International Game Technology PLC (IGT) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Lottomatica 2009 first quarter results ending March 31st conference call hosted by Lorenzo Pellicioli, Chairman and CEO. My name is Phil and I will be your coordinator for today's conference. For the duration of this 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, to begin today's conference call.

Thank you to all of you for joining us at the Lottomatica Group's 2009 first quarter results presentation. With me today is Stefano Bortoli, CFO of the Group, who will provide you with the review of the financial results of the quarter. Also with us are Marco Sala and Jaymin Patel, who will join us for the question-and-answer period at the end.

As you probably have learned by now, earlier today, I submitted my resignation as CEO of Lottomatica Group. I will remain as the Chairman of the Board and Directors of the Group and as the Chairman of the Executive Committee. I trust that this action didn't come much -- as much as a -- of a surprise to most of you.

When I took on the CEO position I envisioned it as a way of transitioning to a new leader. I am very pleased to report that the Board of Directors has approved my nomination of Marco Sala to become the new CEO of Lottomatica Group. With Marco we have a proven leader, who understands our business and knows how to drive a sustainable and profitable result.

As a member of our Executive Committee and Board of Directors, Marco has played a significant role in developing and executing our strategies and he will be able to take over the leadership of the Group in what I am certain will be a seamless transition. Congratulations, Marco, for a much deserved promotion.

I also want to thank Jaymin for his support, when I became CEO of the Group he had only recently stepped up to the CEO role of GTECH. I have enjoyed working with him and I have come to recognize him as one of the brightest and most capable executives with whom I have been associated. He too served as a member of the executive committee and more and member -- as a member of the Board of Director and have established himself as a trusted and valued leader in our Group that of course will continue.

Now, let me begin with an overview of the results we have achieved during this extremely challenging economic environment. Overall, Lottomatica Group had an excellent quarter. Year-over-year revenues were up 30% and net income after minorities and EPS grew by an impressive 70%. Driving these positive results were key investments and acquisition made as a part of strategy to diversify our product portfolio in the geographies we serve.

By design Lottomatica Group has the capability, flexibility, and insight necessary to prioritize opportunities and deploy capital to ensure the highest return on our investment. As was our expectation, investment and acquisition in Italy has produced immediate, meaningful, highly profitable contribution. The Italian gaming market remains a high priority for us from an investment perspective.

It is our view that there are still many good opportunities available within this market for growing new products and delivery channels. The leveraging of GTECH capabilities in new markets such as incorporating Internet wagering combined with the key strategic investment and acquisition in those markets has begun to make solid contributions. As also was our expectation, the positive impact of these investing activities will begin to have a most significant impact later in the year and thereafter.

Now, I'd like to look at the operating results of our business lines. In the lottery space GTECH had a very successful quarter commercially with substantial contract wins and expansion. Lottomatica Italian operation experienced significant and continued growth in almost all of its product lines.

In the core lottery business the Italian scratch and win market continues to grow capturing EUR2.6 billion worth of wagers in the first quarter. Recently, GTECH won a big victory with its successful proposal to the New York Lottery, one of the largest and most respected lottery in the world. GTECH was also able to negotiate valuable contract expansion with Minnesota and Tennessee as was done with Georgia at the end of last year.

These activities are noteworthy because, in each case, GTECH gained extension beyond the original intended term of the contract. GTECH Printing Corporation, our instant ticket printing group successfully launched its new printing press considerably improving its competitive capabilities. And same store revenues in the core business grew by approximately 1%, in fact by lower jackpot activity in the US and a relatively robust sales internationally.

We expect to see an improvement in same store revenue for GTECH in the second half of the year as the impact of government efforts to increase revenues. It is important to point out that despite the impact of the new contract rates in some jurisdictions GTECH was able to achieve EBITDA contribution comparable to the same period of last year. We are beginning to see an increased demand from governments for new sources of revenue to meet severe budget shortfalls. The budget gaps, estimated to be $350 billion in the U.S., are beginning to translate into new opportunities for GTECH.

The two major multi-jurisdictional jackpot games in the US Power Ball and Mega Millions are negotiating to cross sell their games. In addition, California is holding a referendum in mid-May to modernize its lottery. You may be aware that there is currently a great deal of voter displeasure with government leaders in California, making it difficult to predict the outcome of the referendum. On the positive side there is a wide ranging coalitional group, which has banded together to push a campaign in support of the referendum. Regardless of the outcome the budget problem in California and the other states continue to worsen and improving the lottery will remain an attractive option for consideration particularly, when there are a few other non tax alternatives.

