International Game Technology PLC (IGT) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Lottomatica 2011 First Quarter Results Ended March 31st 2011, Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Marco Sala, CEO and Managing Director, Lottomatica Group. Please go ahead, sir.

Good evening and thank you for joining us for Lottomatica Group's 2011 first quarter results presentation. Joining me for today's presentation is Stefano Bortoli, the Chief Financial Officer of Lottomatica Group. Renato Ascoli, the Managing Director of Lottomatica and Jaymin Patel, the Chief Executive Officer of GTECH will join in for the question-and-answer session.

I'd like to begin by providing you with an overview of our performance and some insights into the trends and activities we -- that have impacted it. I noted, in our year-end call that I thought we had established some real momentum coming into 2011. The first quarter performance has proved that to be true. Revenues, EBITDA and operating income experienced solid growth, approximately 30% over the previous year.

Our business benefited, in the first quarter, from our investments, particularly in machine gaming sector in Italy. We also benefited from innovations that have brought to market, like the new Italian lotto games and prize pay-out reform in California. It should also be noted that the jackpots and the late numbers helped our results and may not reoccurring in future quarters.

In Italy, we experienced a high level of wagers for late numbers that have since been drawn at the end of March. In the United States, there were two multi-state jackpots in excess of $300 million. Those jackpots were aided by the fact that most of the major US jurisdictions cross-sell games from the two national lottery organizations. In the first quarter of 2010, cross-selling had not yet fully impacted the US results, nor was the multi-state jackpot activity as significant as in the first quarter of 2011.

In addition, late numbers wagering in Italy was also not a factor in 2010. Even when accounting for the impact of the jackpot cross-selling and the late numbers, the underlying performance of the business was very good. As I have previously pointed out, the basic drivers of our three-year growth plan are lottery and machine gaming in Italy, international same store sales, product manager opportunities and the Canadian VLT replacement cycle.

I'm going to ask Stefano to give you a detailed review of the numbers during his presentation. I'd like to give you some insights into the progress we have made in meeting our growth objectives. After experiencing flat to slightly positive growth in 2010, the Italian gaming market has come back strongly. As we expected machine gaming in Italy is becoming major contributors to our results. To date, we have installed over 5,800 VLTs to fulfill the approximately 10,800 licenses we hold.

And we have approximately 54,000 AWP machines, as part of our monitoring network. Of that number, Lottomatica directly owns and operates approximately 40% of the units in the field. Stefano will give you some sense of our machine gaming performance, which has exceeded our expectations.

I must caution you that while we are pleased with the results to date from our VLT program, we are still in the roll-out phase. We enjoyed an advantage in getting to markets ahead of our competition. It is our expectation that the entrance of other operators will likely impact our results as well as the potential cannibalization of AWP performance, which has not yet to be assessed.

As I hope it is apparent, we have focused our organization on machine gaming segment in Italy and earlier results are impressive. Machine gaming now accounts for almost 30% of our overall revenues in Italy. But wages increased approximately 45% versus the previous year. Lotto has clearly benefited from the introduction of 10eLotto that has revived player interest.

As I noted, late numbers occurred in the first quarter of 2011, also driving positive lotto results. Approximately 25% of traditional lotto wagers during this period were from -- for late numbers. That compares to a similar period last year, when wages on late numbers were only 4% of lotto wagers. As we have previously noted, we expect late numbers to occur, but not with regularity. Scratch-and-win wagers had a massive 10% growth over the similar period last year. The results were primary driven by the introduction and effective promotion of higher price point games.

Turning now to GTECH, the positive trend in same store revenues is encouraging. Improvement in same store revenues, during the first quarter, have offset the price compression impacts from contract rebuilds. For the period, US same store service revenues were up 6% over the comparable period for last year. As previously noted, that performance was supported by major jackpot activities in the first quarter.

Even when accounting for jackpot activity, the momentum we established in the fourth quarter is continuing and growing in 2011. I have often mentioned that the experience we had -- we have had in California, because it is an important indicator of the kind of impact we can have on same-store sales. Improved pay-out ratios were implemented in the latter part of 2010.

As we expected, players responded positively. The lottery has roll out 17 new instant games, each of which has achieved an increase in sales versus previous games. Overall instant sales were up 28% over a similar period of last year. That's the kind of impact some good strategic guidance about best practices can have on our customers' sales.

