International Game Technology PLC (IGT) 2009 Q4 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Lottomatica's 2009 full year results conference call. My name is Dave and I'll 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'm now handing you over to Marco Sala, CEO and Managing Director, to begin today's conference. Thank you.

Good evening and thank you for joining us for Lottomatica's Group 2009 full year results presentation. With me for today's presentation is Stefano Bortoli, the Chief Financial Officer of Lottomatica Group. Renato Ascoli, the General Manager of Lottomatica and Jaymin Patel, the Chief Executive Officer of GTECH will join us for the question-and-answer session.

Let me begin with a review of some of the major developments and trends that impacted our business in 2009. From my perspective, Lottomatica Group's solid operating performance produced good results. Our core businesses continue to perform well. I think we have demonstrated that GTECH's worldwide lottery operations and the Lottomatica's Italian operations are able to produce reliable and sustainable growth.

Our Gaming Solution business is beginning to recover from a severe downturn in the market they serve. While not fully rebounded, there are encouraging signs of improvement, particularly in the government-sponsored market. In the Interactive and Sports Betting space, our competitive position is good. And we expect to enjoy significant advantages as the market begins to take hold.

Our Interactive products with lottery customers in Belgium and Switzerland along with our launch of first ever unified online lottery and sports betting platform in Chile has received a great deal of favorable attention. Obviously, there are more important activities going on in Chile right now. Our people are helping in the earthquake recovery effort and we are supporting them.

Overall, the Group's result met or exceeded our guidance. We look to the coming year with confidence in our ability to sustain these results. We have been able to navigate through these difficult economic conditions while being disciplined and committed to maintaining an investment-grade credit rating.

During 2009, we have undertaken financial for a total of EUR1.1 billion including a share capital increase. These activities provided the Group with a solid capital structure that allows us to respond to opportunities including the Italian Scratch & Win license that we hope to hear some news about in the very near future.

Our commercial success has also supported the visibility and sustainability of the results we announced today. Approximately 83% of the service revenues generated by the Group's worldwide commercial portfolio is under contract for at least four years. And the weighted average length of our service contracts has increased to seven years.

Our Italian operations continue to make significant contributions. But it is fairly obvious that the lottery market is maturing. Be sure we are working hard at driving growth through new games, increased price point, and improved marketing, and are confident that these efforts will be successful, but the growth we are experiencing, particularly in [present week] has moderated. That is only natural as is expected.

At the same time other sectors of the Italian gaming market have taken off. We are seeing high levels of growth in Italian machine gaming, Sports Betting and Interactive sectors. We have made substantial investments in these sectors and in a relatively short time have achieved market leadership position in each.

We expect the contributions from the ongoing expansion in these sectors to become very meaningful to the Group. Gaming Solutions, Sports Betting and Interactive account form approximately one-third of our revenues from the Italian operations. And we expect those sectors to be primary drivers of our future growth.

With regard to some of these developments in the Italian market, it is important to note that we have made and will make investments in new VLT licenses in 2009 and 2010. Licenses have a nine-year term and are very -- and a very attractive rate of return over that period.

We expect VLTs to begin making measurable contribution in 2011. It is of interest that the new VLTs will be introduced in different types of retail spaces, that our current AWP installed base of 48,000 machines. That should help minimize the impact of new VLTs on our existing AWP machines.

Turning now to the traditionally online lottery segment in which GTECH continues to hold its leadership position, there are some encouraging trends. Operator opportunities are becoming more prevalent. We expect to launch a new lottery in Spain during the third quarter in which GTECH will essentially serve as the operator in partnership with our customer also.

Spain is becoming a significant base of operations for GTECH. There is also a good deal of potential for Interactive operator opportunities there as well. In the United States the Illinois lottery is proceeding with a kind of outsourcing that will engage an operator to help drive greater returns. This could be a game-changing concept in the United States.

In a highly promoted launch this past January, lotteries that are members of the consortiums that offer Powerball and Mega Millions jackpot games began cross-selling one in others' games. Initial results are promising, 33 states joined in the effort. Due to the unpredictability of jackpots, it will take a few quarters to be able to judge the full impact of the cross-selling. And there are still some states such as California and Florida that haven't yet flagged off this program. Nevertheless, we are very encouraged by the cooperation of the two groups and the potential that has for the introduction of new national games in the US.

