International Game Technology PLC (IGT) 2011 Q2 法說會逐字稿

Good evening, and thank you for joining us for Lottomatica Group's 2011 Second Quarter Results Presentation. Joining me for today's presentation is Giuliano Boggiali, who is the Head of Treasury for Lottomatica and IR for Lottomatica Group. Renato Ascoli, the General Manager of Lottomatica, and Jaymin Patel, the CEO of GTECH will join us for the question and answer session.

I will begin by offering comments on the second quarter results, after which, I will review some of the major drivers of our growth and their likely impacts on our full-year performance and guidance.

I'm pleased to report that revenues, EBITDA, and operating income experienced a substantial growth versus the same period last year. I have noted in our last two calls that there is momentum building in our businesses, and that is evident in the results of this past quarter as well.

Our growth has been sustained by some important strategic initiatives. Investments in the machine gaming sector in Italy, particularly in the new VLTs, are generating returns above expectations with less-than-expected cannibalization of our AWP revenues. Further, having been first to market with the VLTs, we expected to experience some erosion once the market was more fully exploited. However, I'm pleased to report that, so far, we have maintained our market share in terms of total wagers.

It is important to note that, for the full year, machine gaming in Italy is expected to reach a contribution level approximately equal to that of Lotto and Scratch & Win, both of which also enjoyed healthy growth rates over a similar period last year.

Lotto wagers driven by 10eLotto game were up approximately 34% over the comparable quarter last year. Scratch & Win wagers also maintain a growth pattern that began last quarter with the launch of new games and the EUR20 ticket. Scratch & Win wagers grew approximately 13% over the second quarter in 2010. We had expected moderate, single-digit growth.

Additionally, despite the relatively low jackpot activity, GTECH same-store sales have continued a growth trend that began late last year. When adjusted for the impact of events in Czech Republic, quarterly, same-store revenues for GTECH were up 3% over the same quarter in 2010. Increases were driven primarily by improvements in instant-ticket sales, particularly in California, Texas, Illinois, and the cross-selling of jackpot games in the US.

I would like to call your attention to the fact that, as adjusted for the impact in the Czech Republic, GTECH's same-store revenue growth for the year more -- sorry-- the same-store revenue growth for the year more than offset the impact of the price compression in the contract we successfully retained. In Illinois, our Northstar Group took over the operation of the Illinois lottery on July 1, as planned. We had encouraging results from recent Cash for Life and Wheel of Fortune game launches. And we have recruited more than 500 new retailers to expand the network.

From a commercial perspective, GTECH announced contract extensions in Georgia, Jamaica, and Slovakia and won a new contract in Colombia. As previously noted, GTECH has successfully completed a major rebuild cycle and is entering a period that will focus on generating returns on its contract portfolio.

Turning to Gaming Solutions, we enjoyed revenue growth of approximately 24% over the same quarter in 2010. It is primarily driven by SPIELO's market-leading performance in Italy.

As you have seen from our announcement today, the operating results we have achieved exceeded our own expectations.

Looking at our earnings on a pro forma basis, quarterly earnings per share were EUR0.32, a 39% increase over the second quarter of 2010. For the half year, a gain on a pro forma basis, EPS was EUR0.62 per share, a 32% increase over the similar period last year.

Our net financial position has also improved during this period. As you can see, we have already gotten to a level for the half year that has reached the range of our full-year guidance.

Let me conclude with some comments on our performance and its impact on earnings guidance. During the first quarter, we made a decision to increase our guidance fairly substantially. Now, with the results that we have achieved in the first half of this year and the likelihood that we will sustain a good portion of that growth in the second half of the year, our full-year guidance is already well within reach.

With that in mind, I would like to provide you our perspective on the remainder of the year. Our business units are performing well, but there are some issues that will need to be managed. To begin, GTECH customer in the Czech Republic is going through a bankruptcy. We have some receivables involved in it, and the expected contribution from that contract is being eroded. So we have had to take into account the impact of this situation in our assessment on the remainder of the year.

