International Game Technology PLC (IGT) 2011 Q4 法說會逐字稿

Good day, and welcome to the Lottomatica 2011 Full Year Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Marco Sala, CEO, Lottomatica Group. Please, go ahead, sir.

Good evening, and thank you for joining us for Lottomatica Group's 2011 fourth quarter and yearend results presentation. Joining me for today's presentation is Alberto Fornaro, the CFO of Lottomatica Group. And Renato Ascoli, the General Manager of Lottomatica, and Jaymin Patel, the CEO of GTECH, will join in for the question and answer session.

As I'm sure you are aware, a few weeks ago, we announced our preliminary 2011 yearend results. As you have seen from today's announcement, the final results are in line with our expectations. As I hope is evident, Lottomatica Group had a good year.

You may recall that one year ago, when we presented the revised three-year plan and guidance, I noted that we were at a strategic turning point. We had concluded a major rebuild cycle. Capital requirements would be diminishing and stabilizing. A new capital structure had been put in place, along with a new dividend policy. At the time, we knew that we would need to endure uncertain economic conditions in our primary markets, deliver on important commitments, and turn potential opportunities into reality in order to increase shareholder value and regain investor confidence. Our plan focused on harvesting the benefits of the major investments that had been made in the successful rebuild cycle, maximizing the opportunities for growth in the Italian market, increasing same-store revenues, and significantly improving our capital structure.

Today, as evidenced by our yearend results, I believe it is fair to say that the path we chose and the plan we put forth is paying off and, in many cases, exceeding expectations.

The challenges of the past year were a critical test for our organization. We entered 2011 with a sense of momentum. To sustain it, we would need to execute. Our Italian operation had to sustain its market leadership while facing increasing competition. Some of the world's largest lottery systems were to be converted as part of new contracts we had won. Worldwide same-store revenues that had begun to turn around at the end of 2010 needed more innovation to regain and sustain traditional growth levels. And we needed to align our organization to better meet market expectations for unified solutions that draw on the resources and expertise of all the organizations in the Group.

We planned for additional growth, despite facing a recessionary period unlike any of our industry has experienced. And we achieved that growth. We also were mindful of creating a proper balance in our business. Cost initiatives were successfully carried out to increase efficiency. And we have been careful with our money. We prioritized capital control and made a major contribution to our ability to reduce our debt.

I'd like to take a moment to review some of the drivers of our results in 2011 and then come back after Alberto's presentation to discuss our plan and guidance.

Let me begin with Italy, where we have literally transformed Lottomatica from a company that derived its results from operating lotto and scratch & win licenses to one that is the leading gaming operator in Italy, offering lotto, scratch & win, interactive games, sports betting, and machine gaming.

When expectations were for a leveling off, new marketing and product strategies have been [driving] scratch & win to achieve a 9% year-over-year increase to over EUR10 billion in wagers. That is a prime example of how we are able to benefit from the investments we made in maintaining the scratch & win license.

In another example of our ability to innovate, we turned around the lotto product category. With the support of (inaudible), we achieved a 30% increase in lotto wagers in 2011 after multiple years of declining revenues. And recent court rulings helped our position that lotto license is valid until 2016.

We have also firmly established our interactive and sports betting brands and achieved encouraging results. Lottomatica has become the leading interactive operator in casino, betting and skill games. And we are the second-leading operator in bingo and poker. As you know, we had no experience in these sectors before entering them. I think it's worth noting our success competing with the larger, world-recognized companies in those spaces.

But, most importantly, in Italy, our VLT gaming began to contribute as we had hoped. We are benefiting significantly from our investments in VLT licenses. Some simple facts tell the story very effectively. In Italy, we have 19% of the licenses, 27% of the machines in the field, and over 45% market share in terms of wagers. Obviously, we are pleased with the performance but should note that we expect that it will moderate as competitive pressure increases.

It has also been a very good learning experience for us. I will come back to it later. But cooperation across the Group and being able to take advantage of resources in SPIELO and G2 have been critical to our success.