GTECH Printing has been riding a wave of success. It recently signed its first primary contract with New Mexico Lottery. It is significant because while the organization has been gaining a prominent foothold with main customers as a secondary printer, the New Mexico award signals their emergence as a major competitor. Also (inaudible) a new printing press has been put into service that can print 11 billion tickets annually. This is the highest capacity of any press in the instant-ticket industry.

In addition, government revenues are at all-time lows and lottery programs are being expanded to generate more contributions. Numerous states, including Maryland, Pennsylvania, and Kansas, are introducing government-sponsored machines gaming programs that have created opportunities for our Spielo subsidiary.

All in all, 2009 was a year of fairly dynamic change in the gaming industry. Markets in Europe have begun to stabilize. The market, Italian market emerged as a model for expansion into the exciting growth sectors. The US market began developing a national platform for lottery games and operator opportunities in all segments and geographies of the gaming markets are beginning to take form. Lottomatica Group has invested, prepared well, and is ready to capture the opportunities, views, developments and trends we face.

Let me now turn to a review of our operating results. I'm pleased to report that the fundamentals of our business remain strong despite significant recessionary hardness. Full year revenues were up 6%, EBITDA rose by 4%, and adjusted earnings per share were EUR0.93. At a time when economies of many regions in which we do business were down by 2% to 6%, our performance stands in clear contrast to those trends.

Against the backdrop of these encouraging results, we did have to take a non-cash impairment charge of approximately EUR76 million, principally related to the GTECH G2 companies. The Interactive market continues to grow at a lower rate than previous years. And new regulatory frameworks are emerging which are impacting the timing of some of our expected contributions.

As has become our practice, I will review our performance by going through the major market-facing operating segments of our business; Lottomatica, GTECH, Gaming Solutions, and Interactive.

Lottomatica's Italian operation had another good year. Total revenues were up by 15%. As I mentioned, new games are being introduced in Scratch & Win and Lotto that are helping to create some excitement and bolster sales. Supported by a network of almost 1,700 retail locations that offers either fixed or for Sports Betting, overall revenues from Sports Betting increased by a healthy 29% over a similar period last year. And Gaming Solutions wagers reached the EUR4 billion mark, up 13%. Again, we anticipated introduction and launch of VLTs in June of this year. In the Interactive space, which is still in the investment stage, wagers were EUR355 million primarily from online [forecast].

Turning now to GTECH Lottery operations, same-store service revenues were up 2% over the prior year. Total revenues from GTECH Lottery were not comparable to the similar period in 2008 due to the timing of product sales. You may recall that in 2008 we had some large product sales that we did not expect would be replicated in 2009. [Therefore], we prefer to look at the service revenues which are a more reliable indicator and a direct driver of the profitability and sustainability of our results.

As we have previously reported, GTECH had successful year commercially winning [reviving] New York and a major new operator contract in Spain as well as 12 extension of contracts. GTECH Printing continues to increase its market presence winning 10 new contracts. Gaming Solutions reinforced its leadership position in central monitoring system space with a contract win in Maryland.

The New York Lottery extended its relationship with Gaming Solutions by seven years. Yet another example of the complementary measure of our business units, gaming Solution will also be offering gaming products to other machine operators in Italy through an arrangement to -- with our machine gaming subsidiary there.

In the Interactive segment, we are seeing the beginning of a nationally regulated market in Europe in which GTECH's lottery customers enjoy significant trend, awareness, and trust. As you can see from my review, Lottomatica Group enjoyed a good year in 2009. From our perspective, we have put in place a capital structure to support growth. And we have established an excellent base in all market segments and geographies to pursue growth opportunities. That gives us confidence in the sustainability of our results going forward.

When we look at the worldwide gain in market, we see a great deal of opportunities. And I firmly believe that we have the right combination of people, expertise, and solutions to be successful.

Now I would like to hand the call over to Stefano for a detailed review of the results after which we will take your questions.

Thank you, Marco. And good evening everyone. Good afternoon (inaudible) for those in the US.

I'm pleased to report we have experienced solid financial results in 2009. Revenues for the full year were approximately EUR2.2 billion, up 6% compared to approximately EUR2.1 billion in 2008. At constant currencies, currency revenues are comparable. 2009 EBITDA was EUR784 million compared to EUR756 million in 2008, up 4%. EBITDA was comparable on a constant currency basis.

EBITDA margins were 36% compared to 36.7% in 2008. This is in line with our expectations given the expansion of gaming machines, Sports Betting operations, and our Interactive business which is gradually changing our revenue mix.

