture growth opportunities across the entire gaming sector by being the leader in the market segments in which we operate. To achieve that, we need to defend our leadership status in lotteries in Italy specifically. An example of our success is -- in doing so are many. GTECH contract wins, our expanded instant ticketing capacity, new sports betting interactive capabilities and Lottomatica's continued outstanding performance in Italy are all testimony to this end.

As I hope you can see, it is an exciting time for Lottomatica, certainly as the majority shareholder in Lottomatica, we at de Agostini believe in the growth story. As it has been announced, since the end of the third quarter, we have increased our ownership of Lottomatica by approximately 8 million shares representing an additional investment of approximately EUR185 million. I couldn't offer a better example than that of our confidence in the group's future.

Finally, despite challenging conditions, we are able to reconfirm tonight that 2008 guidance that has been provided in November. We will be offering more detailed insight into our strategy when we unveil our three-year plan, starting in April. I hope all of you will continue to follow our progress. Thank you for your attention. We will now be happy to take your questions. Thank you.

(OPERATOR INSTRUCTIONS) As a reminder, at the end of the conference call, a recording will be available on Lottomatica's website. The first question is from Amir Markowitz of JP Morgan. Please go ahead.

Hi. Good afternoon. Could you guys just talk a little bit more about your strategy in China? Some of your competitors have announced some deals recently and their strategy has become a little bit more clear. So I just kind of wanted to get a sense of where you guys think that you kind of fit in best. Is it on the online side? Is it more doing some more Keno or VLT type of deals in that market? Maybe you could just expand a little bit on your strategy?

Jaymin will answer to it.

Yes, okay, so I'll talk about the Chinese strategy here. As you know, during the last few months, we announced a joint venture with China LotSynergy to actually roll out Keno across the country because they have a -- they had a multi-year deal to roll out Keno under the national welfare platform. So our number one priority is to work with our partner to roll out up to 30,000 terminals for a national Keno platform over the next several years. We're expecting that by the end of 2008, we'll have at least 2,000 terminals up and running from the less than 100 that we currently have to date.

Obviously, with the national Keno platform, that will enable us to work closely with the national government to provide a national platform and add online games as appropriate. So we're very focused on the Chinese online market. We're also in discussions with several parties about a potential video lottery offering as well. At this stage, it's too early for me to comment on what the exact opportunities are, but what I can tell you is that China represents a very important market for the company and one for which we're prepared to make significant investments in both capital and resources going forward.

Okay. Great. Thank you.

The next question is from Mr. Evros Costantinou of Credit Suisse. Please go ahead.

Hi. I've got a couple of questions. One is on Mr. Sala's comment that you are encouraged in the trends from the instant tickets, lotto tickets in Italy. Can we have like an indication in terms of the growth rates there?

The second question I would have is on the sports betting market in Italy. Do you see any scope in going into consolidating that market because it is still quite segmented and I'm just referring to whether you would see yourselves buying more of those licenses out there?

Thank you. I -- Marco will answer to the question.

Hi, Evros. Regarding instant tickets, what I can tell you is that the first couple of months were good. We have done better than last year and therefore, notwithstanding the (inaudible), we have experienced last year in a couple of months in the first quarter. As a rule, we are progressing and what we have done, the launch of the new (inaudible - background noise) the launch of aa new EUR2 product are allowing us to maintain the growth that I anticipated.

Regarding sports betting, first of all, the market, as you well know, is growing and it appears to be very promising over the next months. Clearly we have the room to think about consolidation over the next month, years, and it is something that we are evaluating.

As you well know, what we are going to do now is to continue to be successful in growing in the current structure with the current number of point of sales. But there is an opportunity there and we [want] to be successful in the future.

I was going to also ask you about the gaming machines market as well. I mean, do you see the conditions there are right for also going down there in consolidating game machine operators?

Yes. That is something that we are currently doing there. I'm very happy about what we have done in the combination between our corners and the possibility we have leveraged to put our gaming machines in the point of sales. And also, as I anticipated, we have signed some contracts in order to buy some operators and improved that way to buy market share in the point of sales and therefore enhancing our margins by managing machines directly.

All right. Thank you.

(OPERATOR INSTRUCTIONS) The next question is from Domenico Ghilotti of Euromobiliare. Please go ahead.

Good afternoon. My first question is related to the gaming machines in Italy and we had a hearing on January 23rd related to the fines issued by AAMS and wondered if you had any update on this issue?