Now let me turn to GTECH. It was clear that GTECH's main priority in 2011 was to execute and begin gaining the benefit of the investments we made in the rebuild cycle and new business wins. There were significant challenges. Some of the world's largest lotteries were converted to new systems. It is notable that, during 2011, GTECH successfully completed 26 system conversions and integration projects, all implemented without interruption to our customers' businesses.

There were some important business developments as well. We received contract extensions and new businesses in Colombia, Turkey, Oregon, Georgia, Missouri, Jamaica, Trinidad and Tobago, Slovakia, Denmark, and Portugal.

Northstar Lottery Group, led by GTECH, to cover the operation of the Illinois Lottery after the first-ever private manager agreement. We began by applying new innovations and bringing the experience and expertise of our Italian operation to support the Northstar business plan. As part of an anticipated succession planning process, we'll be appointing Marco Tasso, an experienced leader from our Italian operation to head up Northstar. He will be taking over from Connie Laverty O'Connor, who very capably led the startup of our operations. Connie will continue on the Northstar board, while returning to her Chief Marketing Officer role at GTECH. This is another example of the unique advantage of the cross-organization capability we have to drive our customers' success.

We are making good progress. In fact, sales are up 16% for the first eight months of operation under our control, driven largely by a 27% increase in instant ticket sales. Overall, we are pleased with the progress.

Another important development, of course, in the US lottery business in 2011, powerball. The multistate jackpot game increased its price to $2 per ticket from $1, as well as adjusting the odds and the prize levels. It is very clear -- it is very early to make any firm assessment, but the recent $336 million jackpot seems to indicate that the new format is having the desired outcome and will help to drive same-store revenues for GTECH in the US market. We will see how it goes.

As we have mentioned previously, we invested in reforming the prize payout of instant tickets in California. Players like the new games, and they responded to the innovation. Instant ticket sales in California are up 34% over the previous year, and we expect significant growth to continue in 2012.

I mentioned earlier that it was one of our main priorities to restore GTECH's same revenues to more traditional levels, and we have done it. For 2011, GTECH achieved overall same-store revenues growth of 4%. More importantly, we believe that the fundamentals of the business are strong, and the growth we have experienced in 2011 is sustainable in 2012. Our experience from the first two months of the year would indicate that we are on track.

GTECH Printing is becoming a good contributor. We have seen a 50% increase in production, supported by significant volume increases from new customers in New York, Texas, Mexico, Australia, Slovakia, and Germany.

We also encountered some unexpected challenges. Our customer in the Czech Republic, Sazka, went bankrupt. We have successfully navigated a very complicated bankruptcy process, forged a strong relationship with the new shareholders, and replaced much of the lost contribution from new revenues and cost initiatives throughout the company.

Today, Sazka is rebounding and has recaptured approximately 100% of pre-bankruptcy sales. We expect it will be a good contributor going forward. In my view, the situation is a good example of the ability of the Group to respond to unanticipated events and continue to meet our commitments to shareholders.

Now I'd like to turn to SPIELO, which has completed a successful turnaround and become the leader in the government-sponsored gaming space. Our games are among the highest performers in competitive markets, where they are up against the traditional leaders in the gaming industry. In Italy, SPIELO has gained a market share of 33%, supplying Lottomatica and other operators. Their success so far in the Canadian replacement cycle is encouraging. SPIELO has won businesses in four of the four RFPs issued to date, and we are confident in our prospects for the remaining six tenders. The success in Canada will help drive SPIELO's growth in 2012 and 2013.

During 2011, we made a decision to merge our G2 interactive business into SPIELO International. All of the major gaming suppliers have formed alliances or partnerships with interactive providers and operators. Our unified, single-company approach has distinct advantages. Early indications are encouraging. In Spain, G2 has signed up 12 customers for the interactive market that will open in 2012. This is another area in which we made substantial investments to align ourselves with the market needs and expectations. We believe it will serve us, as well as the interactive market will open up.