In the Gaming Solutions segment we continue to increase our presence in the Italian market. Lottomatica grew its installed base by 4% coupled with a sizable increase in its direct ownership of gaming machines. GTECH's Atronic subsidiary has begun to build machines to supply Lottomatica (inaudible). With regard to Atronic we have substantially completed our rightsizing and refocusing effort. We are confident that the Company is now properly aligned to the market it is best able to serve. In the Sports Betting segment the contribution from Italian sport betting and pool games more than doubled and overall wagers increased by 71% to EUR302 million (sic - see Press Release). In the interactive space of New Media, as it is called, our acquisition of Boss Media and St. Minver have achieved solid results. In addition, our Finsoft subsidiary experienced 30% growth over the similar period over last year.

Lottomatica Internet poker game continues its impressive market penetration in another illustration of our synergies, Lottomatica Internet poker offering utilize Boss Media industry leader technology. Finally, during his remarks Stefano will provide you with some details as a -- to our guidance for the year. For my perspective I am pleased that we have been able to sustain our growth in a reliable and consistent manner during this unprecedented worldwide recession and we expect to continue for the remainder of 2009. For this reason and more we are confident in the 2009 guidance.

At the shareholder meeting that we had today there was some more good news, dividend of EUR101 million was approved, another sign of the vitality of our business and our company's in the future. As we have stated previously we have a capital structure that supports our business very well. We are committed to maintaining an investment grade credit rating. We also discipline in how we deploy our resources and are confident that we will be able to continue to invest in opportunities that reaffirm our role as an industrial provider and generate above average return.

Now, I think that Stefano can go on for a review of the financial after which we will take your questions. Thank you.

Thank you, Lorenzo. Good evening or good afternoon to everyone on the line. I am pleased to report, once again, that we continue to deliver good results in this first quarter of 2009, despite a challenging business climate. Revenues for the quarter were EUR582 million up 30% compared EUR449 million in the same period last year.

At constant currency, revenues were EUR562 million. EBITDA for the quarter was EUR240 million compared EUR205 million in the first quarter of last year up 17%. On a constant currency basis EBITDA was EUR231 million, up 13% over the same period last year. EBITDA margins were 41% compared to approximately 46% in the same period last year. The anticipated dilution is due to the change in the revenue mix.

Moving onto Lottomatica, our Scratch and Win business continues to perform well. With gross wagers of EUR2.6 billion compared to approximately EUR2.5 billion in the first quarter of 2008, up 5%. The number of tickets sold was comparable to the first quarter of last year of 677 million. The average price point grew from EUR3.65 in the first quarter of 2008 to EUR3.83 in the first quarter of this year driven by the success of new tickets. Lotto Wagers was EUR1.4 billion. Revenue from the instants business were EUR92 million compared to approximately EUR88 million during the same period last year, up 5%. Lotto revenues were EUR93 million compared to EUR97 million in the first quarter of 2008.

Pool games and Betting wagers which includes Internet wagering grew 71% to EUR332 million in the first quarter due to the continued strong performance of Finsoft's sports betting. The resulting revenues increased more than 125% over the prior year to EUR74 million. Revenues from Gaming Solutions were up 130% to EUR36 million driven by an increased placement of AWP machines. At the end of March there were approximately 51,000 AWPs installed of which approximately 25% are managed directly by Lottomatica.

On slide nine we provide a breakdown of GTECH lottery service revenues for the first quarter of 2009 versus first quarter of 2008. On constant currency total same store revenues were up 1% compared with the first quarter of 2008. This is encouraging given that it is the consensus of leading economists that there is an estimated 3.5% to 5% decrease in the GDP in Europe and US for the first quarter of 2009 compared to the same period last year.

International lottery same store revenues on constant currency increased 4% driven by good performance across the board. Jamaica, Morocco and Slovakia amongst others have recorded significant growth, while US lottery revenues declined 1% primarily due to the trend in jackpots. Removing the estimated impact of the total jackpot revenue difference will improve US lottery performance from a decline of 1% to a positive growth of 1%.