Finally I'd like to turn to our private manager activities in Illinois, which you will recall are an important element of our three-years plan. In July of this year, we expect to become fully accountable for the lottery's performance and eligible for bonus compensation. Previously noted and expanded the retail-level recruitment operation is also underway.

In addition, a rebranding of the lottery has been completed and we expect to launch 50 new games this year. And we are replacing the older technology with the new system in terminals that will be better able to support our growth. Other US states are considering adopting a similar business model to Illinois. New Jersey has hired an outside consultant to advise it on potential operations -- options, sorry, and the governor of Ohio has made known his desire to change the management model of his state's lottery.

These types of changes take time to accomplish, but there is a series activity and we are monitoring these developments closely. From a commercial perspective, GTECH enjoyed continued success. We launched a new lottery in Madagascar and signed an expansion in Jamaica and Slovakia and a rebid in Luxembourg. The Canadian market VLT replacement cycle is underway and Spielo is anticipating a decision from the Atlantic Lottery Corporation in the near future.

Let me conclude with some comments on our earning guidance. As you have seen in our announcement today, we made a decision to increase our guidance fairly substantially. Frankly, I do so cautiously, but with a confidence in our ability to meet these new targets. It is important to keep in perspective that we only have slightly more than one quarter to judge the full year. We are benefiting from the impact of VLTs in Italy and 10elotto games. You will note that we do not have a full year of experience for either game.

However, there have been events, like jackpots and the late numbers that might not be as impactful in future quarters. We are also monitoring an evolving situation in Czech Republic, where our customer, Sazka, is going through an insolvency proceeding. The business there continues, but the situation is complicated and will take time to resolve.

Even with those notes of caution, it is evident to us that the sustainability of our underlying business is sound and we expect the positive momentum to continue. We are confident in our prospects for the remainder of the year. We believe that the results will be better than we have previously expected and we have amended our guidance to reflect that. Now, I'd like to hand over to Stefano for a detailed review of the results.

Thank you, Marco, and good evening, everybody. I am pleased to report that overall we delivered solid operating results in the first quarter of 2011. The fact that this quarter was our best quarter ever in terms of revenues and EBITDA. Revenues for the first quarter were up 29% at EUR702 million, compared to approximately EUR545 million in the first quarter of 2010. At constant currency, revenues were EUR703 million.

EBITDA was up 30%, to EUR256 million, compared to EUR197 million in the first quarter of last year. This quarter, 2011 EBITDA, on a constant currency basis, was EUR257 million. EBITDA margin was 36.4%, an improvement compared to 36.2% in the first quarter of 2010. When looking at Lottomatica's Italian operations, our scratch-and-win business generated gross wagers of EUR2.73 billion, up 10% versus the first quarter of last year. The number of scratch-and-win tickets sold in the quarter was 606 million, with an average price point of EUR4.51.

Continued driving sales, in January we launched a EUR20 ticket, Maxi Miliardario, a EUR3 ticket, Buon Compleanno, in February and a EUR5 ticket, Mille e una Notte in March. But the wagers were up a healthy 45% to EUR1.75 billion compared to EUR1.2 billion in the same period last year. Combined lotto and 10eLotto performance contributed EUR282 million out of the EUR546 million wagers increased while the remaining growth is attributable to favorable late numbers patterns.

Lottomatica's sports betting wagers in the first quarter were EUR297 million, compared to approximately EUR309 million in the same period last year. Machine gaming wagers were more than doubled compared to the same period last year, at EUR2.33 billion. The number of installed machines in the first quarter of 2011 grew to 60,000. This machine count is comprised of AWPs and VLTs connected to Lottomatica system. July of 2010, Lottomatica launched the first VLT network in Italy and at the end of March, 5,800 machines, VLTs, were installed.

Interactive wagers were up 14% versus the same period last year, at EUR117 million. Lottery revenues were up 32% to EUR221 million, compared to EUR168 million in the first quarter of last year as a result of lotto's performance, higher instant ticket sales and the increased percentage fee for the scratch-and-win concession. Revenues from sports betting were up 19% to EUR59 million versus EUR49 million in the first quarter of 2010.

The revenue growth is attributable to a more favorable pay-out, partially offset by a slight decrease in wages when compared to the first quarter of 2010. Machine gaming revenues nearly tripled, to EUR136 million, compared to EUR49 million in the same period last year. This revenue includes three months of contributions from the newly installed VLTs, which were not operational in the first quarter of last year, for a total of EUR77 million.

