International Game Technology PLC (IGT) 2008 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 2008 full year results. During the presentation, you will be on listen-only. However, at the end of the call, you will have an opportunity to ask questions.

(Operator Instructions)

The meeting will be chaired by Mr. Lorenzo Pellicioli, Chairman and Chief Executive Officer of Lottomatica Group, together with Mr. Marco Sala, Managing Director of Lottomatica S.p.a., Mr. Jaymin Patel, President and Chief Executive Officer of GTECH Corporation and Mr. Stefano Bortoli, Chief Financial Officer of Lottomatica Group.

I also remind you that the audio webcast presentation is available at the link, www.gruppolottomatica.it. At this time, I would like to turn the conference over to Mr. Pellicioli to begin today's conference. Sir, please go ahead.

Thank you very much. Welcome to everyone and good evening. Here with me today are Marco Sala, Managing Director for Italian operations, Jaymin Patel, CEO of GTECH and Stefano Bortoli, CFO of Lottomatica Group.

The format for today's call says that I will begin with an assessment of the Group's performances and then I will ask Jaymin and Marco to give you a more detailed briefing on their business units. Stefano will review financial results and then I wrap up and of course at the end of our presentation, we will entertain your questions.

As I begin my review of 2008 and look to 2009, I find myself in a fortunate place for a business leader in today's economy. I have good news to report about our 2008 results. We met consensus estimates for our performance and we look to the coming year with a great deal of confidence in our ability to sustain these results and improve upon them.

Given the backdrop of the world recession, Lottomatica's performance is truly noteworthy. Full year revenues were up 24%, net income after minority rose by 27% and earnings per share grew by 27%. While the fundamentals of our business were strong, we didn't count on difficulties that caused us to take one-time, non-cash impairments and other charges of EUR105 million, principally against investment in gaming solutions and the games lottery system investment for the international customers. When adjusted for the impact of these charges, our earnings per share was EUR10.8, a dramatic 120% increase over last year.

It is also important to note that the fourth quarter results continued in a positive trend and the early indications of our business in 2009 reinforces our confidence in the resiliency of our business in this unprecedented economic downturn.

Revenues from lotteries continue in a steady growth trend with GTECH securing some very important contract renewals in these [tensions]. The contributions from sports betting and the interactive [center] experienced exponential growth, driven by new products in Italy as well as acquisitions by GTECH. Gaming solutions has made solid progress, led by our Italian operations, while GTECH operations have made good progress in right-sizing the operation of [drawing].

We made strategic investments during 2008 to broaden our geographical footprint, to expand our product offerings and to enter in new delivery channels and market segments to help ensure that our performance is sustainable. As envisioned in the Group three-year plan, during the past year, we executed a program of capital expenditure and acquisition worth over EUR500 million of investments, the majority of which fueled our diversification strategy.

That is a substantial investment in growth and a major driver of the sustainability of our results, with the successful implementation of our diversification strategy, we have created a natural edge for Lottomatica Group against the volatility of some of the segments in the region in which we do business.

It is an effective strategy, but not a complicated one. Let me briefly provide you with the same insight into it. As an operator, we seek opportunities through our Lottomatica business unit in all available channels, [meaning] detailing and in markets, which has continued to be one of the fastest growing and most advanced gaming markets in the world. We have a multi-year concession to operate lotto in [cash and win], which we will continue with solid growth in 2008. We expanded our presence in the gaming machine market, which grew dramatically to become a significant contributor in 2008.

Additionally, we have also developed a sports betting program and launched an online poker game, both of which are receiving widespread player acceptance and a secure leading position in every channel for traditional retail to the latest Internet wagering options. Our diversification strategy has elevated Lottomatica to become the leading gaming operator in the Italian market.

In 2008, we achieved growth in every segment and an overall growth rate of 24%. Marco will provide you with more detailed insight later on. Having established our credentials as an accomplished gaming operator, we are seeking opportunities to leverage our experience and expertise in other markets.

We are equally diversified as a provider of (inaudible) service to the global regulated gaming markets through our GTECH business unit. In the traditional online lottery industry, we experienced growth in same-store revenue in 2008 and looked for continued growth in 2009. Having made investments in new printing capacity, we expect to become a leading provider for instant tickets and an industry segment that is anxious for competition. With acquisition of bingo, poker, casinos, sports betting solution companies, we have established a dominant position in Internet wagering, the fastest growing market segment in gaming.

Finally, the government sponsored machine gaming sector is one where we have substantial commercial wins. We have substantial commercial wins in 2008 that further enhanced our market leadership.