As reported, Lottomatica's 2009 first quarter revenues grew 26% to EUR319 million from EUR253 million in the first quarter of 2008. This increase was primarily attributable to Finsoft's Sports Betting, Gaming Solutions and the expansion of Scratch and Win. For GTECH, revenues were EUR263 million, up 35% compared to approximately EUR196 million in the first quarter last year. In the first quarter GTECH's same store service revenue increased 1% and net M&A activity accounted for EUR26 million of additional revenue primarily due to the consolidation of Boss Media and St. Minver. There was also EUR16 million in product sales in the quarter. Keep in mind that the timing of product sales tends to be cyclical.

Lottomatica's EBITDA was EUR167 million up 24% from EUR135 million in the same period last year. This increase was primarily driven by the expansion of Finsoft's Sports Betting, Scratch and Win and Gaming Solutions. GTECH's EBITDA was EUR73 million in the first quarter compared to approximately EUR70 million in the first quarter of last year. GTECH's EBITDA was positively impacted by product sales including Denmark as well as the strengthening of the US dollar against the euro, which have more than offset some anticipated price changes in certain contract renewals. EBITDA contribution is therefore slightly above last year.

Turning now, to the profit and loss, operating income as reported was EUR155 million in the first quarter of 2009 versus EUR135 million in the same period last year up 15%. Included in operating income was depreciation and amortization of approximately EUR84 million in the first quarter compared to EUR69 million in the same period last year. More specifically, intangibles amortization was EUR24 million in the quarter whereas it was EUR18 million in the first quarter last year.

We incurred approximately EUR31 million of financial charges compared to approximately EUR50 million last year principally driven by foreign exchange gains in the first quarter of 2009 versus foreign exchange losses in the first quarter of last year. You will see further details on our net interest breakdown in our appendix.

Income before tax was EUR124 million compared to EUR85 million in the same period last year. Group net income was EUR86 million compared to EUR55 million, up 55%. Net income for minorities was EUR72 million bringing our earnings per share to EUR0.48 up 71% over the same period last year. On slide 13, we provide a breakdown on maintenance and growth CapEx and acquisitions. Total CapEx and acquisitions were EUR51 million in the first quarter of 2009 versus EUR157 million in the first quarter of last year. Maintenance expenditure for the first quarter were broadly in line with the same period last year at EUR28 million. GTECH's first quarter maintenance CapEx was EUR26 million compared to EUR21 million in the same period last year. Note that maintenance CapEx for the quarter was not concentrated in one particular investment with the largest being EUR4 million.

GTECH's growth CapEx of EUR12 million consisted primarily of investments made in the printed product business. As you recall GTECH's acquisition, in the first quarter of 2008, were driven by the purchases of shares of Boss Media. For Lottomatica, maintenance CapEx was EUR2 million. Growth CapEx was EUR11 million, which consisted primarily of investments in gaming solutions.

Looking at the Group's cash flow for the first quarter, net cash from operating activities was EUR148 million versus EUR63 million in the first quarter of 2008 driven by a EUR35 million increase in EBITDA and more efficient use of working capital. After CapEx our unlevered free cash flow totaled EUR97 million. Cash available at the end of the quarter was EUR76 million. Our first quarter cash flow for four months gives us confidence in our outlook for 2009.

Our net financial position, as of March 31, 2009, was EUR2.76 billion, up slightly compared to EUR2.71 billion at the end of December, 2008. This increase was mainly driven by foreign exchange rate fluctuation that created a translational effect of EUR72 million. Before we look at our 2009 guidance I would like to provide you with some key assumptions for our overall business. While we continue to remain focused and disciplined in executing our strategic plans, we are mindful of some of the challenges facing us this year but confident of the resiliency of our business and the natural protection provided by our international portfolio. In the Lottery segment the Italian business overall is growing in the low-single digits driven Scratch and Win.

In the US, we expect stronger same store revenue performance in the second half of 2009 to grow by 1% to 2%. Internationally, we are seeing single-digit same store revenue growth and expect growth of 4% to 5% for the full year. Finsoft Sports Betting and gaming machines continue to drive our growth in Italy. We will continue to invest in Italy in order to maintain and improve our 19% market share in the sports betting space and our presence in Gaming Solutions. Looking at Gaming Solutions outside of Italy, we will continue to optimize our operation, even the downturn in the US commercial casino gaming market, where we now have very little exposure. We are also seeing delayed replacement cycles in the North America government sponsored markets. We remain committed to reaching a breakeven for Atronic at the EBITDA level by year end. In the interactive segment we will increase our presence with the expansion of our interactive product portfolio by the end of the year.

