International Game Technology PLC (IGT) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Lottomatica Third Quarter Results Ended September 30, Conference Call. My name is Wendy and I will be your coordinator for today's conference. For the duration of the call, you will be on listen only; however, at the end of the call, you will have the opportunity to ask questions. (OPERATOR INSTRUCTIONS)

I am now handing you over to Lorenzo Pellicioli, Chairman and CEO of Lottomatica Group. Thank you.

Thank you. Good afternoon and thank you for joining us for the Lottomatica Group's 2008 9-Month Results Presentation. Joining me for today's presentation is Stefano Bortoli, CFO of Lottomatica Group; Marco Sala, Managing Director of Lottomatica; and Jaymin Patel, CEO of GTECH. They will join in for the question-and-answer session.

The substance of my comments today will sound very much like that of the first half results. I believe that's a good sign for us. It really it has been business as usual. The fact that we have a very good solid tale again this quarter is evidenced by the sustainability of our business during unprecedented economic uncertainty.

This quarter has been driven by some notable accomplishments. The highlights of Lottomatica Group's performance are as follows. First of all, Group revenues experienced double-digit growth versus the same period of the previous year. EBITDA made very solid gains as well, during a period when we are integrating a number of strategic acquisitions into the business. Earnings per share and net income has shown remarkable growth and a major refinancing of our debt was successfully arranged.

Despite the huge upheaval in the world economy, the strategy that we been executing for Lottomatica Group remains on course and is delivering very good results. It is important to note that even in an [ideal] risk adverse credit market, Lottomatica Group successfully refinanced bonds that were due to mature in December of this year. We were able to arrange a new five-year senior unsecured term loan facility for UER360 million, with approval of five banks.

More than anything I can say about our results, the success of this bond refinancing is an impressive affirmation and testament of the resilience of Lottomatica business and our potential for growth.

As we enter into the final quarter, we remain confident in our ability to deliver on our overall 2008 financial commitments and objectives. This is the first message of tonight.

Consistent with our previous presentation, I'll review our performance by going through the major segments of our business through which we approach the market; the B2C, or business to consumer segment, where we operate in gaming programs; and in the B2B, or business-to-business segment, where we provide gaming technology, solutions and services.

In the core lottery business, the Italian market continued to deliver impressive results. In the quarter, the Scratch & Win market grew more than in line with the first half of 2008, and remains a major driver of the Group's success. Also the core lottery business, in fact, had an impressive quarter in which it captured an astonishing number of new contracts and successfully expanded existing contracts.

Internationally, GTECH acquired new customer in Chile, Belarus and the Dominican Republic, signed contract extensions in Maryland and Morocco and launched Keno in Poland. In the United States, as we had previously announced, GTECH has signed a contract extension with California and launched Keno in Ohio.

After the close of the quarter, GTECH announced additional contract activity in the US with a new contract in South Dakota, and a contract extension in Illinois and in Georgia. The Georgia extension, which was approved yesterday, is for an additional three years and will generate approximately $425 million in revenue. This is another example of the strong sense of partnership that GTECH enjoys with its customers.

The GTECH printing division announced numerous new relationships and has tripled its run rate since the acquisition of the CGI Eastern ticket printing business. We look forward to the start up of this new press next year which will greatly expand its ability to compete for larger projects.

Same-store revenues in the core lottery business grew approximately 4%, given the recessionary economic climate, the fact that that same-store revenues grew at the healthy rate is encouraging and another indication of the resilience of our business.

GTECH is aggressively approaching its best practice initiatives with its customers to help support and drive future sales.

Governments around the globe continue to look to their gaming programs to generate new sources of revenue. California has approved a voter referendum to authorize increased price payout; a key to unlocking the lottery potential there.

Arizona has given its lottery greater flexibility and regulatory relief to employ best practice to increase revenues and Florida will be launching Powerball in January. As we enter the legislative season in the United States, we expect to see many more examples of this phenomenon.

We think there will also be opportunity for GTECH as states realize the challenges involved with privatization and seek alternative measures of revenue from the lottery program. Discussion about privatization, and growth about their realization by state leaders, that their lotteries have great potential if operated according to industry best practice.

As states look to commercial providers to take over greater portions of lottery operations in order to better drive sales, similar to the lotteries in Rhode Island and Texas; GTECH is well-positioned to take advantage of these new opportunities.