Revenues from commercial services were up 22% to EUR29 million, due to an increase in bill payment services, electronic top-ups for prepaid mobile and ticketing services. Revenues from our interactive business in Italy generated EUR15 million, up 28% versus the same period last year. Revenues from Italian operations in the first quarter of 2011 were EUR460 million, compared to EUR301 million in the same period last year, up 53%. This increase was primarily attributable to higher revenues from our machine gaming business, total performance and the previously mentioned EUR3.9 fee for the scratch-and-win concession, which commenced in the fourth quarter of 2010.

As reported by AAMS, total VLT wagers in the Italian market were EUR2.2 billion in the first quarter, which includes replay credits. The Italian VLT market continues to grow. AAMS also reported wagers of EUR924 million for the month of March only. As we had anticipated on our last call, we would like to take this opportunity to give you some perspective on performance in this segment.

Current pay-out is higher than 90%. Current taxation is 2% of wagers and will go to 3% and 4% in the next couple of years. The difference in wagers, less pay-out, represents cash-in. Cash-in, less taxes, represents the net win, which is what Lottomatica accounts for as VLT revenues. In the first quarter of this year, Lottomatica's machine gaming wagers totaled EUR2.3 billion. Wagers from VLTs only were EUR1.2 billion, generating, as I said earlier, EUR77 million in revenue from 5,100 VLTs on average for the first quarter.

EBITDA from Italian operations were -- was up 49%, EUR199 million, compared to EUR134 million in the same period last year. EBITDA improvements were recorded across all main business lines in Italy, although the increase was primarily attributable to the previously mentioned lotto performance and the expansion in machine games.

On slide 12, we provide a breakdown of GTECH lottery service revenues for the first quarter of 2011, versus the first quarter of 2010. Note that this includes gaming and GTECH G2. Domestic same-store revenues increased 6% versus the first quarter of 2010, driven by cross-selling and extraordinary jackpot activity. In the quarter, Mega Millions had two jackpots exceeding $300 million. They also experienced particularly strong growth in California, we are given the pay-out increase. As Marco said it before, weekly instant sales are up 28% versus the same period a year ago. We also have good performance in Texas, North Carolina, Virginia and West Virginia.

International lottery same store service revenues were up 2% versus the first quarter of last year. We benefited from a EUR1 Million jackpot of approximately EUR140 million in March as well as improved performance in Poland, the UK, Trinidad and Slovakia. International sales performance was negatively impacted by financial difficulties of our customer, Sazka in the Czech Republic, is experiencing.

Revenues for GTECH G2, GTECH and gaming were EUR242 million compared to EUR244 million in the first quarter of last year. EBITDA for GTECH, GTECH G2 and gaming was EUR57 million compared to EUR63 million in the first quarter of last year. Revenues and EBITDA were both impacted by strong same store revenue growth in the first quarter, which was offset by changes in our contract portfolio, including losses in Louisiana, Morocco and The Netherlands and lower software service hours internationally.

Gaming Solutions improved due to additional VLT sales in Italy and the effect of continuing integration efforts between Spielo and Atronic. The intergroup sales of VLTs from gaming solutions to Italian operations is the primary driver behind the EUR14 million and EUR3 million changes in revenue and EBITDA eliminated in consolidation.

Now let's look at the P&L below EBITDA. Operating income was up 29% in the quarter to EUR153 million versus EUR118 million in the same period last year. Interest expense was steady as a result of higher debt balances which were offset by lower interest rates. The EUR35 million of non-cash foreign exchange losses was principally associated with the addition of euro denominated debt to GTECH's balance sheet.

Income before tax was EUR74 million compared to EUR77 million last year. Group net income was EUR36 million versus EUR41 million in the same period last year. Net income attributable to the owners of the parent was EUR22 million resulting in earnings per share of EUR0.13 cents.

On the next slide we will look at pro-forma EPS. With the aim of giving a more accurate perspective on the core earnings generated by our business we are presenting EPS on a pro-forma basis. This pro-forma calculation is excluding non-cash foreign exchange losses associated with the euro denominated debt on GTECH books and non-cash purchase accounting associated with the GTECH acquisition bringing diluted EPS to EUR0.31 versus EUR0.24 cents last year.