Skilled games such as Interactive Poker in Italy will become a very meaningful piece of our business. On slide 18 I want to provide some insight on CapEx for 2009. As Lorenzo mentioned earlier, the Italian market remains a high priority for us from an international standpoint. We believe there are additional opportunities within these markets that will produce highly profitable contributions for the Group. We have allocated an additional EUR90 million to EUR100 million in 2009 for Gaming Solutions and sports betting expansion. It is worth noting that the internal rate of return of these investments is very attractive at over 25% and the payback period is very short as they benefit from substantial economies of state. Maintenance CapEx increased by EUR30 million to EUR40 million through a change in timing of investments for our New York contract, which was slated for 2010 but will now occur in 2009. It is important to note that 2009 should not be considered a reference year because of the number of rebids we have won and investments we are making for growth.

Now, let us look at our guidance for 2009, which is based on a exchange rate of $1.30 to EUR1 and supersedes any guidance we have given previously. We expect revenues for the year to be in the range of EUR2.15 billion to EUR2.25 billion. EBITDA is expected to be in the range of EUR780 million to EUR800 million. Earnings per share for the year are expected in the range of EUR0.78 and EUR0.90. CapEx is expected in the range of EUR360 million to EUR380 million. Our net financial position for 2009 is expected in the range of EUR2.75 billion to EUR2.85 billion. And of course we will provide further visibility on future years in due course. So now, we will open the line for Q&A after which we will hear closing comments from Lorenzo. Operator, please.

Thank you. (Operator Instructions) The first question comes through from the line of Micaela Ferruta from Intermonte, you question please.

Good evening, Micaela Ferruta from Intermonte Securities. I have two questions, actually three if I may, one relates to CapEx and clearly also the EUR90 million, EUR100 million that you are allocating (technical difficulty). Can you hear me, hello?

Hello, Operator, please.

All right, please continue. (Operator Instructions) Okay, I will now return to Micaela Ferruta. Your line is now open.

Thank you, okay, so I will start again. I have a question on CapEx and the EUR90 million to EUR100 million that you are anticipating to -- for growth in sports betting and gaming machines. Is it possible to know if you are targeting a certain market share in these two segments in Italy and whether these acquisitions are expected to contribute to revenues and EBITDA in 2009 already? The second question regards the net debt EBITDA target, so can you tell us if there is a level of EBITDA target with which you feel confident? Clearly this target for 2009 is within the covenants that are set on your debt. But should we expect a further rise in 2009 especially if you are to seize any opportunities coming from the new draft deal -- actually it was approved, but the new deal on gaming in Italy, which probably provides opportunities. And I might ask a quick comment on what you expect the opportunities to be for you but also might provide for additional CapEx related to the introduction of (inaudible) if I'm right. So can you confirm this and to ask whether there might be additional CapEx leading to the introduction of gaming machines or whether this is already included in your 2009 guidance. Thank you.

Well, I will answer the question about the net debt to EBITDA level and then I will leave it to Marco to elaborate on the market situation in Italy. As you see, the -- expect the guidance for 2009, in terms of net debt to EDITDA is within the range. So we are comfortably within any existing covenant and within the range that we have as an internal reference and going forward we do not anticipate to increase the ratio.

On the contrary, we expect to improve the ratio both from an increased EBITDA and a decrease of the level of the net debt. So the CapEx that we have allocated to the growth of the Italian market to be considered growth CapEx, which means we are going to increase the number of sports betting rights within the Italian market as well as the number of machines that we are going to connect to our network in the course of 2009. We do not anticipate any meaningful contribution from this acquired business in the course of 2009 rather beginning from 2010.

I would like to leave the floor to Marco to elaborate on the market share target that we are, let's say, targeting from 2010 onwards in the next few months, when we will have a more precise view of the market trend from 2010 onwards.

Thank you. Should we move on to the next question?

Operator, sorry. There is a final question on the impact, potential impact of the new bill of the Italian government on the VLTs business in Italy.

Regarding the deal, we are now reviewing the deal very carefully. It's too early to make an assessment regarding the concrete opportunity we will have out of this deal. First of all, because it has to be, first of all, confirmed and secondly, what -- it is important to make an assessment is the regulation that our administration will issue regarding all the specifications. So overall, I can speak of this draft as a promising draft because it allows to plan development in many respects mainly in all the segments of the Italian market, but let me say it too much preliminary now to make an assessment putting together the relationship, the investments required and the possible returns. We have to enter more in details and understand how the regulator will intend to cover the specific details each of the (inaudible).