In 2008, GTECH entered new emerging jurisdictions with products and services designed to access the volume markets. These activities create building blocks for our future growth. Jaymin will provide more details during his comments.

I wanted to give you the overall perspective of our strategy as a way of underscoring the scope and magnitude of the Lottomatica Group and how easy it is to insulate us when the economy stalls.

As we look to 2009, it is important to recognize that governments are the [biggest] beneficiaries of the majority of our gaming programs. The recession has driven their need for more revenues [level] and in turn, fueled a need to (technical difficulty) that will benefit us. By example, numerous US jurisdictions are looking to expand gaming programs and modifying business models to incorporate best practices and recognize quality and value over cost. Historically, difficult economies have fostered a gaming expansion, which benefits the group and further sustains our results.

As [we now begin this] severe credit market, we recognized the importance of maintaining financial discipline in order to continue our access to capital. During the past year, the group successfully refinanced bonds at a very favorable rate and then improvement of terms and conditions on existing credit facilities. Our investment-grade credit rating is a distinction in the market and the commitment to sound financial policies that we will continue in 2009.

Having completed this stage of our investment goals, we will balance our revenue generating activity with an abiding commitment to value creation. Likewise, as we look to the lottery opportunity in the relative near term, we will reinvest in our core activities and pursue privatization only through partnership and consortium, but not as a financial underwriter.

Finally, at a time when many companies are curtailing dividends, we are pleased to announce -- to report that we will pay a dividend of EUR101 million, EUR101 million, and I take a great deal of satisfaction in being able to do this. Perhaps as much as any other action we could take, this underscores the confidence we have in the group's future.

We are very much encouraged by our results and the early indication of 2009 and as I stated earlier, we are pleased to report good news, but more excited about the potential the coming year has for Lottomatica Group.

Now we will hand over to Jaymin and Marco and Stefano to give you a more detailed overview of operations and financials, as I said, before I will wrap up after your questions.

Thank you, Lorenzo and good afternoon everybody. Let me start by saying that the GTECH 2008 was a challenging year that we completed fairly well. I am very pleased with the way our teams were able to work through some difficult developments we encountered early in the year. We took charge of the situation and we were able to enhance our product line, expand our geographical footprint, and make some significant investments that position the business well to capitalize on high growth market segments in 2009. We have coupled those efforts with an intense focus on cost improvements, a critical element, for our success in the future.

Now let's turn to our performance in 2008. On a constant currency basis, GTECH's full year revenues totaled just over EUR1 billion, representing 28% year-over-year growth. Same store revenue growth for the full year was approximately 4% in constant currency terms. It is important to note that after experiencing a slight downward trend earlier in the year, US domestic sales are relatively stable and beginning to see some uplift. Year-over-year, international sales experienced a very healthy growth rate of 11% at constant currencies.

Although we overcame our major challenges, we did encounter some difficulties that cause us to take a one-time non-cash impairment charge of EUR105 million against investments in gaming solutions and a lottery system for an international customer. As has been well reported US casino markets entered into a period of substantial contraction. Atronic America's operations, which were in the early stages of its entry into the US market, could not be sustained in the face of significantly diminished demand. Accordingly, we made the decision to curtail Atronic America's activities and merged them into our Spilo operations. We continue to evaluate alternatives in the commercial gaming space.

On the lottery side, and international customer has encountered a period of political instability that has prevented the lottery system from going live for some time now. We have written down our investment, but I should note that we have not fully lost confidence in the ability of that customer to go live in the near future. Overall, GTECH had a commercially successful year in which we secured new business or signed extensions across all segments of our business, worth over EUR1 billion over the life of those contracts.

In the traditional online lottery market, we signed valuable extensions in California, Georgia, Tennessee, Illinois, Finland, Ireland and Morocco. That's a powerful indication of the value of our incumbency. We won new contracts in Michigan, New Jersey, South Australia, South Dakota, Nigeria, Ghana, Belarus, Chile and DR, Dominican Republic.

I am convinced that we were successful in 2008 because the solutions were offered -- we offered all our customers tremendous power to drive their business and the flexibility to meet local market requirements. I want to take just a minute to reference the progress our product development teams have made during 2008. Our new laser terminal, which was launched in record time, is receiving enthusiastic response from our lottery customers around the world. In fact, a family of terminals and central systems have been developed that meet performance and pricing requirements of jurisdictions from those that are launching these programs for the first time. Like Ghana, to the most advanced customers, like the UK. We have not been, nor are we likely, to ever be a one-size-fits-all solutions provider. Today, we can pursue opportunity in any corner of the globe with products and services designed and priced to meet the needs of a local market.