Internationally, we are closely monitoring developments regarding privatization activities in Turkey and New South Wales in Australia. As you will be aware, New South Wales recently authorized a privatization process. GTECH has a long history as the provider to the New South Wales lottery and we are watching the process unfold with great interest.

In general, international lotteries are more on the cutting edge of adopting best practice. Poland is expanding in its game [for volume in every database]. The lotteries in the UK, Sweden, Switzerland, Finland and Belgium are expanding their distribution channels and game offerings through the Internet.

Again, GTECH and its subsidiaries are ready to help their customers in those countries grow their businesses.

In the Gaming Solutions segment, great progress has been made in consolidating Lottomatica's position in Italy. The amount of machines being monitored has more than doubled from 21,000 to 46,000 in Italy. Revenues for Lottomatica from this activity have increased approximately 2.5 times from that of a year ago.

In the government-sponsored space, it was recently announced that GTECH subsidiary Spielo was selected to provide 2500VLTs to Oregon as well as a central gaming system for the newly mentioned program run by the Kansas lottery. These two agreements further solidify Spielo leadership position in the government-sponsored space.

As most of you are aware, the commercial gaming space has been hit fairly hard by the economic downturn, particularly in the US market. Much like the other providers in this space, we are consolidating and integrating operations, keeping a watchful eye on expenses and new investments, and continuing to introduce compelling new game content. The (inaudible) electronic is looking to the G2E show in Las Vegas and the next ICE showing in London to get a better view of market prospects.

In the New Media and Sports Betting segments, the Italian market has performed very well as it reached the next level of maturity. With the complexion of the Totosi acquisition, Lottomatica has quickly solidified its position as a market leader, almost tripling wagers from a year ago.

Recently, Lottomatica entered into the Internet poker market which is enjoying great player acceptance. The poker offering, which is also on a Boss Media platform, will be astounding, with new games and longer hours of operation in the near future.

Interestingly, GTECH recently launched a new spot-betting program in Ghana, using a new simplified gaming platform designed for emerging markets. We will look to replicate it further in other similar markets. The GTECH New Media and Sports Betting division is rapidly integrating the operation of its Finsoft, Boss Media and St.Minver subsidiaries into a single organization.

Customer response to GTECH entering this market has been very, very positive. Lotteries are looking for new distribution channels and game content and wide commercial operators are encouraged by GTECH's financial strength and history of technological innovation.

That's my introduction to the results. And I'll hand over the presentation to Stefano for a detailed review of the figures, before I sum up after him.

Thank you, Lorenzo; and good afternoon, everyone. As usual, this earnings announcement includes the combined results for Lottomatica and GTECH.

I'm happy to report that overall, we delivered very good results in the first nine months of 2008. Revenues for the first nine months of the year were EUR1.4 billion, up 15% compared to EUR1.22 billion in the same period last year. On a constant currency basis, revenue would have been EUR1.46 billion, an increase of 19%.

EBITDA for the nine-month period was EUR571 million, compared to EUR541 million in the first nine months of last year. On a constant currency basis, EBITDA would have been approximately EUR592 million, up 9% over the same period last year. EBITDA margins were 41%, compared to 44% in the same period last year.

As reported, GTECH revenues were approximately EUR651 million, compared to approximately EUR623 million in the first nine months of 2007. On a constant currency basis, GTECH's revenues would have been EUR705 million. In the first nine months of 2008, GTECH experienced same-store service revenue growth of 4% or EUR21 million. I will provide further detail on same-store revenue drivers on slide 12.

Net M&A activity accounted for EUR91 million of additional revenue. Offsetting this was slightly lower product sale activity and also the absence of revenue from Polcard, which you'll recall, we sold last year; a EUR22 million impact. Keep in mind the timing of product sales tends to cyclical.

At Lottomatica, revenues grew 26% to EUR751 million, from EUR599 million in the first nine months of last year. This increase was primarily attributable to (inaudible) push back and the expansion of Scratch & Win and gaming solutions.

GTECH EBITDA was EUR203 million, compared to EUR223 million in the same period of 2007. When adjusted for currency fluctuations, EBITDA for the first nine months would have been EUR224 million. GTECH EBITDA was positively impacted by EUR15 million of same-store service revenue growth.