I believe this measure provides a clearer view of Lottomatica's ability to generate consistent income to the owners. We generated free cash flow from operations of EUR205 million in the quarter providing the capacity to fund capital expenditures as well as interest payments. Our net financial position at the end of the quarter was approximately EUR2.93 billion down from EUR2.94 billion at the end of 2010 at constant currency. At the end of the quarter we also had EUR710 million of cash for committed undrawn lines of credit available.

Our CapEx is progressing in line with plans. EUR68 million of CapEx for GTECH, G2 and Gaming was primarily related to investments in GTECH Texas, Illinois and Poland contracts. Lottomatica Italian operations CapEx was EUR39 million primarily related to Gaming, Lotto and Instant.

Now, let's look at our revised guidance for 2011 which is based on an exchange rate of $1.40 to EUR1. We're starting the year in good shape with a fair amount of momentum. As we stated earlier machine gaming performance in Italy has exceeded our expectations. We expect to have nearly 9,000 VLTs in place by the end of December with an average of 6,650 VLTs installed during 2011. As anticipated we are planning to add the remaining 1,800 rights to be used to support Spielo's business in Italy. Benefitting from our first mover advantage in the market our VLT wagers are increasing beyond our expectations.

Consistent in our first quarter performance we reassessed our estimate for 2011 and have revised our target. The new guidance reflects higher EBITDA targets for VLTs, our confidence to achieve our lotto targets, also in light of the good performance in the first quarter and consider the potential financial difficulties of one of our customers in the Czech Republic. We remain with our original assumption of single-digit growth in the low to middle range for scratch and win with limited or no impact on EBITDA to do higher marketing expenses.

Lotto is also benefiting from the introduction of 10eLotto as you are aware. Given this strong performance we now expect revenues to be in the range of EUR2.8 billion to EUR2.9 billion and EBITDA in the range of EUR890 million to EUR910 million. We are also adjusting the net financial position range to approximately EUR2.825 billion to EUR2.875 billion. Now, we would like to open up the line for q-and-a after which we will hear closing remarks from Marco, Operator please.

Thank you very much. (Operator Instructions). Our first question comes from Matthew Gerard of Credit Suisse. Please go ahead.

Hi good evening guys. I have three questions I think. Firstly, on your guidance that you provided can you just let us know an update on what you're assuming for 10eLotto in particular? And also the VLT contribution, I think you previously loosely guided that around EUR8 million per thousand VLTs operating would be a good proxy for this year on the EBITDA contribution. What are you now assuming without asking us to work down through the P&L of the VLT structure?

And secondly on 10eLotto again I think you previously guided EUR1.5 billion and exit rate of EUR130 million wagers on 10eLotto per month. Is that still applicable? What's the current monthly run rate for wagers on 10eLotto at the moment? I'll start with that one, thanks.

So in terms of the VLT guidance we are anticipating the EUR8,000 per machine as we had stated was the run rate once the tax would be at 4%. Given the current performance of VLTs and the 2% tax rate that EUR8,000 per machine should be right in the range of EUR15,000 to EUR18,000 per machine.

As far as 10eLotto we are not changing our estimate. You have to bear in mind that 10eLotto had started at the end of September so it had contributed in 2010 only three months, October, November and December. While here we have a favorable comparison in Q1 where we have no 10eLotto contribution for the first quarter this favorable comparison will continue for Q2 and Q3, will not be there for Q4. But overall we are -- of course you have to bear in mind that Q1 was impacted by the late numbers and don't forget that there is still a certain degree of seasonality in the summer months that will impact 10eLotto as well.

So sorry just for clarity then could you give us an idea of what the wagering volume was on 10eLotto in, say, the month of March so we've got a reasonably recent number.

The average performance of 10eLotto in March was something about EUR13 million wagers by draw. Of course this is very high level which thanks for the contribution of people wagering on -- betting on the late numbers and therefore betting on 10eLotto as well. And again as Stefano was noticing before the seasonality was very favorable while we expect, of course, since the beginning of June, because of the characteristics of the game the significant amount of wagering will be reduced until the end of summer holidays, so reasonably at the end of August beginning of September.

Okay, I just had one more. Could you give us an update on the court case in Illinois that -- and where we are on that and how that may impact the initiation of the new concession in that State which I think is scheduled for July currently.