Likewise, austerity programs of one form or another are being enacted in most, if not all, the places in which we do business. As a result, discretionary entertainment spending is coming under significant pressure. These are economic realities that we must be mindful of when evaluating our full-year guidance as well.

Despite some of those concerns, GTECH same-store sales are doing well, both internationally and in the US, driven primarily by new initiatives. We expect that trend to continue.

Gaming Solution and G2 are performing well and meet expectations. In Italy, our new products and games are enjoying very high player acceptance and participation. VLTs, 10eLotto, and new Scratch & Win games are all producing results above expectations. Without having any historical performance data to guide us, we had applied moderate growth rates to the new offerings. Those rates have proven to be below what we have experienced. We also expected some level of seasonality that, so far, has not materialized.

We have been carefully assessing the remainder of the year in light of what we now know. It is our belief that some of the success we have had in the first half, particularly in Italy, is sustainable in the second half. We do not expect to replicate the growth rates of the first half, but we anticipate continued, balanced growth in the VLTs, Scratch & Win, and Lotto.

To give you some added insight, I'd like to draw your attention to expected developments in the Italian machine gaming market. I think it helps to put in perspective our expectations for the second half of the year.

At the end of June, we had approximately 6,600 VLTs, over 23,000 VLTs in operation in the market. We expect to deploy another 2,400 VLTs by yearend. At the same time, competitors are expected to deploy over 20,000 additional VLTs. With that level of increased competition, we, reasonably, expect to experience some impact compared to the first half of the year.

In addition, lotteries in Italy started to rebound in the second half of 2010. Lotto performance was extremely positive in the fourth quarter of 2010, driven by some key developments.

The full-fledged 10eLotto was launched in September, immediately boosting wagers. By example, December 2010 performance was five times the average performance before the launch.

The contribution from late numbers increased from 4% in the first quarter of last year up to 24% in the fourth quarter of last year.

The performance of Scratch & Win was also positively impacted by the beginning of the new concession. Wagers increased by 2.5% in the fourth quarter of last year while Scratch & Win wagers were down 1.5% in the first nine months of 2010.

When you take these factors into account, we expect year-over-year growth rates to moderate in the second half. As you can hopefully appreciate, applying the first half growth rate to the second half is not a supportable proposition in our view.

In light of these considerations, we have taken a decision to revise our EBITDA and NFP guidance for the full year. We now expect EBITDA in the range of EUR940 million to EUR960 million, compared to the previous range of EUR890 million to EUR910 million.

And our net financial position is expected to improve within a range of EUR2.8 billion to EUR2.85 billion, a EUR25-million improvement over the previous guidance.

We have not changed our CapEx guidance, but I would note that the new budget law in Italy has created some potential opportunities. New machine gaming and sports betting licenses are expected to become available during the next few months. The structure of the bid has not yet been announced.

Obviously, as the returns on these investments are extremely attractive, we might look to acquire more licenses as they become available. We expect that the investment required will be approximately EUR30 million. Once we have greater visibility into this potential opportunity, we will provide a more detailed indication of 2011 CapEx.

To be clear, the additional investments in Italy are not included in our current 2011 CapEx guidance, although we have taken them into consideration when revising our new net financial position guidance.

Now, let me sum up. Even with the risks I have outlined, it is plainly evident that the fundamentals of our business are sound and growing. We expect the positive momentum to continue. Now that we have greater visibility into same-store sales and the performance of the new games in Italy, we are confident in our prospects for the remainder of the year, as we have outlined.

Now, I'd like to hand over the presentation to Giuliano for a detailed review of the results.

Thank you, Marco. Now let's review the results for the second quarter.

I am pleased to report that, overall, we delivered solid operating results in the second quarter of 2011 and the half year.

Revenues for the second quarter were up 22%, at EUR703 million, compared to approximately EUR575 million in the second quarter of 2010. At constant currency, revenues were EUR729 million.

EBITDA was up 23%, to EUR245million, compared to EUR200 million in the second quarter of last year. Second quarter 2011 EBITDA on a constant-currency basis was EUR252 million.

The EBITDA margin was 34.9%, compared to 34.8% in the second quarter of 2010.