Looking at Lottomatica's Italian operations, our Scratch & Win business generated gross wager of approximately EUR9.4 billion compared to approximately EUR9.2 billion in 2008, up 2%.

This increase was driven by the continued success of the EUR5 and EUR10 tickets and introduction of a EUR20 ticket in October. Although the number of tickets sold was down approximately 5% versus 2008, at more than EUR2.4 billion, the average price point grew from EUR3.6 in 2008 to EUR3.9 in 2009.

Lotto wagers were approximately EUR5.7 billion compared to approximately EUR5.9 billion in the same period last year, down 3%. The recently launched 10 and Lotto, while still in its early stages, is expected to contribute positively to revenues in 2010 and beyond. Sports Betting wagers grew 19% to EUR933 million in 2009 due to the continued strong performance of fixed odds sports betting. Fixed odds sports betting wagers in the Italian market were up approximately 3% over the same period last year at EUR4.1 billion while Lottomatica fixed odds sports betting wagers grew 29% to nearly EUR820 million. At December 31st, Lottomatica's share of the market was more than 20% in terms of total wagers. Payout for Sports Betting wagers were in line with market average payouts.

Machine Gaming wagers were up 13% compared to the same period last year, at EUR4 billion. We adjusted our installed AWP base in Italy from EUR49,000 to EUR48,000 to improve profitability through direct ownership of machines.

Lottery revenues were EUR696 million compared to EUR705 million in 2008. To sustain lottery revenues we are working extensively on innovation of market (inaudible) and preparing to use a new EUR10 ticket later this month.

Revenues from Sports Betting increased 29% over the prior year to EUR186 million, while revenues from Machine Gaming were up 80% to EUR161 million, driven by the EUR463 million increase in wagers on AWP machines in Italy.

Revenues from Commercial Services were up 13% to EUR94 million due to an increase in bill payment services and electronic top-ups for prepaid mobile. Revenues from our Interactive business in Italy generated EUR39 million from EUR355 million of (inaudible) wagers in 2009 primarily from online poker. As we continue to build our presence, the Lottomatica brand maintains a second position in the Interactive business in Italy in terms of wagers, primarily relating to interactive poker.

On slide 12, we provide a breakdown of GTECH Lottery service revenues for 2009 versus 2008. Note that these include Gaming Solutions and GTECH G2. Here same-store service revenues were up 2% versus 2008, driven by gains in jurisdictions including North Carolina, Florida, Texas, and Georgia.

International lottery same-store service revenues were up 1%, driven by gains in jurisdictions such as Jamaica and the UK. Growth was constrained by lower jackpot activity in Poland, Czech Republic, and Ireland when compared to 2008. The increase in same-store service revenues in the US and internationally, particularly during a recessionary year, confirms the resiliency of our business.

Revenues from Italian operations in 2009 grew 15% to EUR1.2 billion. This increase was primarily attributable to Machine Gaming, Sports Betting, and Interactive. Revenues for GTECH, Gaming Solutions, and GTECH G2 were EUR1 billion, down 3% versus 2008 revenues due to product sales cyclicality. In 2009, GTECH same-store service revenue grew 2%. 2009 lottery revenues included EUR62 million in product sales versus EUR170 million in the same period last year, primarily due to the sale of new lottery terminals to customers in Finland and the UK in the first quarter of last year which amounted to over EUR100 million. Keep in mind that the timing of product sales tend to be cyclical.

GTECH G2 contributed approximately EUR71 million to our full year revenues, up from EUR48 million last year. It is important to note that Boss Media and St. Minver contributed only eight months to revenues last year.

Gaming Solutions contributed EUR153 million to the Group's 2009 revenues up from EUR143 million last year. EBITDA from Italian operations were -- was EUR505 million, up 9% over EUR464 million in the same period last year. This increase was primarily driven by Machine Gaming, the expansion of fixed odds sports betting, and Interactive.

EBITDA for GTECH Gaming Solutions and GTECH G2 was EUR279 million, compared to EUR292 million in 2008. EBITDA was positively impacted by EUR8 million at same-store service revenue growth. In addition, Gaming Solutions contributed an increase of EUR13 million. The difference is attributable to the timing of product sales and effective rate changes associated with (inaudible) and expansions.

Looking at the P&L, operating income was EUR366 million in 2009 versus EUR340 million in the same period last year, up 8%. The increase is primarily due to improvements in EBITDA from our Italian operations.