Yes, Matthew there is no update that I can give you on the court case in Illinois. The Supreme Court is considering the arguments and it will be heard as you said sometime in the case -- sometime in July. The position that we have taken is that we are proceeding with the full support of the State because there is currently a stay in place which means that the Private Manager Agreement, as signed, is effective and we are obligated to perform under it. The State's view is that if there's an issue with the contract with the Supreme Court in July then they will pass legislation to address that so that the PMA can continue as is. So I have no other information to report to you.

Matthew Gerard. Okay thanks.

Our next question comes from [Frika Vulgamost] of WestLB. Please go ahead.

Hello and thank you for taking my question. If I look at your numbers what would be your next steps or your strategy if you achieve your target leverage earlier than previously guided? I think it was 2013? Hello?

We have stated our goal is to get to a target level operation which is EUR2.7 billion, and of course we will continue driving the business and invest in the growth of the business -- in the organic growth of the business. And we will revise our strategy at the appropriate time when we will have a clearer picture of the exact time we will get there. We'll stick to the goal of reducing the debt and we will respect the dividend policy that has been recently announced by -- well has been approved by the Board of Directors.

Okay maybe I could be a bit more precise. Do you plan any extension for example in Greece? I think they are about or already have allowed to install VLTs?

Regarding Greece -- the Greek market we are looking at the Greek market and we have always stated our interest in the Greek market. We are waiting more visibility accordingly to the development on the on the law that should regulate VLTs. Anyway, for the time being what I can tell you is that as long as there will be an attractive possibility to operate VLTs in Greece we are interested in entering that market.

And sorry just last question can you give us a very brief update about the regulatory situation in Greece, so when will be the next step and when -- if there may be a final decision?

Look the situation is the following. The Greek Government as far as we can see is dealing with a fairly complicated situation regarding the enactment of the new gaming laws. In fact the Greek cabinet has promulgated a draft law that has been subject to a reconsideration with the parliament. And the Government has suggested that it expects parliament to act on a gaming law during the month of May.

And the details of these government initiatives which considered several different items haven't yet been made public. Of course as Marco was commenting before we are closely monitoring the situation and we are very interested in that market opportunity and we will evaluate any of these opportunities when we will have a clear understanding of economic assumptions underlying those opportunities.

Okay, thank you.

Our next question comes from Alessandro Bajbadino of Deutsche Bank. Please go ahead.

Okay my first question is regarding 10eLotto. Can you give us the amount of wagers in the first quarter and the same can you do for VLTs, the net revenues for Lottomatica. The other question is regarding, if you can tell us regarding Illinois how many point sales are now installed after your startup phase started in March 2011. And my last question is regarding 2012 and 2013 guidance. Given your uplift in 2011 guidance is the guidance for 2012/2013 which means up mid-single digits in EBITDA still valid? Thank you.

As far as 10eLotto is concerned, keeping in mind what we already said given the very favorable seasonality of the first quarter of 2011, the overall wagers of the first quarter are EUR490 million. I think that Stefano already stated that VLT wagers in the same period are about EUR1.2 billion and that is -- and net debt is worth EUR77.5 million revenues as VLTs only are concerned.

Sorry Renato I missed that. Sorry I'm sorry to ask you again but I missed what Stefano said, I'm sorry.

EUR1.2 billion VLT wagers in the first quarter and EUR77.5 million revenues for VLT's only.

Thank you.

Thank you.

Returning point of sales

Yes, in the case of Illinois --

Yes.

First of all, just to remind you that the ramp up period only began in early March because the State was several weeks, approximately 10 weeks, late in signing the private manager remand for various reasons. So, we took over as, in the ramp up phase, in early March and we're making good progress with selecting retailers. So, as of last week, there were approximately 600 applications that were made to become a retailer and, of those 600, the State has approved about 100.

It will take a few weeks for the State to oil the pipeline, if I may say that, to actually get these retailers approved and that process is now beginning. The installation won't begin until late May, which was what the original plan. Because we planned to have 400 new retailers up and running by the 1st of July which is always our plan. So, so far, the retail recruitment in terms of finding retailers is on track and we have to work hard in the next few weeks to make sure that we can get the State to clear them as valid retailers.

And Alessandro, coming to your question about guidance. As you may appreciate, the spend is mostly driven by VLT's and 10eLotto that have only a few months of performance that we can base our planning horizon on. So, at this point in time, we are not in a position to make any change in the outlook of the years beyond 2011, which we'll do in due course as soon as we will have a more steady and reliable trend of performances for them. Particularly, these two businesses going forward.