Thank you. May I ask whether you can comment on the market share that you wish to attain in the sports betting and gaming market in Italy, if you can.

Yes, I think we have room to improve the market share. Over the next -- the future is difficult to plan -- but I think between one and two points regarding sports betting and it is not a matter of share that is driving our choices in gaming machines -- in gaming machines the point is the profitability that is related to the acquisition of the machine in order to manage directly the relationship with (inaudible) sales and therefore we will be clearer on that point in the coming months.

Thank you very much.

Thank you. The next question comes through from the line of Alessandro Bai-Badino from Deutsche Bank. Your question, please.

Yes, good afternoon. I'm Alessandro Bai-Badino of Deutsche Bank. The first question is on, if you can provide us more flavor on your target EBITDA for '09 especially regarding the growth you expect from the Italian business, particularly in GTECH excluding the foreign exchange impact. If you do expect an increase in GTECH's EBITDA?

The second question is regarding your first quarter number and particularly the EBITDA of GTECH you have the negative impact on others, if you can elaborate more on that and what's related. And the last question regarding Lotto. In the [increasing] -- there is a possibility to innovate the Lotto game, which posted again a decline in the first quarter. Are you expecting to do some innovation beside the [decree] in the regulation which should come out in the coming future? And when do you expect this regulation of the Italian government to take place and be -- say, can be updated on this market? Thank you.

So coming, I was trying to -- coming to your question about EBITDA growth, the growth from 2008 to 2009 is coming, let's say, two thirds more or less the Italian operations and slightly more and one third from the GTECH side. That's the ballpark improvement that we expect in terms of EBITDA in the course of 2009. Your question about the other, which are negatively impacting the EBITDA, it's in terms of timing there have been more legal costs associated to some legal cases that are being closed in the course of the first quarter. And there is EUR1 million coming from the comparison of the first quarter of 2008 where we had an out performance in the Colombian commercial services operations and there is EUR1 million coming from the (inaudible) of the Spielo businesses. Those are the three major driver of that negative impact on the first quarter of 2009 versus the first quarter of 2008.

Regarding Lotto, I agree with you that in the decree there is room to innovate the Lotto. As I mentioned several times in the last conference calls it's clear that innovation is what it is required from Lotto because with the growth of the overall market, Lotto is releasing very well not to say but it needs innovation in order to be updated in the eyes of the customers and even new customers.

Having said that, it is too much preliminary now to make an assessment regarding the opportunities that are allowed by the decree. We have planned several innovations, we are discussing with the regulator the possibility to introduce some new features of the game in the second half of this year, but once again, I will be notified as soon as a final decision will be taken, and I can present all the details of the innovation related. The good news, we are now working closely with the regulators in order to get it done.

Thank you.

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

Good evening. My first question is related to the Q1 results. In particular, if you could elaborate a little bit more on the pressure on GTECH margins in Q1 as you mentioned the mix, but if you can go through a more detailed answer.

The second question is on the sport betting contribution in Q1 results. It was the main driver, the performance, if you can give us the payout in Q1 that should be the most important element, and if you can give us all some indication of what is implied in your full year guidance in terms of payout?

To answer your questions on GTECH. First of all, the first quarter margins were driven by, I suppose, three factors versus the first quarter of 2008. The first one is that we had a much lower level of jackpot activity in the first quarter of 2009. Therefore, the incremental same-store revenue contribution from jackpot was lower, and as you may know the incremental margin contribution is typically 70% or 80% for those revenues.

The second factor, as you saw in the bridge charts is that we have price compression resulting from contract renewals in 2008. Michigan being the main contractor went live with a new rate in the first quarter of 2009. And the third factor is, if you look at the analysis of results, you will see that products sales were EUR41 million in the first quarter of 2009 versus EUR12 million in the first quarter of '08. And in our business, product sales typically has a margin of 5% to 10% below recurring revenue business, where it's a mix issue. But overall the GTECH business, the underlying business, remains very strong and so we expect margins to improve throughout the year.

Okay.