To complete the array of offerings in the lottery space, we are in the final stages of completing a $40 million investment in a state-of-the-art printing facility, which will begin operations this spring. That market is starved for increased competition and is anticipating our entry as a high capacity provider. We look forward to more significant contributions from our GTECH printing corporation in 2009.

We also established a dominant position in Internet wagering, a fastest growing market segment, by investing over EUR200 million to acquire companies that are leading providers of poker through Boss Media, [port selling] through Finsoft and bingo through St. Minver.

Each one of these entities grew during the past year and collectively they have become a notable contributor to GTECH's revenues and profits. We are now poised on the frontier of a rapidly growing market segment that promises great benefit to our lottery customers as they search for new revenues, content and customers that the Internet can deliver. The integration of these innovative and dynamic companies across all our business units will help us to devise new strategies to improve our game offerings and open up delivery channels for existing content.

The government sponsored machine gaming sector is one where Spilo had a substantial win in Sweden and Oregon that further enhanced our market leadership. As I mentioned previously, we are -- we also realigned our presence in the commercial gaming market in response to the severe downturn in the US casino business. Atronic has aligned their efforts to market to Europe and Latin America, where the company has been a successful and well-established provider. We fully expect that business unit to return to profitability in 2009 and early indications give us confidence that we are on track.

As Lorenzo noted in his remarks, governments across the globe are becoming more assertive about expanding their gaming programs to generate greater revenues. In turn, this drives increased revenues for GTECH.

The Florida Lottery joined the powerful multi-state lottery jackpot game, resulting in an increase in revenues. California has scheduled a May 19th referendum on a package of measures designed to address their budget deficit. A meaningful overhaul of the lottery is in one of the provisions that could have a significant positive impact on their revenues. We have been working with California to anticipate this change and institute a best practices programs around it to drive their revenue growth.

The recent procurements in New York and Louisiana were also encouraging as well, because the importance placed on quality and value. It is notable that the structuring of the bid in New York attributes only 15% of the overall evaluation to pricing. In other words, technology solutions and services that drive total returns to state will determine the winner. And we are confident that we submitted an innovative and compelling proposal.

As I have noted, our customers have also sought extensions to help address budget shortfalls. Even in circumstances where no further extensions were anticipated, such as was the case in Tennessee and Georgia.

These extensions represent very good business for us, as we're able to provide our customers better pricing on systems that will last them a longer period of time, that will become more profitable for us.

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. All in all, our progress in delivering results is on track. We are working hard to maintain growth in the US market, but at the same time, we are achieving very strong results internationally. Our acquisitions in interactive space and the investment 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 I'd like to turn the call over to Marco Sala for his comments.

Thank you, Jaymin. Good evening everyone. The results from Italian operations continued to experience very positive trends. Overall, the Italian market grew by 13% and the Lottomatica growth outpaced the market. In fact, this is the third year in a row where we have posted double-digit growth.

2008 was also a year of execution and expansion in Italy. The continued investments in gaming solutions, sports betting and interactive, all of which are producing good results. I will provide more details on these activities after a review of our numbers.

Revenues grew approximately 24% to EUR1 billion, driven primarily by growth in sports betting, gaming solutions and scratch-and-win. In addition, EBITDA was approximately 19% year-over-year to EUR464 million. Overall, lottery wagers for the full year totaled approximately EUR15 billion, up from EUR14 billion in 19 -- 2007.

The continued growth in scratch-and-win has helped reinforce the Italian system's market as the largest in the world and Lottomatica as the number one overall operator in Europe. The strong performance of instant tickets and the increased number of players results in wagers of EUR9.2 billion compared to EUR7.9 billion in 2007.

To drive this growth, we are taking a number of actions during 2008, introducing six new instant games, adding new instant ticket vending machines, increasing our distribution network with additional points of sales and announcing our marketing efforts.

The 17% increase in instants helped us to offset a 5% reduction in lotto spending over the full year. We are encouraged that our customer base for lotto has remained stable at approximately 12 million players. With that as a condition, we'll be working on innovative ways to reinvigorate the games. We also continue to see increases in the average price point of instant tickets, which grew approximately EUR3.6 compared to EUR3.4 in the prior year.

Our new Italian sports betting network, operating under Better brand, has proven to be a very solid performer. During the year, we took in wagers totaling EUR786 million compared to wagers of EUR321 million in 2007. Revenues more than tripled the EUR145 million from EUR40 million in 2007.