When looking at Lottomatica's Italian operations, our Scratch & Win business generated gross wagers of EUR2.64 billion, up 13% versus the second quarter of last year. The number of Scratch & Win tickets sold in the quarter was 614 million, with an average price point of EUR4.3, supported by sustaining launches of instant ticket games in the first quarter of 2011.

Lotto wagers were up 34%, to EUR1.6 billion, compared to EUR1.2 billion in the same period last year. The combined Lotto and 10eLotto performance contributed EUR1.46 billion out of the EUR1.6 billion wagers total.

Lottomatica's sports-betting wagers in the second quarter were EUR208 million compared to approximately EUR251 million in the same period last year. As you may recall, sports-betting wagers were higher in the second quarter of 2010 due to the World Cup Soccer event.

Sports betting payouts in the second quarter were stable when compared to the same period last year. As of June 30, our sports betting market share, in terms of total wagers, was 21.6%.

Machine gaming wagers more than doubled compared to the same period last year at EUR2.65 billion. The number of installed machines in the second quarter of 2011 grew to approximately 60,000. This machine count is comprised of AWPs and VLTs connected to a Lottomatica system. Lottomatica recently celebrated our one-year anniversary of the first VLT network implementation in Italy. At the end of June, approximately 6,600 VLTs were installed.

Interactive wagers were up 5% versus the same period last year, at EUR108 million. On July 18, Lottomatica launched new online cash poker and casino games in Italy.

Lottery revenues were up 30% to EUR208 million, compared to EUR160 million in the second quarter of last year, as a result of Lotto's performance, higher instant ticket sales, and the increased percentage fee for the Scratch & Win concession.

Revenues from sports betting were down 8% to EUR39 million versus EUR42 million in the second quarter of 2010. The revenue decline is due to a decrease in wagers when compared to the second quarter of 2010. However, sports betting payouts were stable when compared to the same period last year.

Machine gaming revenues grew to EUR161 million, compared to EUR51 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 second quarter of last year, for a total of EUR104 million.

Revenues from Commercial Services were up 30% to EUR32 million, due to an increase in bill payments, prepaid cards, and ticketing services for sporting and musical events.

Revenues from our Interactive business in Italy generated EUR12 million, comparable to the same period last year.

Revenues from Italian operations in the second quarter of 2011 were EUR452 million compared to EUR291 million in the same period last year, up 55%. This increase was primarily attributable to higher revenues from our machine gaming business, Lotto performance, and the 3.9% fee for the Scratch & Win concession which commenced in the fourth quarter of 2010.

AAMS reported total second quarter VLT wagers in the Italian market of EUR3.18 billion, which includes replayed credits. The Italian VLT market continues to grow. AAMS also reported wagers of EUR1.15 billion for the month of June only.

As we stated on our first quarter conference call but thought it important to reiterate, the current payout is higher than 90%. The current taxation is 2% of wagers and will grow to 3% and 4% over the next two years. The difference in wagers, less payout, represents net cash-in. Net cash-in, less taxes, represents the Net Win, which is what Lottomatica accounts for as VLT revenues.

In the second quarter of this year, Lottomatica's machine gaming wagers totaled EUR2.65 billion. Wagers from VLTs only were EUR1.57 billion, generating EUR104 million in revenue from an average of 6,255 VLTs in the second quarter.

EBITDA from Italian operations was up 51% to EUR188 million, compared to EUR125 million in the same period, primarily attributable to the previously mentioned expansion in machine gaming and Lotto performance.

Revenues for GTECH, G2, and Gaming were EUR251 million compared to EUR284 million in the second quarter of last year, primarily due to foreign exchange. At constant currency, revenues were EUR278 million.

Positive GTECH same-store revenue growth was offset by contract losses in Louisiana, Morocco, and the Netherlands, as well as lower product sales, which, as you know, tend to be cyclical.

EBITDA for GTECH, G2, and Gaming was EUR57 million compared to EUR75 million in the second quarter of last year. At constant currency, EBITDA was EUR65 million.

As anticipated, EBITDA was impacted by changes in GTECH's contract portfolio mix and renewals, as well as the situation involving the customer in the Czech Republic.