Income before taxes was EUR188 million, up 1% compared to 2008. The Group's effective tax rate for 2009 was 40.3% versus 25.6% last year. The rate increase was primarily due the impairment of certain investments, the (inaudible) of the Group's inter-company debt funding structure and losses in certain points such as a [2008] associated tax benefits.

Interest expense decreased from EUR178 million to EUR152 million due to lower rates and variable debt. We incurred some foreign exchange losses in December when we repaid (inaudible). In 2008, we reported non-cash gains from an inter-company loan. You will see further details on our net interest breakdown in the appendix.

Group net income was EUR112 million versus EUR138 million in the same period last year. Net income attributable to the owners of the parent was EUR68 million, bringing our earnings per share to EUR0.45. When we exclude the impairment and other restructuring charges, our performance at all level met or exceeded guidance. Please note that adjusted EBITDA was EUR0.93 above guidance we provided in April.

Our net financial position at December 31, 2009 was EUR2.42 billion, improved from EUR2.71 billion at the end of December 2008. The Group had healthy net cash flow from operating activities at EUR695 million, up from EUR681 million last year. These are from the CapEx including EUR81 million for the first branch of VLT rights.

As you already know, the funds raised from our share capital increase will primarily support the renewal of the Italian Scratch & Win license and the completion of the new investments and VLTs. Cash available at the end of the year was EUR469 million, up from EUR109 million. The increase is the result of our EUR350 million share capital increase and the timing of the Italian Scratch & Win upfront payment.

As you are aware, we also issued EUR750 million in notes at the end of 2009. The proceeds were used to refinance a portion of existing investments of the Group including some euro denominated debt in GTECH books mentioned earlier extending the average maturity of the Group debt while diversifying lending sources.

Our incurred gross debt amount to EUR2.7 billion. Assuming the liability is called on March 31, 2016, the average maturity increases to 4.7 years.

On slide 18, we provide a breakdown of maintenance, and growth CapEx, and acquisitions. Total CapEx and acquisitions were EUR425 million in 2009, down from EUR506 million in the same period last year. Maintenance expenditures for the full year was EUR190 million comparable to the same period last year.

Maintenance CapEx for GTECH, Gaming Solutions, and G2 was EUR177 million compared to EUR148 million in the same period last year driven by investments in New York, New Jersey, and Chile Lottery.

GTECH's growth CapEx was EUR33 million consisting primarily of investments in West Virginia and printed products. For Lottomatica's Italian operations, maintenance CapEx was EUR13 million, down from EUR24 million last year. Growth CapEx was EUR118 million as we continued to make strategic investments in the Gaming Machines and Sport Betting markets in Italy.

As you know, we also invested EUR81 million for VLT licenses. As Marco mentioned earlier, this is such [another] our planned investment for the Scratch & Win concession of EUR500 million to be shared with our partners as we [wait for] pending the final decision on the (inaudible).

We plan to provide guidance during our first quarter results conference call in April. And now we will open the line for Q and A, after which we will hear closing comments from Marco. Operator, please.

Thank you. (Operator Instructions) The first question is from the line of Alessandro Bajbadino from Deutsche Bank. Please go ahead with your question.

Yes, good evening. The first question is regarding the trend of wagers in Italy. We definitely see good numbers in January. I know there is probably seasonality, but unfortunately they were not such good numbers for Lottomatica, both Scratch & Win and Lotto were down double-digit in the month of January. Could you give us some guidance for first quarter and what are the trend -- what trend you're expecting for the full year, at least for Lotto?

The second question is regarding the contract in Spain. It was a major contract. You can give us some update on how this contract is performing and how it's performing in your books in 2010.

And the last question. You said something regarding cross-selling of Powerball and Mega Millions, if you can give us some flavor how really is it going in the first month. Thank you.

Okay. Renato Ascoli will reply to the first question and Jaymin Patel to the second and the third.

Right. If we consider the performance of Lotto's Scratch & Win in January this year, we actually have two different stories in line. As far as Lotto is concerned, there are two key drivers.

One is the part that we suffered from one draw less this year versus last year. And second, we have an historic event nowadays in Italy. So the fact that Lotto does not -- has not had a, what we call, late number. So numbers do not appear for at least a 100 draw in the state, which has affected January and February performance.

As far as Scratch & Win is concerned, again, here the [fees] are different. We have one selling day less in January this year versus last year. Second, we had a -- the launch of a -- the new EUR5 ticket was postponed by a fortnight this year versus last year.

And third, we had an excellent performance in the year 2009 attributing some orders of December 2008 to early January. Because of this, the comparison tends to be a bit unfair. So it's not really like-for-like comparison.