Now I'd like to review our 2011 results. For the full year, revenues were up 28.5%, bringing our total slightly below EUR3 billion, a significant milestone for the Group. EBITDA grew 19.5%, approaching the EUR1-billion mark. Operating income experienced a very healthy growth of approximately 40% over the previous year, an increase of over EUR153 million.

Our results have met or exceeded the commitments we made one year ago regarding deleveraging and improving our net financial position. Our progress in this regard has been considerable. The cash we were able to generate from operating activities was instrumental in paying down debt. As a result, our yearend 2011 net financial position was approximately EUR2.74 billion, an improvement of approximately EUR234 million from one year ago. I think we would agree that is a great deal of progress in 12 months. And we have achieved our guidance for NFP to EBITDA ratio approximately 12 months ahead of schedule.

I'm going now to ask Alberto to review the fourth quarter and yearend results, after which I will offer some comments about our planned guidance for the remainder of the plan and the main drivers of our growth going forward.

I'm pleased to report that, overall, we delivered solid operating results in the fourth quarter of 2011 and the full year. Let's begin by reviewing the results for the fourth quarter.

Revenues for the fourth quarter were up 29% to EUR828 million, compared to EUR643 million in the fourth quarter of 2010. The increase in revenues is primarily attributable to the extraordinary expansion of our Italian operation, along with higher revenues from GTECH lottery, due principally to higher product sales, which are cyclical, and higher revenues from the Illinois Lottery under the private manager agreement. As you may recall, Northstar Lottery Group receives compensation for its management services as reimbursement of certain operating expenses.

EBITDA was 8% to EUR232 million, compared to EUR215 million in the fourth quarter (technical difficulties). The EBITDA margin was 28%, compared to 33.5% in the fourth quarter of 2010.

GTECH revenues included EUR17 million pass-through impact from our Illinois contract, as well as an adverse mix of product sales. In Italy, the lotto fee structure, decreasing when volumes increase, had an effect of EUR6 million. Other key factors are the further impact of EUR24 million, of which (inaudible) is additional commercial and maintenance cost, and the remainder is either compensation cost for the personnel and provision on our receivables portfolio.

When looking at Lottomatica's Italian operations, our scratch & win business generated gross wagers of EUR2.3 billion, up slightly compared to the fourth quarter of last year. Lotto wagers were up 9% to EUR1.7 billion, compared to EUR1.6 billion in the same period last year. (Inaudible) lotto performance contributed 40% of total lotto wagers in the fourth quarter.

Machine gaming wagers were up 96% compared to the same period last year at EUR3.3 billion. The number of installed machines in the fourth quarter of 2011 grew to approximately 65,000. This machine count is comprised of AWP and VLTs connected to a Lottomatica system. At December 31, over 8,600 VLTs were installed.

AAMS reported total fourth quarter VLT wagers in the Italian market of EUR4.3 billion, which includes free play credits. Wagers from VLTs only were EUR2.1 billion, generating EUR141 million in revenue from an average of approximately 8,600 VLTs in the fourth quarter. Wagers, less payout, less the 2% tax on wagers is what Lottomatica counts as VLT revenues in the quarter.

Lottomatica sports betting wagers in the fourth quarter were EUR259 million, compared to approximately EUR293 million in the same period last year. Sports betting payouts in the fourth quarter were approximately 77%, compared to 89% in the same period last year. As of December 31, our sports betting market share in terms of total wagers improved to 21%.

Interactive wagers were EUR636 million, up from EUR105 million in the fourth quarter of last year. This performance was principally driven by the introduction of new games, such as Poker Cash and Casino.

Lottery revenues in the quarter were comparable to last year, at EUR191 million. Machine gaming revenues doubled to EUR202 million due to newly installed VLTs, which were in startup phase in the fourth quarter of last year. Revenues from sports betting were EUR59 million, up 87% over the fourth quarter of 2010. Revenues from commercial services were up 11% to EUR31 million due to an increase in billed payments, prepaid cards, and ticketing services for sporting and musical events. Revenues from our interactive business in Italy were EUR26 million, compared to EUR12 million in the fourth quarter of 2010. It should be noted that the gross gaming yields of the newly introduced interactive games in Italy is structurally lower than the average of skill games and tournament poker. This explains why the fivefold increase in wagers is reflected in doubled interactive revenues.