The net effect of M&A activity was negative EUR7 million, mainly driven by difficulties in operating conditions affecting Atronic in the US as well as other larger players in this segment, as Lorenzo mentioned earlier; lastly, the disposition of Polcard in July of 2007, generating a EUR11 million impact.

Lottomatica's EBITDA was EUR368 million, up 15% from EUR319 million in the same period last year. This increase was primarily driven by the expansion of fixed costs for betting, Scratch & Win, and gaming solutions.

Let's move on to slide 12, where we provide a breakdown of GTECH's lottery service revenue within the United States and International. Total same-store revenues for the nine-month period were up 4% on a constant currency basis. International lottery revenues increased 11%, while domestic lottery revenue declined 1%.

Our reduction in revenue, attributable to large jackpots, has constrained growth in the US lottery market. The Mega Million space has been particularly impacted by this decline. In the first nine months of 2007, the two largest Mega Million jackpots were $325 million and $390 million. The first nine months of 2008 produced a $270 million jackpot, which was the only one to exceed $200 million.

Removing the estimated impact of the total jackpot revenue differential, results in performance that is comparable to 2007 for the Mega Million space and improved lottery performance from a decline of 1% to positive growth of 1%. In this difficult market, we find this trend encouraging.

We continue to experience robust growth in our international jurisdiction. Same-store revenue grew by 11% in the first nine months of 2008. This increase is principally due to games in jurisdictions such as Morocco, Trinidad, Ireland, Poland, Columbia and the UK.

Moving on to Lottomatica, our Scratch & Win business continues to achieve great results, with gross wagers of EUR6.9 billion, compared to EUR5.9billion in the first nine months of 2007. In the nine months ended September 30, the number of tickets sold was 1.9 billion, compared to 1.7 billion last year. The average price point grew from EUR3.38 to EUR3.64 in the first nine months of 2008.

Lotto game wagers were EUR4.4 billion, compared to EUR4.7 billion in the first nine months of 2007. Revenues from the instant business were approximately EUR244 million, compared to approximately EUR208 million during the same period last year, an increase of 17%.

Lotto revenues were EUR288 million, compared to EUR303 million in the same period last year. Pool games and Betting generated EUR93 million in revenue, from our EUR487 million wagers in the first nine months of this year, due to the continued strong performance of Finsoft sports betting.

Revenues from Gaming Solutions were up nearly 250% to EUR58 million, driven by the increased placement of AWP machines. At the end of September, there were approximately 46,000 AWPs installed. In our appendix, we are providing a separate chart for the third quarter to give you a better understanding of our overall performance.

Turning now to the P&L, operating income was EUR337 million for the first nine months of 2008, whereas it was EUR324 million in the same period last year. We incurred approximately EUR120 million of financial charges, as compared to approximately EUR168 million last year; principally driven by the strengthening of the euro against the US dollar and lower interest rates on our senior credit facility.

In our appendix, you will see further detail on our net interest rate balance. Income before tax was EUR217 million, up 39% over the same period last year. The tax rate for the first nine months of 2008 was 34.5%, compared to 46.4% in the same period last year, primarily due to a reduction in the Italian income tax paid in 2008.

Group net income was EUR142 million, compared to EUR84 million last year. Net income post minorities, was EUR106 million, bringing our earnings per share to EUR0.71, up 87% over last year.

On slide 15, we provide detail on maintenance and growth CapEx and acquisitions. Total CapEx and acquisitions were EUR394 million in the first nine months of 2008, compared to EUR239 million for the same period in 2007.

GTECH acquisitions accounted for EUR214 million in the first nine months of 2008, whereas it was EUR48 million in the same period last year; attributable to acquisition activities including Boss Media, St. Minver and Atronic. GTECH's first nine months 2008 maintenance CapEx was EUR94 million, compared to EUR85 million in the same period last year. GTECH's growth CapEx in the first nine months of 2008 was comparable to the same period in 2007.

For Lottomatica, maintenance CapEx was EUR14 million. Growth CapEx in the first nine months of this year was EUR17 million, compared to EUR77 million in 2007 when we acquired sports betting licensing rights.

Lottomatica's acquisitions accounted for EUR39 million in the first nine months of 2008, primarily attributable to acquisition activity of the Totosi sports betting operation.