Okay, thank you very much.

Our next question comes from Roohi Siddiqui of Merrill Lynch. Please, go ahead.

Hi, yes, good afternoon, guys. I have a few questions if I may. Firstly, on the pay-out ratio that you mentioned on the VLT's, is this set to remain at over 90% for 2011 and also going forward or are there fluctuations due to some reasons? The second thing is, on the tax, could you just provide us with an update on your tax guidance for the year? And, then, the third question is, when I look at your revenue guidance for the year, is it possible for you to sort of give a breakdown between the Italian operations and GTECH and, also the same for EBITDA? Thank you.

Well, as far as the pay-out for VLT is concerned you just have to bear in mind that the minimum pay-out has to be 85%, this is the regulatory constraint given to all of the concessionaires. The decision on which pay-out or how to deliver it through, say, standard pay-out or jackpot pay-out is actually a concessionaire competitive move. What we can say, at the moment, that because of the fact that we want to, let's say, create a positive attitude of cash flow customers towards the VLT's, we have decided to position our pay-out up to 90%.

But, of course, this has not -- must not be considered as a given because we will be watching what competitors will do in the following weeks to come. The VLT structure is such that pay-out can be adjusted very easily, I'm not saying overnight. But, I will say, the flexibility of the system, which is essentially controlled, allows, let's say, a continuous fluctuation according to, again, customer's behavior and competitive movements.

But Roohi, in terms of tax rate, I would make a distinction between the cash tax rate, which is not going to change versus the indication we have given at the beginning of the year and the book's tax rate that might be slightly higher, a couple of percentage points versus our previously guided number given some, the various tax assets that might be an expense during the year. Overall, the tax rate, in terms of cash tax rates, is not changing.

Does that mean the P&L tax is going to be closer to 50%, is that right or --?

Yes, in terms of the book's tax rate, we'll be, let's say, close to 50%.

Okay.

Well, in terms of your last question, it's not our practice to give you -- to give market indication of the composition of revenues and EBITDA by business segments. We tend to explain which are the major drivers by business. While we think that revenues and EBITDA are a sensitive information that, for commercial reasons, I think shouldn't be disclosed to the market. But, what I can tell you is that, if you considered the variance of the two guidances, the previously stated one and this one, the improvement comes from the Italian operations.

Great, thank you.

Our next question comes from Domenico Ghilotti of Equita. Please, go ahead.

Good afternoon, I have a couple of questions. The first is on the contribution of the VLT to your 2011 revenue guidance. So, if you can give us an indication. And the second question is related to the -- a more sustainable performance for lotto, in general, so lotto and 10eLotto, so if you can give us an indication on April that is the first month that is not affected by the late numbers, so it can be a good proxy, let's say for the next few months.

So, Domenico let me recap the VLT's performance indicators that we have presented in this call. We said, performance of Q1 was EUR1.2 billion wagers, revenues up EUR77.5 million, and the average number of the VLT's is currently 5,113. So 5,113.

Okay.

We plan to have, as an average VLT number for the full year of 2011, 6,650 machines operating with the same level of performance that we have reported in Q1. So, if you use those few parameters, you can determine which is the revenue contribution expected in the new guidance on VLT's.

You said, 66?

The revenue number is EUR77.5 million in terms of revenues that we have reported in Q1 and the number of machines in operation, on average for the full year of 2011, will be 6,650.

Okay, fine, and you mentioned, also, the number of around 9,000 by the end of this year? So, not the full amount, with the remaining rights to be used to assist Spielo, is it correct?

That's correct, we plan to have 1,800 machines and rights bundled in a joint offer that will make presence -- Spielo's presence, in the Italian market a more meaningful presence. So, gaining more than a 20% market share, hopefully, at run rate. I'll turn the stage to Renato to answer that question on lotto.

Yes, as far as the April performance of lotto is concerned, of course, what we are seeing, at the moment, is again, let's say, maybe a turning point that would have to be assessed later on. But, we still see a positive contribution of the lotto, 10eLotto, altogether versus last year. Of course, the increase is not as sound as it was in the first quarter.