We did not also consider that the first quarter for Scratch & Win in the year 2009 has been the all-time high event for Scratch & Win not only in the -- versus the previous year, but also for the 2009 performance. We are not in a position today to provide guidance for the whole year. We can only say that February as far as the Scratch & Win is concerned is a bit higher than last year.

Jaymin.

Thank you, Renato. Okay, with respect to the other two questions, first of all on Spain, yes, we have been successful in working with our customer ONCE to prepare for a new national launch of instant tickets and Keno.

We intend to launch instant tickets and Keno subsequently some time in the month of May. And this will be a national launch with 6,000 terminals.

Again, at this time, we don't plan to give any guidance on the expectations; we'll do that later in the year. For this year, we are looking at both a very successful launch and a very successful contract. Eventually, we'll reach approximately 15,000 to 18,000 retailers over a 24-month period. So this will be a national contract, national retail distribution all over Spain.

With respect to Mega Millions and Powerball, we had a very successful launch at the end of January 2010. It is very hard to give you any sales predictions because we only have 29 days of data, and the jackpots that we are seeing are very different from the jackpots in 2009.

And so I think we have to wait until we have a few more weeks or few more months, I would say, of trends before we can give you an accurate view of what we expect the upside to be. And I would say furthermore at this time, it's a bit premature to provide you with a forecast because our customers in the United States, of which there are 33 in total across the country that have launched these games, are still trying to understand the trends, and we'll decide on the forecast later in the year.

So again, I think it's looking positive so far. But too early to give you any predictions that would help you understand the guidance for 2010.

Okay. Can I ask something regarding Mega Millions? (inaudible) Did all the bigger states affected or there are some big ones that are still out of the cross-selling?

The majority of states -- majority of large states have adopted the cross-selling games, either Mega Millions or Powerball. There are a handful of jurisdictions that are considering the launch later this year including the two that were mentioned by Stefano; those being California and Florida which are two large states that will likely happen in maybe this year; maybe as mentioned by Marco.

Okay, thank you.

The next question is from the line of Mauro Baragiola from Citigroup. Please go ahead with your question.

Hi everybody. Just a quick question. Can you explain the rationale behind the dividend? It's quite juicy, and -- it's just few months after the complex right issue and there are still open -- some open issues on the upfront fees and (inaudible). So I wonder why paying a dividend right now? Thanks.

As you have read, Mauro, the directors will propose -- has proposed to the approval of the shareholders' meeting today at EUR0.74 dividend per share. It represents a 9% increase compared to last year. And all the outstanding shares are in part of the received dividend, and we think that considering our all -- overall financial position, this is a proposal that the Board has clearly evaluated and submitted to the shareholders' meeting, and it's part of an overall strategy to guarantee to the shareholders a consistent return along the period of time than a single year.

Sorry, if I may -- over 2007, 2009, let's say you paid roughly EUR300 million in dividends and buyback, and then suddenly the Italian government asked for EUR800 million. So you can't rule out that it could've been a gain, and if I assume you as the only winner as I assume that way for the Italian Scratch & Win and assume the [dollar to 136], more or less the net financial debt for the year end is EUR3 billion, right? Correct me if I'm wrong.

And so EUR3 billion, again, without having a full picture, because unfortunately it's -- most of the -- some of the decision are in the government hands. So you can't go against it if government require as was the case of Turkey or Italy. I wonder if, for example, Illinois decided to go for a like or kind of privatization requiring some upfront, are -- you are going to finance that or if maintaining such money in your pocket, could that've been a wiser strategy? I just wonder.

Mauro, well, we will give the full disclosure on our financial situation at year end in due course as I had announced at the end of April. Let me simply underline that as far as Illinois is concerned, we know for sure that there is no capital requirement upfront. So there's no license fees to be paid.

And our plan, which will be evaluated by the Board, is a plan that ensures that we can maintain investment grade rating, which is our key target as we have repeatedly stated in several different occasions, and we have demonstrated that we can keep up with that statement.

Sorry, and then I really complete my question. Do you think that, therefore, minority shareholder is suited to pay the coupon on the UBI Banca bond and then pay the dividend? Do you think that it's a good capital allocation?

I'm sorry, Mauro, you're asking a personal opinion. The opinion of the Company is represented by the Board proposal, and that will be submitted to the shareholders' approval.

Okay. Now, you're right. Okay, thank you.

The next question is from Fabio Iannelli from Kepler Capital Market. Please go ahead with your question.