Looking at the Group's cash flow for the first nine months of this year, net cash from operating activities was EUR316 million. For CapEx, our unlevered free cash flow totaled EUR175 million, which is in line with the same period last year. Please note once again that this (inaudible) 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 EUR75 million, or approximately 2.5% of outstanding shares. We anticipate cash flow for the fourth quarter of this year to meet expectations.

As Lorenzo previously stated, we were successful in securing refinancing of our EUR360 million bonds which will expire in December of this year. The average maturity of our long-term debt now stands at 4.6 years and 94% of the debt is due in 2011 and beyond, which is very reassuring in the current credit market environment.

Our net financial position as of June 30, 2008 was EUR2.67 billion and was EUR2.84 billion as of September 30. During 2008, we had acquisition activities of EUR253 million, dividend payment of EUR125 million, EUR75 million for share repurchases and Atronic debt consolidation.

A portion of our debt is US-dollar denominated and therefore any strengthening of the dollar against the euro will result in a translation increase of our gross debt.

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

Thank you. (OPERATOR INSTRUCTIONS)

Our first question comes from the line of Domenico Ghilotti from Equita. Please go ahead.

Good afternoon. This is Domenico Ghilotti from Equita, formerly Euromobiliare SIM. My first question on the performance on loss on Scratch & Win; you have seen in the most recent months after the successful re-launch of the Super Loto and also if you have seen any kind of cannibalization, given the strong performance of the Super Loto in Italy. And the second question is on your guidance of Q4, unlevered free cash flow to meet expectations. I would like to check if you mean the full-year expectations; so if you are still confident to meet the full-year free cash flow guidance and what are the main drivers for the cash flow in Q4-- looking for example at the net working capital trend.

Hello, I'm Marco Sala and I will [claim] the first part of your question regarding Super Loto and lotto. The performance of Super Loto in the month of October did not cannibalize at all lotto. We review very carefully week after week and what I can say to you is that the lotto performance was slightly above the average during the weeks of peak-- of Super Loto. The reason for that is that the customers are in some greater part different; and the reason for buying the different products, are different.

And regarding Scratch & Win, the same; the trend continued in the same week, (inaudible) that we have experienced so far.

You said above average?

Slightly-- we had also some good news with lotto in the period of the peak of Super Loto; a very minor improvement-- the real answer is that we didn't experience any cannibalization.

Thanks.

Domenico, coming to your question about the free cash flow and leverage; we are confident that the guidance that we have indicated for 2008; which is a free cash unlevered, the acquisitions, pre-dividend and pre-debt amortization are EUR220-250 will be met by year end.

Okay. Thank you.

Thank you. Our next question comes from [Klaus Oster] from [CWS]. Please go ahead.

Sorry, no question.

Okay, thank you. Our next question comes from Micaela Ferruta from Intermonte. Please go ahead.

Yes, good evening; Micaela Ferruta from Intermonte. I have three questions, if I may. One, can you guide us for the tax rate for the full year? Is it in line with the 34% you've seen in the nine months and can you project also going forward? And can you guide us also on the financial charges for the full year? And final question on Italy; we've heard very good numbers for wagers-- for first betting in October over EUR400 million-- is this correct? Are you still comfortable with your 4 billion guidance for the market, or do you think that it might be growing either above this rate? And finally, is there any news on the New Jersey contract for GTECH? Thank you.

Micaela let me start with the tax guidance. We have indicated at the beginning of the year a tax rate which would have been in the range of 36% to 38%. Let's say we are in the low range of that guidance; it's still appropriate, so in the 35% to 36%-- is appropriate compared to the 34.5% that we have reported so far.

And in terms of the financial charges for the year, I think-- looking at the average service interest cost as of September, that is representing a trend which will be confirmed in the last three months of 2008; so no substantial changes in the trend going forward.

Regarding the Italian performance of sport betting market; with the results of October, we are safely aligned to get to the end of the year, the result of the market around 4 billion; so no change in our guidance of that in the market.

And you had a question on New Jersey. We are expecting a decision from New Jersey soon. We have been waiting for awhile now. There has been no confirmation either way on whether they expect to announce soon. But our contract expires in August of next year, 2009, so we should be expecting to hear soon so that we can get on with the conversion. Thank you.

Thank you. May I ask if there is any reason for a delay, if there is a delay? I think that enough time-- you said that a decision might have been due sooner, maybe just after the summer; do you have an idea?