On Slide 13, we provide a breakdown of GTECH lottery service revenues for the second quarter of 2011 versus the second quarter of 2010. Note that this includes Gaming and G2.

Domestic same-store revenue increased 1% versus the second quarter of 2010. It should be noted that jackpot activity in the second quarter of 2011 was not as robust as the same period in 2010. There were three large, multi-state jackpots in 2010 versus only two in 2011. Despite that, we experienced strong growth in California where, given the payout increase, instant-ticket sales were up 36% versus the same period a year ago. In addition, we also had good performance in Illinois, North Carolina, and Wisconsin.

International lottery same-store service revenues were in line with the second quarter of last year. We benefited from improved performance in Colombia, the UK, Trinidad, and Jamaica. International sales performance was negatively impacted by financial difficulties that Sazka is experiencing, as was mentioned earlier. Excluding the impact of the Czech Republic, International Lottery same-store service revenues were up 5%.

Now let's turn to a quick overview of the first-half results. Revenues were up 26% at EUR1.4 billion, compared to EUR1.1 billion in the first half of 2010. At constant currency, revenues were EUR1.43 billion.

EBITDA was up 26% to EUR501 million, compared to EUR397 million in the first half of last year. First half 2011 EBITDA on a constant-currency basis was EUR509 million. The increase in EBITDA was driven by the performance of Lotto, Scratch & Win, and machine gaming in Italy.

EBITDA margins were 35.7%, compared to 35.5% in the first half of 2010.

Now let's look at the P&L below EBITDA.

Operating Income was up 28% in the quarter to EUR293 million versus EUR228 million in the same period last year. I would like to point out that amortization for the new Scratch & Win concession commenced in the fourth quarter of 2010, therefore making the comparison unfavorable.

Interest expense was steady as a result of higher debt balances, which were offset by lower interest rates.

The EUR33 million of noncash, foreign exchange losses were principally associated with euro-denominated debt on GTECH's balance sheet.

Income before tax was EUR173 million, up 8% compared to EUR160 million last year.

Group net income was EUR91 million versus EUR87 million in the same period last year. Net income attributable to the owners of the parent were EUR68 million, resulting in earnings per share of EUR0.40. For the second quarter, EPS rose 29% to EUR0.27 versus the second quarter last year. Further details on second quarter EPS can be found in the Appendix.

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. Note that this pro forma calculation principally excludes noncash foreign exchange losses associated with euro-denominated debt on GTECH's balance sheet, and noncash purchase accounting associated with the GTECH acquisition.

Excluding these items, second quarter EPS was EUR0.32 versus EUR0.23 in the second quarter of 2010. Again, you can see further detail on second quarter EPS in the Appendix.

For the six-month period, diluted EPS, on a pro forma basis, was EUR0.62 versus EUR0.47 last year.

We generated healthy cash flow from operations of EUR420 million in the first half, providing the capacity to fund capital expenditures, interest payments, and minority interest payments. As Marco mentioned earlier, our net financial position at the end of the quarter was slightly below EUR2.88 billion, down from EUR2.98 billion at the end of 2010. At the end of the second quarter, the US Dollar to euro conversion was $1.45 versus $1.34 at the end of 2010. We also had EUR743 million of cash and committed undrawn lines of credit available at the end of June 30.

Our CapEx is progressing in line with plans. EUR127 million of maintenance CapEx for GTECH, G2, and Gaming was primarily related to investments in GTECH's Texas, Illinois, and Poland contracts.

For Lottomatica's Italian operations, total CapEx was EUR68 million, primarily related to the new VLT business and Lotto.

Now we would like to open up the lines for Q&A, after which we will hear closing comments from Marco.

(Operator instructions). Domenico Ghilotti, Equita.

I have three questions. The first is related to your updated guidance. I would like to understand what are the main differences compared to the guidance provided in May and, particularly, if you can give us the updated guidance on Lotto and instant ticket and Scratch & Win.

The second question is related to the impact of Sazka on first half EBITDA, if you have it.