On slide 12, we provide a breakdown of the GTECH Lottery, SPIELO, and G2 service revenues for the fourth quarter of 2011 versus the fourth quarter of 2010. GTECH domestic, same-store revenues in the fourth quarter were up 6%. GTECH benefited from higher jackpot activity and the continued growth of the instant ticket sales, particularly in California, where sales increased 47%, and Illinois, where sales grew 25%. International lottery same-store revenues grew 2% compared to the fourth quarter of last year.

Now let's turn to an overview of the full year results. Revenues were up 29% to approximately EUR3 billion, compared to EUR2.3 billion in 2010. EBITDA was up 19% to EUR970 million, compared to EUR812 million last year. EBITDA margins were 32.6%, compared to 35.1% in 2010. Revenue impacts included the pass-through impact in Illinois, anticipated contract re-pricing, and the EUR12 million impact from the Czech lottery bankruptcy situation. Higher Italian legal costs incurred in the third quarter of 2011 and the other one-off costs mentioned earlier make up the rest of the EBITDA margin difference.

Now let's look at Lottomatica Italian operation for the full year. Our scratch & win business generated gross wagers of EUR10.1 billion, up 9% versus last year. Lotto wagers were up 30% to EUR6.8 billion, compared to EUR5.2 billion in 2010. Terno Lotto performance contributed approximately 35% of total lotto wagers in 2011.

Machine gaming wagers more than doubled compared to last year at EUR11.1 billion.

Lottomatica sports betting wagers for the year were EUR918 million, compared to EUR1 billion last year. Sports betting payouts in 2011 were approximately 79%, compared to 83% in 2010.

Interactive wagers were EUR1.4 billion, up from EUR411 million last year, driven primarily by Poker Cash and Casino games, which commenced in July 2011.

Lottery revenues were up 22% versus last year, at EUR826 million. Machine gaming revenues were up 161% to EUR666 million, compared to EUR255 million last year, principally driven by the rollout of the VLTs. Revenue from sports betting were up 9% to EUR187 million, compared to EUR172 million in 2010. Revenue from commercial services were up 21% to EUR124 million. Revenue from our interactive business in Italy generated EUR76 million, compared to EUR47 million in 2010.

Revenues from the Italian operation in 2011 EUR1.88 billion, compared to EUR1.26 billion last year, up 50%. This increase was primarily attributable to higher revenues from Terno Lotto, the [high late number] wagers, as well as machine gaming business.

EBITDA from the Italian operation was up 36% to EUR722 million, compared to EUR530 million in the same period last year. Gaming machine generated EUR137 million of this improved performance. The VLT business, which was still in its startup phase in the second half of the year, was the primary driver of the machine gaming contribution. The increase in lottery EBITDA was driven by higher wager-based revenues, which were partially offset by the aforementioned one-offs, additional performance-based compensation, as well as certain commercial costs and legal fees detailed during our previous conference call.

Revenue for GTECH Lottery, G2, and SPIELO were EUR1.09 billion from EUR1.06 billion in 2010, primarily due to higher GTECH same-store revenue growth and product sales and the compensation for Northstar management services in Illinois. This growth was partially offset by foreign exchange in the GTECH's contract portfolio mix.

EBITDA for GTECH Lottery, G2, and SPIELO was EUR248 million, compared to EUR222 million (sic - see Slide Presentation) last year. EBITDA was positively impacted by higher same-store revenue growth offset by change in the GTECH Lottery contract portfolio mix and renewals, the GTECH -- the Czech customer bankruptcy impact, higher personnel costs, as well as commercial costs.