No. In fact, again we've been given no indications about the reason for delay. I imagine that they're just going through normal state process to get the award approved. But we've heard nothing specific that gives us any guidance on the timing.

Okay, thanks a lot.

Thank you.

Thank you. Our next question comes from Adam Cochrane from JPMorgan. Please go ahead.

Hi.

Hi Adam.

Hello?

Yes, we can hear you.

Hi, good. Just a couple of questions; firstly, with regards to Gaming Solutions, you sort of made some comments with regard to G2E and ICE over in London. Can you sort of give some flavor as to what you think is going on in that business? Can you sort of try and give us some flavor as to the number of machines that you sold; what your geographic split is; just so we can get some idea of what is going on in that business. And with regards to the instant tickets; obviously the sales are going very well. If I'm right, has the average ticket price gone down from Q2 to Q3 during the period and is there any reason for this slight down tick at all? Thanks.

I have to check, regarding the Q3 against the Q2 because in my memory, we shouldn't have reduced the overall-- because-- ah yes, you are right. It's because the percentage of EUR5 has improved the results of the euros; so after the loans of the EUR10, now the business has been stabilized and the EUR5 is growing at the faster pace than the EUR10, but nothing that is going to change our perspective on the business. The main thing- to make a comment out of it is-- that the entire portfolio is growing since the beginning of the year. The main growth has been driven by EUR10, but also the EUR5 are growing rather significantly and also the group of our EUR1, EUR2, and EUR3 is growing even though at a lower pace. That's the reason why you average price is above last year.

Is there any difference in margin between selling a EUR5 ticket and a EUR10 ticket?

It's very minor between EUR5 and EUR10; very, very minor.

Okay. Thank you.

Let me just-- this is Jaymin speaking, Adam. With respect your questions on Gaming Solutions. So for the two parts of the business which is Spielo, the government-sponsored business and Atronic which is more of the commercial facing business; with respect to Spielo, our 2008 performance has been really very much in line with expectations. We haven't seen any significant weakness at all in sales for the government-sponsored lotteries around the world. The main markets that we served in 2008 are Oregon, Kansas, South Dakota and overseas in Sweden. So from a unit sales point of view and central systems, we are very much on track there.

With respect to Atronic, the two parts of the business are the Americas and international. First of all, with the international business, sales for the year really have held up very well and consistent with 2007. In the European business, we sold approximately-- or we will sell by the end of this year, approximately 3,000 units, which is slightly lower, but not too much lower than 2007. And in South America, we'll sell approximately 4,000 units this year in 2008, which is approximately 1,000 units higher than 2007.

The Americas business has not been as fortunate because of the conditions in gaming operator market that I'm sure you're well aware of. So our US business has been weak this year, fairly consistent with the other suppliers; we'll sell approximately 700-800 units in 2008 versus a little over 2,000 in 2007. And that give you, I think, a pretty broad review of sales in the Gaming Solutions business.

That's great. Thanks.

Thank you. Our next question comes through from Larry Klatzkin from Jefferies. Please go ahead.

Hey guys. You have a whole bunch instant capacity coming online. Where do you see your most potential in that and how much could you improve earnings on the instant side?

Larry, Hi; this is Jaymin speaking again. Yes, you are right; we do have a substantial new press coming online in the early part of 2009. We have not put out any guidance about future earnings expectations from the instant business, so I'm not going to respond to that part of the question; if you allow me to for now. I'm sure it will be addressed later in early 2009.

But anyway, with respect to instant's growth, there is substantial growth taking place in the US market as well as growth in Asian and European markets, so I'm very confident that with the new capacity, we'll be able to service a number of primary contracts when they come up for bid. We have won a large number of secondary contracts over the last 12 months, so we'll be in a position to service those contracts with the new press with improved speed, flexibility and quality. And I think we'll have a very competitive offering, or I'd say a much improved competitive offering when the press goes live in early 2009.

Alright; thank you very much.

Thank you. Our next question comes through from Laura Pennino from Banca Leonardo. Please go ahead.