And the third question is related to GTECH profitability. I would like to understand, roughly, when do you expect, let's say, to reach a turning point in the profitability of GTECH?

Okay. I will ask Renato Ascoli to elaborate a little bit on Lotto and Scratch & Win vis-a-vis the previous guidance and Jaymin for Sazka, as well as the turning point.

Regarding Lotto, as you might remember, last time we spoke we were considering a EUR6-billion figure, the landing figure for 2011. Now, thanks to the favorable progress we have seen so far and, let's say, a reduced impact of seasonality we saw in June, at least, and I might even say in the beginning of July, as well, we think that a figure around EUR6.4 billion could be, let's say, a reasonable estimate for the overall Lotto and 10eLotto performance this year.

Moving to Scratch & Win, as you may remember, we forecasted a low-end, one-digit increase at the beginning of this year. Nowadays, because -- thanks to the performance we saw in the portfolio and thanks to the increased retail network that we have put in place this month, we can estimate the overall growth to be something one-digit -- mid-one-digit for the remaining part of the year.

The reason for that, Marco already stated very clearly, I guess, is related to the reverse performance that we enjoyed last year, in the last quarter of 2010. And, as you might remember, we also commented that the calendar is not favorable this year. We'll be having three selling days less than 2010.

Okay.

Coming to Sazka, Sazka, as you may be aware, went into bankruptcy in May, after having faced financial difficulties in March of 2011. So, basically, since March of this year, the business has been operating at 20%, 25% of pre-crisis, run-rate sales, and sales are normally, in the Czech Republic, running at somewhere in the region of EUR150 million per quarter. So for the last four months now, sales have been very low. Now, most recently, there was a very important decision by the high court in Prague, which upheld decision to maintain the bankruptcy process so that the assets of Sazka will now be sold to the highest bidder in an auction process.

So, yes, for the second quarter and, probably, the third and most of the fourth quarter, we will experience weaknesses in sales as the business is sold and the new investors begin to remarket the games again. But we certainly expect the Czech Republic to recover in the long term. We don't see any issues with that.

With respect to the first half performance, we normally generate approximately EUR5 million of revenue per quarter from the Czech Republic, and, for the first half of the year, our revenues were much, much lower than that because of the fact that sales were lower. Plus, as Marco mentioned in his remarks, we had some outstanding receivables in the Czech Republic, so we've taken a view on those receivables in the first half of the year. And, certainly, we've taken a view in the second half of the year vis-a-vis the guidance.

So, we don't provide guidance, as you know, per contract, so I think I've provided quite a bit of information to you on that situation.

With respect to GTECH's turning point, I think there's a couple of things to mention. First of all, same-store sales in 2011 are reasonably positive versus our experience in the last two years, 2009 and 2010. In the US market for the first six months, same-store sales are approximating 4%, with good jackpot activity in the first quarter, not so much in the second quarter. But, on a year-to-date basis, I think same-store sales in the US, in particular, have been quite good.

An important indicator is that, in the first half, same-store sales are now in excess of the normal price compression that we deal with due to contract rebids. And, as we have announced before, GTECH has completed the overwhelming majority of its contract rebids so that my expectation is that, from 2012 onwards, the impact of price compression on a regular basis will be quite minimal.

So I think the turning point is here, and now we have a couple of very important contracts, Illinois being one, California being a second one, where we expect to maintain momentum.

Thank you.

Matthew Gerard, Credit Suisse.

I have a few questions, if I can. Firstly, on VLTs, there's a number of parts to this. But, as far as I'm aware, the licensing of the extra, possibly, 7,000 VLTs in Italy has been brought forward to within the next three or four weeks. How much of that EUR30 million CapEx are you saying is related to VLTs? Is it coincidental that, at EUR15,000 per VLT, that EUR30 million CapEx figure works out at 2,000 VLTs? Is that a realistic expectation? And, I suppose, when you've still got so many to roll out, why would you look at VLT licenses? Linked to that, do you still plan to get to just under 9,000 VLTs in Italy by the end of the fourth quarter?

And, then, I'll leave it at that for the moment. Thank you.

I'll answer the first question, and I leave to Renato the second one.