And you might have noticed, 45%. Now, the incremental contribution is lower than that, much lower than that. We think that April performance will not be a good prophecy to, say, derive new guidances for the year. Because of a number of reasons, first, we know that customers at the moment enjoy the fact that the late numbers have been hit in late March. And so, we are experiencing a very common practice. They tend to replay at lotto, 10eLotto, strongly. Secondly, as we said, a cannibalization between 10eLotto and lotto is still to be fully assessed.

And, third, seasonality has not been experienced so far. But, this is why we think, at the moment, that the guidance we are giving you on 10eLotto of about EUR6 million is sound. We hope we might do something better than that, but it's -- we think and feel is not the right moment to make a final assessment of the overall performance.

Okay, thank you.

Our next question comes from Andrea Randone of Intermonte. Please, go ahead.

Thank you and good evening to everybody. Most of my questions have been already answered. Just a point to better understand the VLT pace, it is quite surprising to me. Do you track or do you have an idea about the number of players that currently represented the population for this game? I ask these numbers just to understand if it's sustainable. And the second question is just about the scratch and win, the minorities that were quite high surprising compare to my numbers, is it correct to assume that the Lotterie Nazionali Holding has a tax rate of about 30%? Thank you.

Well, as far as the customer base of VLT's, we do not have, let's say, relevant data today. The reason for that is not that we have not conducting number of researches. We actually do it on a regular basis. But, the fact is that because the market is increasing so rapidly, well, from one week to another, from one month to another, we do not have, let's say, a solid ground today to have a final assessment.

There's a lot of trial in the market at the moment. The flavor we are getting is the new customers are addressing these new games. Maybe, previously, attracted by casinos or, let's say, online casino gaming. So, again, it's a bit too soon to have a final judgment or final assessment of the amount of players. But, for sure, we'll be in the condition to provide you some flavor later on in this year.

And, as far as minorities are concerned, you probably are surprised by the accounting impact of the preferred dividend that is associated with the investment of a UniCredit. As you recall, the EUR100 million investment of UniCredit is by EUR60 million made through per credit shares and, accounting wise, we considered at Q1 all the dividends that those EUR60 million per credit shares that are entitled to bear for the full year. So, you will notice a reverse trend in the next three quarters along 2011. In terms of income tax rate is 30% is a low income tax rate, it is probably in the 35-ish to 38% tax rate for the operating company of the Scratch and Win.

Thank you, thank you very much.

As a reminder, ladies and gentlemen, to ask a question at this time, please press star - one. We'll take our next question from Laura Pennino from Banca Leonardo. Please, go ahead.

And, good evening, I have just a quick question on Scratch and Win. Yes, you said that in the quarter, in one quarter, the first quarter revenues benefited also from the large launch of high value of these tickets. Can you give an indication of this and tickets will be also maintained throughout the year or do you expect it was just one offer for this quarter?

Okay, well, the tickets we have launched in this quarter, of course, will be in the portfolio of tickets and will be carried along by Lotterie Nazionali throughout the year. Potentially, in the years to come, but, as you may know, what we usually experience when we launch a new game, there's a booming initial phase and, then, other wagers tend to relax and slow down, reaching, let's say, steady state in, say, four to six months.

So, we expect a reduced contribution of the new, recently new, games launched. Reducing that contribution, allowing new tickets to come in. Another thing to consider, to understand our guidance on Scratch and Win is that we will have a reduced number of selling days in the year to go. And so, while we have compared the same number of selling days in the first quarter, we have less selling days in the year to come.

And just one little thing, the average price of EUR4.1 is sustainable throughout the year?

Yes, to say, the average price bond is heavily impacted by the launch of the EUR20 and so what I would expect for the remainder of the year is that to lower that figure, probably, down to EUR4.5 or even less than that.

Okay, thank you.

As there are no further questions in the queue, that will conclude today's question-and-answer session. I would, now, like to turn the call back to Mr. Marco Sala for any additional or closing remarks.

Thank you, Operator. I'd like to reiterate some comments I made earlier. Through strategic investments and some hard work, we have created some momentum for ourselves. The first quarter results are more evidence of that positive movement. I firmly believe that we can deliver continued growth for the remainder of the year.

I'm also very much aware that I will see those challenges to making that happen. Therefore, I would describe my view as one of cautious optimism. The guidance we announced today appropriately balances our improving prospect for growth and the work we have to do and challenges we must overcome to achieve it. We are also very mindful of the fact that delivering our commitment we have made for 2011 will also provide a solid foundation for us to achieve our three-year plan objectives. Thank you for listening and good evening.