Hello. Good evening. I have just three questions, if I may. One is in regards to bids. So looking at the privatization, do you expect that it will be a very competitive bid as the one you've seen for the sports betting or do you think it will be less competitive? And one other question regarding the possible 3,000 concessions for horse and sport betting that could be awarded in Italy; with the new decree which should be confirmed by the Parliament in Italy; will you participate and how much maybe will you-- how many points will you think to gain? And also regarding this decree-- there is [0.73] which is due to the concession -- are you going to have higher fees or are you going to reverse it to the shop owners?

And the third question is just to see if the full-year 2008 guidance for debt is confirmed around 2.6 to 2.5 billion?

I will answer to three of the four questions you have made. Regarding Turkey, the bid would be different (inaudible) provision the Turkish authority is going to ask for an upfront fee that will change; it could be the approach for this bid because in this period of some financial constraint, the fact of having an upfront fee will imply a very, very careful evaluation about the potential of the business. Therefore, we expect that it will be competitive, as always in this period of time, but with a different approach to the business, driven by the fact that we have to make an upfront investment that is going to lead to a very careful evaluation about the potential of the business. There's not just an investment for the (inaudible), but it's a financial investment that has to be considered very carefully.

Regarding the other questions--the decree you are mentioning regarding this horse betting; we will review that very carefully. It's clear that we will participate. We are not now in the position to announce which kind of target that we have in terms of number of point of sales. That is clear. We are now reviewing internally and we will end up with our total regarding the approach.

As far as the .7%; we have a contract with our customers-- the concessioners arguably, let me say the less rewarded player in the (inaudible) that we forget on the point of sale, the (inaudible) on the concessions themselves; and therefore, I expect that this .7% will be somehow spread out among the different players in the value chain.

Thank you.

Your final question about the debt at year end and our guidance; the guidance that we read, having in mind the following two different assumptions; compared to the assumption that we consider in April. The first one that we have completed our share repurchase program worth EUR75 million; secondly, that the debt was valued in euros for the US portion at 1.50 dollar equals one euro; while you should be reading now the same amount of dollars has a different euro value because of the strengthening of the dollar against the euro, the translation effect on the debt at year end, based on the strengthening of the dollar. 50% more of less of the debt is US-dollar denominated.

Okay. Thank you.

Thank you. Our next question comes from [Elizabeth Andreone] from (inaudible). Please go ahead.

Hello Elizabeth; your line is open. Do you wish to ask a question?

I have no question.

Okay, thank you. Our next question is a follow up from the line of Domenico Ghilotti. Please go ahead.

Hello. I have a follow up GTECH margins in Q3. The dilution in the margin; is it fully due to the Atronic poor performance or there is also a dilution net of Atronic and could you elaborate a little bit on this?

The margins of GTECH are a concern. It's not in line with our expectations. The reduction in the percent of margin of GTECH is driven by the impact of Atronic, which of course we have to bear in mind, if I may, for lower margins being a manufacturer-- so adding product sales volume coming from GTECH is by definition, reducing margins of GTECH which was flat, according to our expectations. And then there is the lower performance of Atronic which is increasing that type of dilution; but nothing different from the 2007 and our expectation for 2008 on the recurrent service contract on GTECH.

Okay. Thank you.

Thank you. (OPERATOR INSTRUCTIONS)

Thank you. We have a further question coming through from Micaela Ferruta from Intermonte. Please go ahead.

Thank you. I have a question; actually, I'm asking if you can comment to the project of supporting the current progress that you're expecting market has by basically asking-- basically you to go and review those who are running the slot machines. And what I haven't understood from what I read in the press is whether the contribution would be coming from the state or actually from those who are running the machines. And given the case that you are-- you have about 50,000 AWPs, would in a very bad case; there be a negative impact of about EUR20 million? Thank you.

Sorry Micaela, but the quality of the reception of the audio was not good enough for us to understand your question or you concern. So if you could possible repeat your question so that we can address your question the right way; we haven't understood the question.

Okay, I'll try to better explain. We've heard that the horse betting market is experiencing problems because in October there was no betting at all and there are some proposals in order to help the sector. And from what we understood; basically, there is a contribution which is coming from basically the AWP market and what I haven't understood is whether the payout would be reduced or your commission to the-- so who would be the one funding or helping the horse betting sector? I don't know if I made myself clear because--

It was not because it wasn't clear before, it was because we couldn't hear before. The question was very clear. Who is funding the whole sector? Is the commercial value chain of gaming machines; it means the concessioners. Street operators that are originally for the Italian audience, and the point of sales; in the percentage, it's that everybody will manage within their own contract because of course there are different contracts among these three players within the value chain. So it's not something that can be explained. It will be fair; concessioner from concessioner, according to their strategy and their contract. But to give you the answer, it's not the payout that will be taxed in the gaming machine. So the consumers will get the same payout as before, that is 75%; and (inaudible) increase of the state revenues will come from a reduction of the remuneration of the commercial value chain. Is that clear?