I want to be clear, as I hoped I was during my remarks. I mean, we have not make a specific calculation on the CapEx for the coming bids because we do not know how the bids would be structured be the Italian regulator. We made just a general assumption of EUR30 million to the benefit of the updated guidance on the NFP. So, I mean, we are not ready to put that in the context of each single, specific bid.

In the next weeks, we will see what's going on on VLTs, on AWPs, on sports betting, and on the other items that are included in the budget law. So that is the spirit of the number we have commented so far.

Regarding the 9,000 VLTs, the answer is no.

(Inaudible). As I said, the rollout plan is performing nicely. So far, we have about 6,600 VLTs in place. We still expect to land to a number which will be 8,900 by yearend. So, on the whole, we will be expecting 6,600 as an average contribution for the global year.

And we've heard, I think, today from Greece some changes to how they're going to license VLTs there. Previously, I think you've said that you would go into Greece perhaps on a kind of joint venture basis if the market does regulate VLTs, which now looks likely. Is that still the plan, or has anything changed there?

Look, we have to look carefully what's happened in Greece because I would like to comment something a little bit more stable than that. I reiterate my point that is we are interested in the VLTs market in Greece. As soon as we will have a stable view regarding what is going to happen, we will make an assessment on our strategy. Again, we are interested to get there. We are interested in the VLTs market. We need to know how they intend to regulate that segment in order to finalize our assessment regarding the opportunity.

And, finally, if I could just ask in terms of the new guidance, does that include an assumption that wagers per VLT will reduce towards the back end of this year because of the new machine capacity coming onto the market? And have you assumed further cannibalization than what you've seen already or what you haven't seen already, I suppose, on the AWP estate?

Yes. Somehow, since we, as we told before, nowadays, we assume to be somehow about 30% of the installed numbers of VLTs. We do expect for the remainder part of the year our, let's say, share of the installed base will slow down to 20%, 22%. Because of this, we do expect some impact on overall wagers.

So far, the cannibalization effect, as you called it, has been quite minimal. On the whole, the AWP wagers did not decline until April, so only May and June we saw in the overall market some diminishing impact of the contribution of AWPs. So we do factor in some impact from cannibalization and the deployment of other concessionaires for the rest of the year.

Okay. Thank you, guys.

Roohi Siddiqui, Bank of America Merrill Lynch.

A few questions, if I may. Firstly, on the Czech Republic, I remember you saying in the past that the annualized revenues were around EUR20 million from the Czech Republic. And we're probably looking at about EUR10 million EBITDA. If you could confirm that, that would be helpful.

The second question is coming back to Greece, what's the status now of your contract negotiations with OPAP? I understand that OPAP only want to now renew part of the contract. Is that right? And, if you could, give us an update.

The third question is on sports betting in Italy. It seems that the overall market has come under some pressure in Q2 year on year. Is that all due to the World Cup, or is there something else that's going on in the market? Thanks.

With respect to your first question on the Czech Republic, I can confirm that our revenues are running at approximately -- were running at approximately EUR20 million per year, before this recent bankruptcy crisis. We don't comment upon individual contract EBITDA. But what I can tell you is the Czech Republic, when it was performing at full capacity, was a very good contract for us. So 2011 is going to be a difficult year for the reasons that I've explained. But I do expect that 2012, assuming that the sale process takes place and we restart operations with full speed, that our business will recover over time.

With respect to Greece, I'm not sure I understand your question fully. But OPAP is in the process of issuing an RFP for a new system as we understand it. And I think you know that GTECH is already prequalified, along with other bidders in the marketplace to bid on the final RFP. A draft has been issued for comments, and we're really waiting for a final RFP to move forward in due course.

As far as sports betting is concerned in Italy, I think we are quite in good shape. Of course, the diminishing figure in terms of gross wagers is strictly attributable to the World Cup, which is no longer present this year. But, if you just consider the dynamic of the payout, which is much lower this year in terms of what we call gross wins, which means gross wagers minus a payout, we are experiencing in the first half of 2011 a healthy 4% increase, considering the overall market in itself.

That's to sports results. Yes?