Regarding sports betting in Italy, you were right. There was a, let me say, unexpected positive for the bookmakers' payout. In fact, in the first quarter, the payout was 58% against the average of 78% of last year. This has affected a little bit the growth of the market, there was in effect growth at lower pace in comparison with the other previous year. Having said that, the combination of the two effects are very much positive for the result of the first quarter.

Having said that, to give some guidance of that something around 78% of payout will be the guidance for the rest of the year.

May I add a follow-up on the gaming machine. You mentioned the very interesting IRR you can achieve in acquiring market share in this segment, what is the margin on the additional sales that you can get from these new machines connected to the network?

As we said in the other situation, look at the contract. The contract says operator just as the concessionaire is right below 1%, when you're ready to manage the machine you can have a percentage on the turnover of the machine between 3% and 4% that of course will create a different contribution to the business.

Okay, so we will see mainly a switch from, let's say, non-operated to directly operated machines?

Yes, that is a combination of the two things. So, of course, we can grow the -- on the number of machine connected but we are devoting specific attention in increasing the number of our machines directly managed because -- two things, the first, the stronger control that you can have in the marketplace owning the relationship with the point of sale associated with the higher margins that derive from these activities.

Okay, thank you.

The next questions comes through from the line of Laura Pennino from Banca Leonardo; your question, please.

Hello, I have just a few questions. You said that CapEx in say -- in 2009 is not a reference here. Can you give an indication of what you consider a level of CapEx for the next year, and how much would you say you have anticipated of the CapEx you gave in the previous plan for 2010? And the second question is on the CapEx in Italy, and you said that it's mainly for sports betting and Gaming Solutions. Can you give an indication of how much is Sports Betting and how much is gaming and for Sports Betting, are you going to aim at corner still or now you are changing strategy and moving also for shops?

And another thing in regards to possible opportunities that could arise, like for example Camelot stake or other opportunities? Do we have to consider that there is enough room also to consider other opportunities or it's just -- or would this CapEx in Italy is all you can you have in -- you have limited flexibility for other opportunities? Thank you.

Okay. So several questions about CapEx let's try to answer all of them. In terms of recurring maintenance CapEx for GTECH, I would assume a range in 11%, 12% of the service revenue as the level that you should proffer in your models going forward. In terms of the composition of the --

Hello?

Hear me.

No.

I have to speak up. Can you hear me now?

Yes, now I hear.

Okay, so I said in terms of the GTECH investments as that they are recurring type of investment, I would consider a 12% -- 11%, 12% as the appropriate numbers to be factor into your model, 12% of the recurring lottery service revenue has to be considered as the level of invested for the GTECH business due to the capital intensity of that business particularly associated with facility management contract.

In terms of Italy, the maintenance CapEx is much lower and investments in Italy are mostly related to the expansion strategy that we are pursuing in sports betting and gaming machines. Of course, any renewal of a major concession could drive according to the way the request for proposal would be written, additional investment on top of that.

Coming to your question about 2009 composition of Italian investments, let me say that 30% of the overall investment will be for sports betting, around 50%, 55% will be for gaming machines and the rest will be devoted to the other business lines that we have in the Italian market. And that, I think, addresses your questions about the composition of the CapEx.

Okay. And are you aiming at corners or -- only still at corners or also at shops?

No, now if you look at the target in the market, it is not anymore possible to make a decision and therefore if you are going to acquire someone, you acquire the composition of shops and corners. And we said that the strategy with gaming was corners and now we are looking also at shops in order to integrate our offer in the marketplace. So instead we are now approving (inaudible) with both corners and shops.

And in the previous -- and in 2009, you have only have the CapEx in the guidance but no revenue is that correct?

Yes.

Okay.

Thank you. (Operator instructions) We have another questions from the line again of Alessandro Bai-Badino, Deutsche Bank; your questions please.

Yes, a couple of questions regarding GTECH. With respect to much -- about price pressure. We saw that you won the -- in your contract with a good price pressure, what do you expect in the coming future and what kind of contract are into expiration and you are bidding for renewal.

And second question on GTECH again, since you're now working on the possibility of interacting and going online US -- what is your opinion, Jaymin, on this business and this possibility in order to increase revenues for budget deficits for states? Thank you.

And one last question -- sorry, two last question or one question regarding Italian business. Can you give us a target for the end of '09 in term of gaming machine connected, and how much is going to be directly connected as a percent of the total? I know you reached 51,000 in the end of the first quarter. What is your target for the full year, and what is the percentage of ownership on this target? Thank you.