Yes. It's very clear. Is it possible to quantify this at all for you?

It's .7 of the revenues.

Okay. Thank you.

Thank you. We also have a follow-up question from Adam Cochrane. Please go ahead.

Hi, just a quick one; given that we're sort of eleven and a half months through the year now; can you sort of update us on whether your view on the dividend is as you planned in April and any comments on the policy going forward at all please?

Adam, for all we have said so far, we have no different indication on the dividend. And our course, that's according to the corporate governance that will be a decision that the Board of Directors will submit to the shareholders; so far, so good.

Thank you.

Thank you. The next question comes from [Arianna Bastianelli] from [Kyron]. Please go ahead.

Hi. Good afternoon to everybody. My question is more related to 2009 and I was wondering if you can share with us some considerations I'm sure you're doing internally on 2009.

It's very difficult, of course, to have a clear vision of 2009. Let's say that what we can say-- that so far, the resiliency of our business has been proven. So let's say that we are exposed two different ways to the potential risks of the financial and economical crisis. One way is in our B2C activity, mainly driven by the number of performances and so far, as I said, we have proven the number and we are experiencing in the last quarter of the year, that we can easily say that our-- the industry and our business is quite resilient to the situation.

Is it going to continue next year? We cannot state it, but so far really, we don't have anything of weakness or softness. So let's hope that it will continue and again, this is the B2C component for this.

The B2B component of it, which is basically the GTECH business, we can split it in two big areas-- US and the rest of the world. As we have said many times, in the previous crisis, we had resisted with a delay of let's say 12 or 18 months-- a significant increase in lottery revenue; mainly driven by the fact that state to react to the crisis and to the lower revenue coming from tax, stimulating the lottery demand with new games, innovation, etc.

We expect that some of these actions in 2008-- will either get them from as we forecasted; but we start to see some activity from states in this direction. For example, California has approved a referendum that we go-- we'll offer in March of next year, if I remember well-- or the first half of next year-- that if it would be approved would significantly change the payout of the California lottery, which represents a significant potential for the revenue of the California lottery and of course the revenue of GTECH in that area. We see some of these activities around the world and around the different states in the US, and we are quite optimistic that the crisis will work for us. But again, also these days we will see.

The rest of the world; mainly Eastern Europe; Eastern Europe is (inaudible) on the countries we have seen run in the two-digit growth. So far, so good; also for the last quarter of this year; I think that we can count-- we hope that we can count on this area of the world-- this area of our geography, also next year.

That is what we can say today. Having in mind that everybody is living in difficult times and probably we are in a better position than many other companies, many other corporate businesses; but we will watch it carefully. But again, until now, we don't have -- seen anything of significant softness or weakness, nor is there any in our B2B business.

Okay. Thank you.

Thank you. We currently have no further questions. So I'm now handing you back to Lorenzo Pellicioli, Chairman and CEO; for the concluding statement.

Thank you very much. Thank you very much to all of you. Summing up, something I've already said, in answer to the last question; let's say that I would like to reiterate that you have seen a very good performance across the business in the third quarter. We have reported growth in revenues, EBITDA and EPS. We have successfully arranged the refinancing of our debt which is a way in which we can demonstrate confidence in the resiliency of our business.

In Italy we have once again delivered very impressive results across all product lines. In GTECH, we had a very, very significant commercial development and new contract agreements and extensions in the last quarter of this year.

As we look to the future, we are strongly committed to the view that our diversification program provides great stability; being in many geographies, in many different business lines is giving us a good spread of risk and opportunity over a large and far-reaching global footprint.

In a time when some good companies, as I was saying before, are struggling to survive in the face of difficult economic conditions, we are comforted by the fact that the Lottomatica Group is performing well and has a stable outlook with solid opportunities for continued growth.

Thank you very much. I think that we will convene for the year-end results in a few months. Thank you to all of you.