Yes. The sports results were more favorable to bookmakers this year, rather than they were to punters last year.

Thank you.

Alessandro Baj Badino, Deutsche Bank.

The first question is regarding Illinois' lottery. If you can, give us a little bit of flavor how things are doing, especially regarding your plan.

And the last time we spoke, you were a bit behind in terms of new point of sales. What is the target there, and if the process of authorization your point of sale has sped up?

The second question is regarding -- going back to VLTs. Can you give us more or less -- okay, you said you were in a conference call, and if you can repeat it, what were the wagers in the second quarter, and what were your revenues? Thank you, because I missed that.

Okay, Alessandro, with respect to your first question on Illinois, let me say that, so far, we are pleased with the way that sales and operations are progressing in the market. We took over the ramp-up period, where we were assisting the lottery from the first of March to June 30, which is the ramp-up period. And then, from the first of July 2011 is when we became the official, private manager of the lottery. So sales in the first few months under the ramp-up period were up by 7% -- 7.5% actually, quite pleasing, due to new launches. And sales in the first part of July are already quite, quite good with some of the new games that are in effect.

So we feel quite comfortable, quite confident that the plan that underpins our bid submission and our expectations remains solid.

With respect to retail recruitment, I did make the comment in the first quarter that we were behind because of some startup things that had to be ironed out. We're now progressing well. So we have over 500 new retailers approved by the state, and more and more will get approved every week. We feel that we can move forward here. So I feel quite confident.

Now, as wagers are concerned, in second quarter, VLT wagers were EUR1.57 billion with revenues of close to EUR104 million. And we had an average number of 6,255 VLTs in place during the quarter.

Okay. Thank you for now.

Laura Pennino, Banca Leonardo.

I have just two questions. One is regarding acquisitions. You were saying that you are interested in Greece VLTs, but do you see other opportunities for external growth? And, maybe, could you be interested if privatization of OPAP or other things -- major opportunities should they arise?

And then the second one is on Italy. Regarding the market, which is new games, especially on frontline market, do you feel that your traditional game like Lotto or Scratch & Win could be threatened or no? As the new games have a very high payout, could you see some weakness, maybe not in the short term but in a marginally longer perspective? Thank you.

Regarding the Greek market and, specifically on OPAP, I heard today the Greek government was saying that they are not under pressure to sell their stake in OPAP.

Having said that, we do not consider ourselves as an investing entity. We look at ourselves as a gaming operator and technological supplier. So owning a minority share in OPAP is not of interest to us.

We could consider the fact of joining as an industrial partner if other investors would invite us to team up with them. But we are not currently in discussion with anyone. So, I mean, we have also an issue of capital allocation. It's clear that we would prefer a situation like Illinois, where we can deploy our capabilities in terms of operation, in terms of technology, in terms of service to grow a lottery in that fashion. We are much less interested in acting as a financial operator in this respect.

Just to follow up, so you could be interested if someone calls you and even if it could imply a capital allocation in your participation -- participation --

I am not -- I mean, the role we could play is the operator. As operator, we can provide service -- as operator to financial entities that could be interested in investing in OPAP but not as a major equity player.

Okay. Thank you.

If I got your question clearly regarding the potential impact on traditional games, namely Lotto and Scratch & Win, coming from new games, I assume you're referring to VLTs and internet new games.

Well, first of all, let's say that the impact so far is very limited. We hardly see any impact because of a different structure of the customer base. So, we have some market research is clearly showing the different classes of people, let's say, allocated to different businesses because of different reasons for play.

And, also, please, consider that the online activities -- online gaming, although relevant in terms of what you will see as overall wagering, is quite minimal in terms of real expenditure from the customer. So it's most unlikely that any game or any interactive game might impact any of the so-called traditional games, with respect.

Also in the longer term?

Well, let's say, to our perspective, we do not see any part of the role any -- let's say, although a mature market having a huge amount of wagering from the internet somehow impacting the traditional outlet business. Let's put it this way.

Okay. And do you see competition from the heavy marketing campaign from SISAL, for example, to affect your businesses in some way -- some way?