And with the acquisition of the well-known sports betting brand from Toto C, we added an interactive channel and grew our overall market share from 14% to 19%, reinforcing our position as one of the top two sports betting providers in the Italian market. The player base we had with sports betting was also an important factor in helping us to successfully launch an interactive channel that hosts [steal] games, using a platform provided by Boss Media, a GTECH subsidiary.

We are offering an online tournament style total game, in which players compete for cash prizes. While the network is in its early stage, it is still enjoying great player acceptance. Interestingly, we now find that our total network is speeding our sports betting network. The synergies between the two activities has been very encouraging for us.

In the gaming solutions segment, we continue to generate a substantial growth, primarily driven by an increase in gaming machines linked to our systems. We now monitor 49,000 machines, up from approximately 32,000 machines at the end of the previous year. We have reshaped the network to increase the value of our participation in these segments by increasing our direct ownership of the gaming machines. There are currently approximately 10,000 machines in the market, up from 3,300 at the end of 2007.

Wagers grew from EUR1.6 billion to 3.5 year-over-year, with a market share at 16% from 9% last year. In a relatively short time, Lottomatica has become the second largest operator in the Italian gaming machines market, which is the largest segment of the overall gaming market in Italy.

Turning now to our activities outside Italy, as you may be aware, part of my responsibility for the group includes pursuing new business opportunities in Europe. Specifically, we have entered into an agreement with the Dogan Group in Asia, a media group in Turkey, and we are jointly assessing the lottery privatization opportunity in Turkey.

To conclude, the Italian operations enjoyed another successful year. Instants growth continues to be strong. Our strategy of entering and investing in competitive market segments in Italy is producing results that are sustainable. To that end, we have launched very promising new businesses in sports betting, gaming solutions and interactive segments that we expect to be major long-term contributors to our overall success. Now I will turn the call over to Stefano.

Thank you, Marco. Good evening and good afternoon for those overseas. These earnings announcements include the combined results for Lottomatica and GTECH.

I am happy to report that overall we delivered solid results in the full year of 2008. Revenues for the full year were EUR2.06 billion, up 24% compared to EUR1.66 billion in the same period last year. At constant currency, revenues were EUR2.1 billion. EBITDA for 2008 was EUR756 million compared to EUR702 million in 2007. On a constant currency basis, EBITDA was EUR770 million, up 10% over the same period last year. EBITDA margins were 37% compared to 42% in the same period last year.

Given the current economic conditions, I believe it is not worth it to comment on our fourth quarter performance, which was better than the fourth quarter of 2007. In a climate where the recession is impacting many businesses, Lottomatica Group remains resilient in the means of this economic downturn.

Group revenues in the fourth quarter of 2008 were EUR657 million, up 60% versus the fourth quarter of 2007. Excluding acquisition activities, revenues grew approximately 40%. Group EBITDA was EUR185 million, up 15% compared to the fourth quarter last year. Comparing the fourth quarter of 2008 to the same period last year, average revenues were up substantially and we experienced a significant increase in product sales, which you know are [difficult].

On slide 16, we provide a breakdown of GTECH Lottery Service revenues for the fourth quarter 2008 versus third quarter of 2007. At constant currency, total same store revenues were up 5% compared with the fourth quarter of 2007. International lottery revenues increased 14%, driven by strong performance in Poland, the Czech Republic and Mexico. US lottery revenues grew 1%, which we found encouraging. It's even more so when you consider that this performance also shows an improvement versus the first nine months of 2008. Lottomatica's fourth quarter performance may be found in the appendix, which you will see is more than in line with the first nine months of 2008.

As reported for the full year, GTECH's 2008 revenues were EUR1.04 billion, up 23% compared to approximately EUR839 million in 2007. On a constant currency basis, GTECH's revenues were EUR1.07 billion. In 2008, GTECH experienced same store service revenue growth of 4%, or EUR29 million.

Net M&A activity accounted for EUR128 million on a constant currency basis of additional revenue primarily due to the consolidation of Atronic, Boss Media and St. Minver and Finsoft in the M&A category as well as EUR23 million in product sales. Offsetting this was the absence of revenue from PolCard, which we -- which you'll recall we sold in August 2007, a EUR22 million impact. Keep in mind that the timing of product sales tends to be cyclical.

For Lottomatica, revenues grew 24% to EUR1.02 billion from EUR822 million in 2007. This increase was primarily attributable to [fixed cost] sports betting, gaming solutions and the expansion of (inaudible).

GTECH EBITDA was EUR192 million in 2008, compared to approximately EUR311 million in 2007. When adjusted for currency fluctuations, EBITDA for the year was EUR306 million. GTECH EBITDA was obviously impacted by EUR20 million of same store service revenue growth. The net effect of M&A activities was negative EUR5 million, mainly driven by difficult economic operating conditions affecting electronics in the US, as Jaymin mentioned earlier.