Yes, Hi. Good afternoon. I turned late in the conference. So I apologize in advance if part of my questions were already answered. So my first question is on video lotteries. Shall we assume that in second part of the year, you will finance the EUR81 million CapEx for video lotteries?

Because I remember that at the end of Q3 your guidance was that at the end of Q1 2010 there was an (inaudible) case after which you decided whether that will complete the investment on video lotteries. So I understood that we should assume further EUR81 million investment of video lotteries in second half. Please tell me whether this is a correct assumption or not.

Second point is on -- I understood that you are going to give guidance on 2010 at the end of Q1, which means May. So given your revenue visibility, I wonder why we should wait until Q1 to have a full guidance on 2010. So your business is rather stable. So why waiting so far?

And last question is, on the weighted average length of services and contract for seven years, I see that you assume the renewal of Italian Scratch & Win. So can you please tell us what will be the weighted average length assuming -- not assuming the renewal of Scratch & Win concession? Thank you.

So, let me repeat. We are going to disclose our guidance for 2010 in late April. Actually, the Board is to be convened on April 29th, which is consistent with our past practice.

We know that we have predictable and stable cash flow. So we are not under pressure to give specific guidance given the predictability of our business. And we are encouraged by the resiliency of the business that should help to understand and being able to formulate independently some kind of expectations.

Coming to your question about VLT rights, we have stated, and you are correctly repeating that that we are committed to buy 50% of the maximum numbers of rights that we are entitled, which is 14% of existing AWP rights, which is slightly less than 11,000. We have already paid 50% of that, and we are working in several directions within our own network.

And we are in the process of locating the best premises where to install our VLTs. So we do not want to disclose right now, not to be in a competitive disadvantage position versus the other nine concessionaires. Bear in mind, this is a competitive type of operations we are in, the total number of rights that we will subscribe.

The deadline for the payment is June. The original deadline for the formal communication to the regulator was indicated to be the end of March. But there are, let's say, rumors that this original deadline might be pushed right -- would much closer to the deadline for the payment terms.

We will be happy to share the exact numbers of VLT rights when we will communicate our guidance for 2010.

Okay, thanks.

Thank you. The next question --

Yes, sorry. There was an -- a further question.

oh, beg your pardon.

Average contract portfolio rights excluding VLTs is more than five years.

Okay, thank you.

-- to reflect (inaudible), sorry.

Okay, thank you. I appreciate it.

And our next question is from Domenico Ghilotti from Equita. Please go ahead.

Good afternoon. I have three questions. The first is on the international lottery and service. I saw a decline in same-store sales in Q4. Could you elaborate please a little bit more on different markets?

And the second question is if you can provide a rough guidance of CapEx in 2010. And then last question is on video lotteries. And I wonder if you can be -- let's say you can give us some colors on the -- at least on the timing for completing the roll-out, if you see a constraint on the supply of terminals, and what is the visibility on, let's say, finding the locations for installing the new terminals?

Let me start by answering the first question on international lotteries. It is Jaymin Patel now speaking. If you look at the world wide sales impact that we had in the fourth quarter, there were a couple of geographies in particular that had weaker-than-expected same-store sales growth. And those were Ireland and the eastern European jurisdictions that we have, which are Poland, the Czech Republic, and to a lesser extent, Slovakia.

I think all these economies are impacted by weak consumer spending. As you probably are well aware from a macro-economic point of view, these countries are facing some financial difficulties, and I think that we're seeing the impact of that flow through into lower consumer lottery spending.

There are plans in place in each of these jurisdictions by our customers to reverse the trend. I don't think that we'll see the 8% to 10% growth rate that we saw historically for a couple of years given the economic situation. But I do think that there'll be a turn-around by the second half of 2010. I would say that there are a handful of other jurisdictions internationally like the UK and most of the jurisdictions in South America that had a very strong year in 2009 and we expect those trends to continue going into 2010. So I think it's very important to say that we do have a global portfolio, which is balanced. Sometimes you have some jurisdictions that are weaker than others. But from an overall global point of view, we enjoyed approximately 3% same-store sales growth in 2009, and we certainly expect positive same-store sales growth in 2010.

Okay.

In terms of CapEx for 2010, I want to repeat that we will release detailed guidance as it is our common practice at the end of April so that we will give a better picture of our expectation, not only in terms of CapEx, but in overall financial terms.