We have seen a huge advertising campaign by SISAL. I refer both to SuperEnalotto and Win For Life and, recently, the Si Vince Tutto new feature of the game. I have to say we did not notice any relevant impact on our, let's say, Lotto and Scratch & Win so far.

Okay. Thank you.

(Operator instructions). Andrea Randone, Intermonte.

Just a quick question about Lotto. You provided a sort of new guidance on 2011 of about EUR6.4 billion wagers collection. And I wonder if you can tell us what is your assumption -- the effect of late numbers on this figure or that the wager collection expects, net of late-number effect, or with a normalized late-number effect. Thank you very much.

I'm sure you remember that we had a strong contribution by late numbers in the fourth quarter, which we did not see in the second quarter of this year. So, for the remainder of this year, we are not projecting any significant increase in the contribution of late numbers. So we are keeping our forecast straight to what is the statistical expectation you can get.

Okay. Thank you.

Fabio Pavan, Mediobanca.

The first question is related to the Scratch & Win, just to come back to the second half of the guidance. So, your expectation is for a plus, mid-single-digit increase. Do you believe that you will maintain the growth -- the launch of new products, or is it related to the new point of sales installed?

And, secondly, as regards the 2013 guidance, clearly, last time you revised the guidance, you added -- it was too early to suggest something for 2013. I would say the new guidance is clearly above the ones you disclosed in February. So, just, I would like to have your flavor on that. Thank you.

As far as Scratch & Win is concerned, yes, for the remainder of the year, we are projecting both to launch new products -- because of the fact that the EUR20 was quite successful so far, the launches we're presenting will be probably related to lower price points than the ones you saw on the market until so far. And, of course, we will still continue optimizing the retail network, not only trying to, say, involve other point of sales but also trying to reduce some point of sales that are not performing well.

So we think that, for the second part of the year, we'll be probably shrinking somehow and enlarging in other geographies.

As far as guidances are concerned, I don't know whether Marco or Giuliano want to comment. Giuliano, I think.

Fabio, of course, the exercise of the new plan has not been performed yet. So the only guidance we have is from the plan we presented earlier on, back in February. What I can tell you is that, as a ballpark indication, EBITDA-wise, we would look into 2012 moderate, single-digit growth in EBITDA.

Okay.

(Operator instructions). Roohi Siddiqui, Bank of America Merrill Lynch.

Can I just ask a follow-up question on the -- on your long-term leverage ratio? I think you've said that you plan to get to 2.6 to 2.8 times net debt to EBITDA by 2013. Is that still the case, or should we expect that deleverage will continue slowly because you might be thinking about increasing CapEx if there's, potentially, interesting opportunities along the way?

And, also, could you give us a sense of what your -- the latest update from some of the rating agencies? Are they sort of happy for you to increase CapEx slightly this year, if you were to take part in the New York Exchange in Italy? Or has the focus got to be, really, deleverage?

Obviously, the cash flow generation in 2011 is a bit higher than expected, and that's why we have improved our NFP guidance for end 2011.

For the time being -- so, looking at our target 2.6 to 2.8 leverage ratio in 2013, we are encouraged by the recent business strength.

As far as the overall cash generation, so including our CapEx expectation for 2011, this is bringing us to a lower-than-expected NFP guidance.

Yes. All right. I follow that.

The leverage obviously remains a priority.

Okay. Great. Thank you.

(Operator instructions). As there are no further questions in the queue, I'd like to turn the call back to Mr. Marco Sala for any additional or closing remarks.

Thank you. I'd like to reiterate some comments I made earlier.

We have been able to sustain the momentum we created during the end of last year and the first quarter of 2011. The second 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 there are serious challenges to making that happen. We are very mindful of the local and global economic conditions that could impact our businesses.

We are firmly of the belief that the guidance we have provided appropriately balances our improving prospects for growth and the work we have to do and the challenges we must overcome to achieve it.

Finally, our focus on deleveraging is paying off with an improvement in our net financial position. We are also very mindful of the fact that delivering on those commitments will provide a solid foundation for us to achieve our three-year plan objectives.

Thank you for listening and good evening.