Lastly, the disposition of PolCard in 2007 generated an EUR11 million negative impact. Lottomatica's EBITDA was EUR464 million, up 19% from EUR391 million in the same period last year. This increase was primarily driven by the expansion of fixed cost sports betting, scratch-and-win and gaming solutions.

Let's move onto slide 19, where we provide a breakdown of GTECH's lottery service revenues between the US and international. Total same store revenues for 2008 were up 4% on a constant currency basis. International lottery revenues increased 11%, while domestic lottery revenues declined 1%. A reduction in revenue attributable to large jackpots has constrained growth in the US lottery market. Mega Millions states have been particularly impacted by this decline. In the full year of 2007, the two largest Mega Millions jackpots were $321 million and $390 million. The full year of 2008 produced a $207 million and a $270 million jackpot, which were the only ones to exceed $200 million.

Removing the estimated impact of the total jackpot revenue will result in performance that is comparable to 2007 for the Mega Millions states and improves US lottery performance from a decline of 1% to positive growth of 1%. In these difficult markets, we find these trends encouraging.

We continue to experience robust growth in our international jurisdictions. Same store revenue grew by 11% in 2008. This increase is principally due to gains in jurisdictions such as Morocco, Poland, Columbia, Trinidad and Slovakia.

Moving on to Lottomatica, our scratch-and-win business continues to perform strongly, with gross wagers of EUR9.2 billion compared to approximately EUR7.9 million in 2007. In 2008, the number of tickets sold was 2.5 billion compared to 2.3 billion last year. The average price point grew from EUR3.4 in 2007 to EUR3.6 in 2008. Lotto game wagers were approximately EUR5.9 billion compared to EUR6.2 billion in 2007. Revenues from the instant business were EUR324 million, compared to approximately EUR278 million during the same period last year, an increase of 17%. Lotto revenues were EUR379 million compared to EUR398 million in 2007.

Full games and betting wagers grew to EUR786 million in 2008, due to the continued strong performance of fixed cost sports betting. The resulting revenues increased more than [560%] over the five years, EUR145 million.

Revenues from gaming solutions were up over 200% to EUR89 million, driven by the increased placement of AWPs. At the end of December, there were approximately 49,000 AWPs installed.

Turning now to the P&L, operating income as reported was EUR340 million in 2008 versus EUR395 million in the same period. Adjusted for one-time non-cash impairments and other charges of EUR105 million, as Jaymin mentioned earlier, operating income was EUR445 million, up 13% compared to the same period last year. We incurred approximately EUR155 million of financial charges compared to approximately EUR190 million this last year, principally driven by lower interest expense, resulting from the strengthening of the euro against the US dollar and lower interest rates on our senior credit facility. Also contributing in the lower financial charges was foreign exchange gains in 2008 versus foreign exchange losses in 2007. You will see further detail on our net interest background in our appendix.

Income before tax was EUR185 million, compared to EUR196 million in the same period last year. Group net income was EUR138 million compared to EUR106 million last year, up 30%. Net income plus minorities was EUR94 million, bringing our earnings per share to EUR0.62, up 27% over last year. Excluding the one-time non-cash impairments and other charges, earnings per share were EUR1.08. Our full year income tax rate was approximately 23%.

On slide 22, we provide a breakdown of maintenance and growth CapEx and acquisitions. Total CapEx and acquisitions were EUR506 million in the full year of 2008 versus EUR309 million in 2007. Investments and acquisitions of EUR263 million drove our year-over-year growth.

2008 maintenance and gross expenditures were in line with 2007 at EUR243 million. GTECH acquisitions accounted for EUR220 million in 2008 versus EUR62 million in the same period last year, attributable to acquisition activities, including Boss Media, St. Minver and Atronic.

GTECH's full year 2008 maintenance CapEx was EUR148 million compared to EUR120 million in the same period last year. GTECH's gross CapEx in 2008 of EUR36 million, consisted finally of investments made in the [footprint strategy].

For Lottomatica, maintenance CapEx was EUR24 million. Gross CapEx for the full year was EUR35 million compared to EUR86 million in 2007, when we acquired Sports Betting licensing rights. Lottomatica's acquisitions accounted for EUR43 million in 2008, primarily attributable to acquisition activities of the total [C] Sports Betting operations.

Turning to the Group's cash flow for the full year, net cash operating activities were EUR681 million, improving versus EUR504 million in 2007. After CapEx, our unleveraged free cash flow totaled EUR338 million. Cash available at the end of the year was EUR109 million, after a dividend payment of EUR125 million due to the purchase of treasury shares of EUR75 million.