And the second question is related to the development in the Italian market, considering the expected relaunch of the SuperEnalotto. If you see any, let's say, risk in your current businesses due to the fact that they won the tender and they now have to push the game to have a profitable business, I think?

Yes. Regarding the TAR, we are awaiting their centers, the discussion took place in January, but the sentence has not yet announced, and therefore we are waiting. You know that we were asking to discuss this issue before the TAR. And so we are quite confident that they will come up with a positive direction for ourselves.

Regarding SuperEnalotto we aren't worried. We are not worried for the simple reason that we have experienced over the past many changes in this business with many things that has been introduced. But generally speaking, it provides an additional push to the market growth instead of taking out from the existing business.

I can provide you the example. When SuperEnalotto was launched, it didn't cannibalize at all lotto thatin that year, in that year and the following years where it was growing, notwithstanding the establishment of SuperEnalotto in the playing.. That is that also because we strongly believe that our regulator will allow the innovation that will not affect the one business with the other, but there will be aim at growing the entire business.

And an update -- sorry, a follow-up on sports betting. You mentioned the strong start in 2008. Could you, let's say, give an updated guidance for the full year as an expectation?

No, the guidance has been -- will be the same as already delivered. Therefore, we are totally in line with our expectation. But I can remind you that in terms of market, we see this market growing above EUR4 billion and we have always said that our long-term market share, given the structure of the business we have, will be about 11%.

Even though you are now above, probably, 12%?

No, we are above it now, this is a correct observation, but because we launched first. And now the others are evolving their businesses, too early now to change our guidance, of course. We will look carefully at the development. We are very happy on the -- with the share we have nowadays. But having said that, we have to look at the furtherdevelopment of competition to change our guidance .

Okay. Thank you very much.

Thank you.

The next question is from Miss Laura Pennino of Banca Leonardo. Please go ahead.

Hello. I have just two questions. I -- can you please give some more information about the U.S. lottery privatization process and maybe what timing do you expect it to start to have discussions on it? And then which role maybe you are looking for?

And then the second question would be if you have -- if you could give us some indications about the net debt for 2008?

This is Jaymin Patel speaking, I'll answer the first question about U.S. lotteries. There, as I mentioned in my prepared remarks, there are still a handful of U.S. lotteries considering a privatization or some kind of public-private partnership, which is known as. I would say that our expectations are quite modest in this area because, as I mentioned before in my remarks, the whole concept of selling a state asset, like a lottery, or privatizing it, is a politically difficult issue to manage. And I think that the outcome we can expect from this process is a clearer focus on how lotteries grow their sales over the next several years to maximize revenues for the state. So I think if the end result is that there are more clearer and focused growth plans, that is a net positive result for Lottomatica and GTECH.

As far as the indication for 2008 is concerned, as Lorenzo said before, we're going to unveil in details the most significant elements of our plan at the beginning of April, that's to, let's say, give you a picture, 2008 will be based on the elements we have discussed today, which is a net debt of EUR2.2 billion will be impacted by the consolidation of Atronic and the inherent debt of Atronic as we have already told you.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) The next question is from Carmen Hummel of UniCredit. Please go ahead.

Yes. Good evening. Just to come back on the net debt question, because there is a guidance for 2007, 2009, a valid one, which says that net debt will be, on average, between EUR2.1 and EUR2.4 billion. Were you concerned that this is still valid?

In that range, we will confirm our plan.

Okay. Thanks.

The next question is from Mr. Marco Baccaglio of Cheuvreux.

Yes. Good afternoon. I have two questions. The first one is if you have a -- if you can share with us what you expect in terms of tax rate in 2008? There is some news in Italy for lower corporate tax rate, if you have made any simulatio] about a possible benefit on this item. Thank you.

We don't know who is going to win the election --

No, no, sorry. The tax rate. I was talking about the corporate tax rate in 2008.

Stefano will answer.

So as you have seen, probably, the actual tax rate of 2007 was better than anticipated. So that the -- it's a good starting point, 46% is the actual corporate tax rate. We anticipate, as we had already indicated, a decrease because of the plan we have put in place to optimize the fiscal burden, the tax burden worldwide and we are, let's say, anticipating some additional benefit deriving from the reduction of the corporate income tax that will be applicable from 2008 onward in Italy. So the estimate that we have given in November will be reviewed to the best -- to the better in April.

Okay.

(OPERATOR INSTRUCTIONS) Mr. Pellicioli, there are no more questions registered at this time.

Thank you very much all of you. Sorry for the delay. I hope to see you soon, when we will visit you for our road show for -- on the strategy plan in April. We will provide some data sooner. Thank you.

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