As far as the request of color regarding the implementation of VLTs in Italy is concerned, let me say that two key processes are ongoing at the moment. One is the testing, we are doing that with Jay who's the IT arm of our regulator in Italy. And on the other side, we are doing -- and we're -- actually are signing preliminary contracts with point of sales.

The testing is going nicely and we have a solid preparation to launch VLTs in Italy in July as Marco Sala already stated before. And as far as location are concerned, we already have a huge quantity of agreement made and we can say we have more agreements than rights in whatever scenario you might consider. And so nowadays we are in a selection process trying to focus on the best opportunity and the best locations.

Okay. Thank you.

Our next question is from Micaela Ferruta from Intermonte Securities. Please go ahead with your question.

Yes, good evening. I would like first to ask a quick update on the Texas Lottery renewal situation, and on the timetable for the problems that have been in the banner.

The second question relates to the -- in your press release regarding the impairment charge, you actually mention the fact that EU regulation on Interactive might not be as favorable as initially thought. So can you elaborate on these?

And finally, the buyback up to 20% of share capital, but do you plan to buy back shares in the event you are assigned, sorry, the scratch card concession? In a way, this is a bit related to the dividend question. You have a huge -- we all hope that you will have a huge upfront seat to date you're assigned the scratch card concession as a unique concessionary. Is this the right timing for further buyback? Thank you.

Okay. With regard to the first question on Texas, let me start by saying that the Texas RFP is out and is valid. The customer has requested responses by May the 27th, and is expecting to make a decision on the award by August 2010. And during the last several weeks, there have been questions raised about a potential conflict of interest because Gartner, the consulting firm, was actually hired by the Texas Lottery to help them prepare the RFP, the RFP itself actually being prepared by the lottery management.

They were assisted by Gartner and a question was raised as to whether a conflict of interest arose because of a minor relationship that Gartner had also with GTECH, which was certainly something that we were not under any obligation to disclose to anybody; but it was Gartner's obligation.

Let me just state to you that according to the investigation conducted by the Texas Lottery and by GTECH, it is very clear that no conflict of interest is present or had arisen. And on that basis, the Texas Lottery stated very clearly at the last commission meeting just a couple of weeks ago that the RFP process will continue. But in order to provide bidders with sufficient time to respond to the RFP, they extended the date of submission to the end of May versus the end of April.

And that is all I can say on the subject. As far as I am concerned, we are in a competition.

Thank you.

Micaela, about your question on impairment, let me specify that the regulatory framework changes that are emerging are not worrisome to us except for the impact on timing of the expected growth.

We continue to expect a growth from Interactive, but the pace of this growth will be probably lower than it had been in the last couple of years. So that's the reason why we offered to take these accounting adjustments of the assets that we have in our balance sheet.

So we continue to expect growth. We continue to consider the strategic move that we have made ahead of others, players in the market as a significant competitive advantage to address the [WLA] customers. And the number of customers that we have secured has grown from 3 to 12 in the first half 2009 is very reassuring to that respect.

Coming to your last question about share buyback; that has to be considered a flexibility type of approach. We want to have an ongoing share buyback opportunity. And given the lengthy formalities and the approval process, which is enacted in Italy, this resolution has been proposed to the Board for the shareholders' approval.

We do not intend to exercise a buyback activity during the course of 2010.

Thank you.

And the next question is from Fabio Pavan from Mediobanca. Please go ahead with your question.

Yes, hello. First question is about Illinois. I was wondering if you could provide us some data about the timetable for the privatization. And secondly, again, on the Scratch & Win, I was wondering if you would elaborate a little bit more on the new (inaudible) with Scratch & Win and the results in terms of which that (inaudible). Thank you.

Let me start by providing an update on Illinois. First of all, just to be clear, the Illinois opportunity is for the government to issue and operate a license as opposed to a full scale privatization where they are requiring upfront payment. There is no requirement for an upfront license fee.

The Illinois process is underway; the lottery is -- has requested bids for a transaction advisor, a bid advisor. And they are evaluating the proposals accordingly, and we understand, will make a decision soon about a bid advisor. They will then move to issue an RFP, which we expect to be in the spring of 2010.

And then there'll be bid submissions a couple of months later. The current timetable calls for the state governor to make a decision on the operator award by September 2010. Well, that is what we know today and we are looking forward to the process.

Scratch & Win, we have a comprehensive strategy in terms of progress, in terms of launches. As we said already, the new EUR5 tickets (inaudible) was launched on January 18 and of course it's contributing to the performance of February, which I think is a bit higher than last year.