Our cash position combined with credit lines of EUR480 million provides us with the capacity to support the expanded growth of the business.

Our net financial position as of December 31st, 2008 was EUR2.7 billion and was EUR2.84 billion as of December 30th, 2008 and EUR2.25 billion at December [32] 2007. The increase is attributable to our change in cash balance of EUR325 million and that acquired the acquisition of EUR132 million, which were partially offset by the repayment of debt. In addition, foreign exchange rate fluctuations increased our net financial position by EUR84 million.

Assuming the [hybrid] is called on March 31st, 2016, the average maturity of our long-term debt stands at 4.4 years. Moreover, principal repayments in 2010 is very minor, while we have no repayments in 2009. This is very reassuring in the current [betting] market environment. Please keep in mind that a portion of our debt is US dollar denominated and therefore exposed to translation adjustments for calculations of the two currencies.

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

Thank you. Excuse me, this is the Conference Call Operator. (Operator Instructions) The first question comes through from the line of Domenico Ghilotti from Company Equita. Your question, please.

Good afternoon to everybody. My first question is on the dividend policy, so if you can give out an update entitled new dividend you gave?

And the second question, reduced dividend policy is on the deleveraged base that you foresee. In particular, if you can give us some indication on the CapEx level for '09?

And the last also related to the tax rate, given the very low tax rate in '08, if you can give an explanation and then provide the guidance for '09?

Yes, thank you for the questions. I will answer to the dividend policy.

As you can imagine, due to the economic environment, we have a certain debate in the Board about which kind of dividend policy we should adopt. As we have seen in our presentation and as we are -- all of us have said in our presentation, what we have realized during the 2008 and what we are realizing in the beginning of 2009 is that our business seems to be very resilient to the crisis. But I think in this moment, we could have been -- it has been considered by -- we have a prudent target because of course so far so good, but we have to be -- due to the magnitude of what is happening, I think having a prudent attitude is, let's say, almost compulsory.

So we ended up saying we have enough confidence in our resiliencies to have a dividend and we ended up with a round number of 100 million and that is very simply the reason, because we -- the outcome is EUR100 million of dividends, which are giving us -- keeping us in a sound financial position in general and we can (inaudible) our obligation -- our, let's say, not obligation, our commitment to pay a dividend because the Board was convinced that due to the results and due to the results and due to the initial results of 2009, we can continue to be confident of our opinion.

Of course it is clear to everybody that in terms of dividend yield, we are basically paying a dividend yield, which is almost the double of last year. Stefano?

So let me ask -- let me answer to the following questions, which is as far as the 2008 financial statement is concerned, the tax rate, the reason for that low tax rate compared to previous reporting periods, there is a major driver, which is the write down that we have taken in the financial statement that have significantly impacted tax rate. Because of the way we have allocated those write-downs, and that meant a 6.5% tax advantage compared to the average rate that we have reported throughout the other quarters of 2008. That's not an advantage that we will keep going forward. While there is another improvement in the range of 1.5, 2%, which is due to a more efficient use of the foreign tax credits and that is an advantage that must be kept going forward.

So in terms of corporate tax rate, booked tax rate, going forward, we do not see any major reason for changing the previous indication that we have given, so in the range of 32, 34%, that was the indication we gave.

We -- you had asked about the leverage and about 2009 CapEx. We are in the process of revisiting our 2009 plan. So we will, let's say, come to a formal position on that and we will disclose it very soon.

Okay. Thank you.

The next question comes through from the line of Ian Rennardson from Merrill Lynch. Go ahead, sir.

Hi, it's Ian Rennardson at Merrill Lynch, I've got three questions for you. One, if you could give us some color on the process that will happen when the Scratch & Win contract comes up for renewal. And I think is next year, 2010.

Also, I think one for Jaymin, can you give us some color on the margins at GTECH? Is the decline purely because of the change in mix post the acquisitions? And one I guess for Stefano, you talked somewhere about improved credit facilities, can you expand on that for us as well please? Thank you.

I'll answer regarding Scratch & Win. The color is the following, it is up to our regulators now to decide how to go ahead. As I reported in our financial statement, the company sales has the possibility to be renewed and terminated. But that is discretionary by the regulator that alternatively can issue a tender.

That's what we have to do and in this respect we have to wait their determination regarding the process. We cannot add further any color so far, but we are waiting about their determination.

Okay, thank you.