So this is Jaymin speaking. Let me answer your questions, first of all, on the GTECH side.

Yes.

First of all, price pressure in our business really is a fact of life because you have to appreciate that the contracts we have run for 7 to 10, in some cases, 15 years. Therefore, over that time period, sales levels at the customer level have grown quite significantly, almost doubled or tripled in some cases. And the cost of technology has declined. Therefore, there's a reasonable expectation that there will be some level of price compression when the -- a contract is rebid.

The level of competitive pressure is very substantial, and in the case of New York, we were able to offer a very solid technology and services package that resulted in what I would characterize as reasonable price compression that allowed Lottomatica to earn a very strong return over the life of the contract, as well as offer the customer a very good solution at a reasonable price.

And it is our objective to continue that strategy, which is to offer our customers a reasonable discount over their current contract to preserve the flexibility for a respectable return to the Company and our shareholders.

With respect to contracts up for renewal, we have three main -- well, four main pieces of business that we are considering for 2009. The first one is Illinois, which is a significant-sized contract and that rebid will happen in the middle of May, 2009. Secondly, a very small contract, Washington, DC, which will be in the middle of June 2009. Indiana, which is run by a competitor, is coming up in the third quarter of 2009. And then finally, Texas, which is a very large contract for GTECH Lottomatica, it is likely that we will see an RFP in Texas somewhere in the third or fourth quarter. We don't really have any significant international contracts coming up for rebid this year. Most of those have been taken care of in 2007 and 2008.

I think the last question was for Marco. Sorry, second question was on interactive, I apologize.

It is generally our view that in the next, let me say, three years there will be a more liberalized environment with respect to US interactive gaming. I think there's quite a lot of pressure amongst the business groups and within government to approve some form of interactive gaming to perhaps normalize interactive trading or interactive gaming in line with the European and other markets.

And certainly, in my -- it's my view that the Obama administration is probably a bit more liberal than we've seen in the past, so I think that with the continued political pressure and commercial pressure it's likely that we will see some form of interactive over the next three years. It's hard for me to predict what that will be, whether it will be lottery gaming or more broadly poker and bingo, but you've seen today the comments made by Republican -- sorry, by Mr. Barney Frank. And I think that that's the indication of more pressure that you will see to change the laws.

Regarding the specific question, we are planning to have at the end of the year around 60,000 machines out of which the direct will be in the region of 25%.

Thank you.

Thank you. We have no further questions coming through. So I'll hand back over to Mr. Lorenzo Pellicioli for closing remarks.

Okay, thank you. Before sum -- before that I sum up I think I owe a question to somebody that ask about out our interest to Camelot. I think that all of you knows that -- know that we are a partner of Camelot. We -- basically, we partner with them in the bid to re-win the UK lottery. We have been a partner with Camelot for a long period of time and we are now the service provider of the consortium who won -- actually of Camelot -- that won the license last year.

Our contract is a contract that -- which is -- as the construction is and the license is, is a contract that still has nine year to go, plus a potential extension of five, so it is a 14-years contract potentially for us.

So according to the information that are in the market, the ownership of Camelot, or at least a piece of it, as this could -- maybe a significant piece of it is up for sale. Are we interested on the -- this transaction, well, the answer is very simple. It will depend by the price. There is no strategic reason for us to buy this asset unless it is a very value -- unless there is a very significant value creation potential and this could be driven only by a very attractive price. Having said that, we -- I think no one is in a better position than us to judge what could be the future result of Camelot. So when and if there -- we will see a formal process we will participate probably do it, but again with this goal having in mind that a, it's not strategic for us, b, we will look at it only in this, it is really attractive in term of return.

Having said that, let me sum up with some brief quotes. I get great satisfaction from the fact that our people are strategically -- they are executing and the investment that we have made in support of them are delivering positive results that positioned the Group as an unrivalled leader in our industry.

We have made investment that will allow us to take advantage of opportunities throughout the world, and as importantly, in the Italian market, where there is still good and highly profitable growth to be captured. As we look to the remainder of 2009, of course we are confident, and I am personally very confident that under Marco's capable leadership we have the right team in place to deliver result and continue to drive shareholder value.

Thank you again for joining us, and the next meeting will be lead by Marco. Thank you.

Ladies and gentlemen, thank you for attending today's conference call. You may now replace your handset.