We are very happy about the start-up phase of these tickets. So the impact was good and the reaction from the marketplace excellent. We have, say, designed a timing for the new launches, where we can anticipate today that we will be launching new businesses for one for every month until June. And again as Stefano already anticipated, the new ticket, the new EUR10 ticket will be launched on March 8.

Okay. Thank you.

And the next question is from Laura Pennino from Banca Leonardo. Please go ahead with your question.

Hello. I have just three questions. One was regarding Illinois. And then when you say you are going to have an operator role, can you give us some indication on what kind of revenue fee you expect to share and which is the commitment also on CapEx that you are going to have to submit?

And then another thing is regarding the expansions you are having in this past year. Can you say -- give us an indication of what is the average decline, average revenue fee decline you are having in -- during expansion or if you are bearing some revenue fee decline or not. And the CapEx you are registering in the expansion, you are considering the maintenance? You have some CapEx requirement for the expansions or not.

And the third question is regarding the impairment charges. I see you are saying you have -- you are setting goals, but at different timing. Can you give us just a little more of indication of what are the regulatory changes you did not expect before or you did not have in your accounts previously? Thank you.

Laura, this is Jaymin to answer Illinois first and I'll ask Stefano to take the next question.

Okay.

With respect to Illinois, the current structure of the contract we have is a traditional FM contract where we provide technology, marketing, and a range of services to our customer. The legislation in Illinois contemplates the consolidation of our activities, communication services provided by a third-party, as well as advertising and marketing. So that's all going to come together under an operated contract.

I cannot tell you what the size of that contract will be because its -- we haven't seen the RFP yet. And it's very difficult to predict the amount of capital required because I think the expectation is that there will be a bigger network of selling terminals in Illinois and perhaps some new technologies that will enable future growth so that at this point in time it's premature for us to predict those things. We are working actively on Illinois and we're looking forward to the issuance of the RFP.

I'm sorry. Just a follow-up question. So you do not expect an upfront fee, but you expect requirement in CapEx, is that correct?

Yes, we always expect CapEx because under a normal rebid scenario we are required to take out all of the old equipment and put new equipment in. So therefore there is always CapEx for the central system, some in old communication systems, and so on. So that is normal operating capital that we have in our business that we plan for. I can't tell you whether it's -- what size that will be because the expectation is it will likely -- there will likely be a larger system and network in place than we have today. So that will be subject to the RFP requirements.

Okay. But you expect a higher revenue fee because you are concentrating the activities, is it correct?

Well, we would hope that with the consolidation of the existing contract, advertising and communications, that the overall revenue stream is higher because the breadth of the contract will be substantially broader, so yes.

Okay.

Now, coming to your question about expansions. The overall terms negotiated for the expansions were favorable. Price reduction of course is a case-by-case situation. Overall, on average we are very pleased with minor price reduction which was in the low-single digit while we will be enjoying particularly in the 2012, 2013 a substantial reduction of our maintenance CapEx which will be a meaningful contribution in terms of cash flow generation for the Group going forward.

And finally your question about impairments and interactive regulatory framework, the reason of the lower growth is that some openings in some regulation in selected jurisdiction is taking more time than we had anticipated one-and-a-half year ago.

Okay. Thank you.

(Operator Instructions) We have no further questions coming through. (Operator Instructions) We have no further questions coming through so I hand back to your host to conclude today's conference.

Thank you very much. So I will wrap things up. I can sum up 2009 very easily. Lottomatica Group had a good year. We experienced solid growth in all important activities of our business. We made investments to position the Group to continue to prosper and our capital structure will support more growth investments.

In addition, the Lottomatica Group Board of Directors today proposed a dividend of EUR0.74 per share for approval at April 30th annual shareholders' meeting. This is another sign of the vitality of our business.

In the Italian market we anticipated the change in dynamic -- the change in market dynamics. We have successfully entered high-growth areas that are broadening the portfolio of games and services we provide players. In the process we have become a leading operator in the Machine Gaming, Sport Betting, and Interactive sectors, all of which has solidified our leadership position in the overall Italian gaming market.

Our core online lottery market is going through some changes that bode well for us. Lotteries are beginning to innovate and consider different approaches of growing their business. There are likely to be opportunities for operators to play a more significant role. There are also the first signs of the potential of a national game in the United States. In the meantime the cross-selling of Powerball and Mega Million game is an important step in that direction and should then support same-store sales growth.

We look forward to 2010 with expectation of another year of growth and positive results. For the time being thank you for joining us today and good evening.

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