Ian, regarding your question on GTECH margins, first of all, if you look at the core lottery business, margins have remained actually fairly constant year-over-year, look at '07 to '08, in the high 30s. The reason that margin as reported are a bit lower is because we had a large volume of product sales in 2008 with fairly margins. These were one-time product sales, larger levies in Europe, which will not happen again in 2009. So margins overall will pick up.

The second reason is that we had, for the first time, the consolidation of the Atronic business in 2008 as well. And given the performance of the gaming business in '08, that resulted in a dilution to margins which will again turn around, because we expect that Atronic will be profitable for us in 2009.

Okay, thank you.

Ian, coming to your last question, the improvement in the credit facilities, we have renegotiated the senior credit facility, which is a financing arranged for the GTECH acquisition in the May/June time frame.

So keeping what was positive there, which is pricing set, we have lengthened the maturity, so postponing debt repayment and creating more flexible covenants within the same agreement. And the third credit line that we had arranged in November is in the same type of framework.

Okay. Can you give me some idea of what the covenants would be?

Well it's the usual net debt to EBITDA type of ratio.

And how much head room do you have on those at the moment?

We have let's say enough head room to go quietly in this challenging environment and to support the organic growth of the business.

Okay, that's reasonable. Thank you.

The next question comes through from the line of Michela Ferruta from Intermonte. Your question please?

Good evening, Michela Ferruta from Intermonte Securities. The first question regards the renewal of the New York contract for GTECH. First of all, did I understand correctly, did you say that 15% of the points are actually being attributed to price?

And can you comment on the timing and the competitors? If I'm not wrong, Scientific Games had decided to team up with a partner, so I'd be interested in any comments you might have on the issue. On Scratch & Win again, I'm sorry, just a comment on when do you expect it to be drafted, if you have any feedback from answer or signing in second half of 2009 and even later than this.

And finally, can you just give us a little bit more color on lottery sales in the US? I understood that you said that actually the very latest signs are that sales are holding steady or even picking up. And I'm sorry for so many questions, but just one very last question. What is the EUR110 million on chart 25, specifically which is maturing in 2010? Thank you.

Okay, let me answer questions one and three and I'll hand it over to Marco to answer the second question. With respect to New York, you heard me correctly in saying that 15% of the total evaluated points are for price, which means that 85% of the evaluated are for technology, marketing and corporate capability. We think it's a very well structured RFP that truly values the competencies of the technology and services partner for the customer.

The official response date for the award from New York is by March 20. And based upon everything that we know, we believe that that date is holding up well.

In terms of competition, I do believe that GTECH is well placed, given our long relationship with New York and given the structure of the RFP. Whilst there is no official release from New York on the competitors, we understand from market intelligence that Interlot has bid with Scientific Games. But again, that's only from market intelligence. There's been no specific made by New York State on that matter.

On your third question with respect to US sales, as both Stefano and I talked about, in 2008 US sales were down approximately 1% versus 2007. However, there was unusually low jackpot activity in 2008. If you adjust for that, sales were actually let's say 0% to 1% growth in 2008 versus 2007.

A large number of States did not grow, particularly large States like California and Texas, from a sales standpoint in 2008. What I would tell you is that, in the early weeks of 2009 the trends are slightly more positive in that we're seeing mild year-over-year growth and certainly a stabilization of the declining trends that we saw quarter to quarter in 2008.

So I wouldn't go as far as to say it's turned around, but I think it's stabilized and we're seeing mild growth, which is giving us more confidence for the outlook for 2009.

Regarding Scratch & Win, I'm not in a position to comment the time table of [now or] later. I mean it's up to them to decide when and how we are going to decide regarding Scratch & Win. What I can tell you, for the time being I have not any visibility regarding that (inaudible).

And Michela, coming to the last question about what is the 107 in 2010. It's EUR30 million, equivalent of the first repayment of the [Sinic] credit facility. And there is a financing of some EUR60 million with the facility with [Foni]. So those are the two major components of that EUR107 million, but that's to be repaid in 2010.

Thank you.

The next question comes from the line of Alessandro Bai-Badino from Deutsche Bank. Go ahead please.

Yes, good evening. The question was regarding Atronic, if you can give us some more color on the EBITDA loss, EBITDA level of Atronic. And what are your expectations for 2009 if the restructuring really will take a turn to directly (inaudible) merger with Spilo?

The other question is regarding can you provide us a target for 2009 CapEx? And the last one on the game machine, you were substantially both in the gaming machine connected and also in the one you own, if you have any target for 2009. Thank you.

Alessandro, this is Jaymin speaking, I'll answer the first part of your question, which was to do with Atronic. When we acquired the Atronic business we really acquired two businesses. We acquired a business that was beginning to supply to the US market and had fairly minor market share of 3% or 4% in the US market. And then we acquired Atronic International, which services Europe, Asia and Latin America.

The principal weakness that we have, in fact, is in Atronic Americas, because being a small business that is unable to compete in a vastly contracting market in 2008. So we took the decision of basically exiting the Americas market and servicing that market through our Spilo business, which is based in Canada. So the write down that we refer to are for the goodwill related to the Americas business and partially international, but largely the Atronic Americas business.

The Atronic International business has been restructured with headcount reductions and a much more major focus on several markets that we're going to address in 2009. And we think that business will be mildly profitable in 2009. I don't think we are in a position today to offer any 2009 guidance. I think we'll leave the answer to that question until Stefano is prepared to provide guidance for the company in due course.

Regarding gaming machines in Italy, our strategy is to go ahead increasing the number of machines directly managed by our organization. Having said that, we are not now in the position to tell about the guidance of the plan. And we will do that when we will comment on the first quarter.

And the answer to the question of Alessandro and coming back to the same question basically came from (inaudible), about indication in 2009 expectations about CapEx, about the leverage. As Marco has just said, we are completing our update 2009 plan and we will be reporting on that in the same occasion that we will be reporting the first quarter of 2009. We will have let's say full disclosure on 2009.

Thank you. The next question comes through from the line of Domenico Ghilotti from Equita. Your question please.

I have a follow up on the lottery market, in particular international markets. You had excellent results, could you provide some indication on some specific markets such as the UK for example?

Yes, let me just make some comments on 2008 where international lottery markets grew by 11% with our customers. The main growth drivers were the UK, Ireland and Eastern Europe. And in the UK the business grew very well in 2008 driven by a turnaround in Instant Ticket performance.

Ireland has been growing at 7% to 10% a year for the last 12 years and that growth rate was sustained in 2008. And then the Eastern European countries, in particular Poland and Slovakia, had also very strong growth in 2008, approximately 12% to 15% underlying same-store sales growth.

I think it would be not too prudent to project the same level of growth in 2009. But we still think that international will deliver fairly strong growth over the next 12 months.

Okay, thank you.

The next question comes through from the line of Laura Pennino from Banca Leonardo. Go ahead please.

Hello, I had a question regarding Atronic. If I remember, in your plan you were saying that in 2010 there was an opportunity for the replacement cycle in the US casinos. Now that you're saying you are exiting the US market, do you still believe it's an opportunity or not?

Well let me say, the replacement cycle was a major opportunity for Spilo. And that was intended to cover mostly the Canadian market where Spilo has 90% market share and is driven from the government-sponsored customer. So again, we will report on that to the level that we will assess in the next weeks in the call of 2009 (inaudible). But it was not about Atronic, that's the point.

It's not about Atronic, okay. Okay, thank you.

Thank you. We have no further questions coming through, so I'll hand back over to Mr. Lorenzo Pellicioli to continue and wrap up the conference call.

Okay, thank you for your questions. A quick wrap up, if I may, I'd like to leave you with my perspective on our performance during this difficult economy and how that is preparing our future. Our

primary goal has been to invest in diversification and the high growth market. We kept the commitment and are carefully investing in expanding our global footprint, enhancing our product mix and incorporating new delivery channels to address changing customer demographics, all of which has transformed our company from primarily a lottery company to that of a diversified gaming operator and technology solution company.

Lottomatica and GTECH are very different today than when we created the group. Both companies are benefiting from our investment in diversification. While lotteries is the foundation from which they are growing, each company now has a major presence in [press tickets], sport betting, poker and bingo, the major growth segments of the market and geographies they serve.

The full impact of these new activities will be [served] in 2009 and we expect to continue our growth. We carefully watch the fourth quarter performance as an indicator of our resiliency and to give us confidence as we enter 2009. And we are encouraged by the indications that we have read in the first months of 2009.

The positive trends in our business seem to be holding up and more than ever before in the history of the modern lottery industry, governments need our help and we are able and ready to respond.

To summarize, Lottomatica Group presents a unique case in this environment of economic uncertainty. It is no minor accomplishment that our performance has been very good. While many (inaudible) companies are reporting losses and reducing revenue expectation, we are reporting double-digit growth and maintaining our dividend payment special order.

We have to demonstrate our ability to reliably generate cash. And we have a solid financial position from which we can sustain our growth. We look forward to a prosperous 2009. And as has been shared many times during this conversation with a report of the first quarter of 2009, we will provide you also guidance for the current year. Thank you for your attention, see you next time.