GTECH domestic same-store revenues grew 4% in 2011 versus the prior year. GTECH benefited from higher jackpot activity and the continued growth of instant ticket sales, particularly in California, where sales increased 34%, and in Illinois, where sales grew 16%.

International lottery same-store service revenue also benefited from jackpot activity and grew 3% compared to last year. Excluding the impact of the bankruptcy of the GTECH customer in the Czech Republic, international lottery same-store service revenues were up 7%.

And now let's look at the P&L below the EBITDA. Operating income was up 40% in 2011 to EUR539 million versus EUR386 million in the same period last year. I would like to point out that 2011 includes a full year of amortization for the scratch & win concession license, which commenced in the fourth quarter of 2010.

Interest expense net was EUR165 million, down slightly versus the same period last year.

Income before tax was EUR366 million, compared to EUR114 million last year. Net income attributable to the owners of the parent was EUR173 million, resulting in earnings per share of EUR1.01. For the fourth quarter, EPS was EUR0.27 versus a loss of EUR0.30 in the fourth quarter last year due to impairment charges and to costs associated with the refinancing of our debt, which was completed in December 2010. Further details on fourth quarter EPS can be found in the appendix.

On the next slide, we will look at 2011 pro forma EPS. This pro forma calculation principally excludes noncash foreign exchange losses associated with euro-denominated debt on GTECH balance sheet, noncash purchase accounting associated with the GTECH acquisitions, and costs associated with the refinancing of the EUR2.65 billion of Group debt in 2010. Excluding these items, EPS for the full year was EUR1.21, compared to EUR0.94 last year.

We generated levered free cash flow of EUR281 million in 2011. Our leverage ratio, which is the ratio of NFP, net financial position, to EBITDA decreased to 2.8 as of December 31, 2011, compared to 3.7 in 2010. Our net financial position at the end of the year was EUR2.74 billion versus EUR2.98 billion at the end of 2010.

At the end of the year, the US dollar to euro conversion rate was $1.29 versus $1.34 at the end of 2010.

We also had EUR863 million of cash and committed, undrawn credit line available at the end of December.

As you will remember, the levered free cash flow represents the base to determine the dividend distribution. The Board of Directors resolved today to propose a dividend for EUR0.71 per share, implying a cash distribution of EUR122 million, or 43% of 2011 levered free cash flow.

Our CapEx is progressing in line with plan. CapEx for GTECH Lottery, G2, and SPIELO was primarily related to executing systems and products for customers in Texas, Illinois, and Poland, where GTECH was successful in securing new, long-term contracts. For Lottomatica Italian operation, total CapEx was EUR110 million, primarily related to the new VLT business and lotto.

Now I would like to turn the call back over to Marco Sala, who will discuss guidance for the remainder of our plan and the main drivers.

Now let me turn to our plan and guidance. I'd like to highlight some of the important drivers that will impact the success of our plan going forward. In Italy, Lottomatica has a well-established position of leadership in the overall gaming industry. We are the only fully integrated company with a strong set of capabilities along the entire value chain and in all market segments. And we have established the scale to be able to react to the opportunities. Investments we have made in Italy provide us with a competitive advantage as we seek to maximize our profits in all segments.

In terms of lottery, we expect to see stable results. We expect a lower contribution from late numbers, which had above-average contributions in 2011, which will be offset by continued growth in (inaudible) lotto and a mid-single-digit growth rate in scratch & win.

Gaming machines in Italy have become a major driver. We have had great success. Now we need to optimize our business as more competitors' machines enter the market. To help offset this impact, as well as new taxation, we will be hedging more machines. We will also get benefit of a full year of revenues from machines we deployed during 2011.

For GTECH, maintaining the same-store revenue momentum from 2011 is the key priority. We believe there is renewed customer interest in generating growth to meet government revenue demands. We have developed specific plans for Michigan, Texas, and New York to help drive that growth, much in the way we have done in California. As I noted, we have begun the year well, and we expect mid-single-digit same-store revenue growth to continue.

In addition, GTECH will continue to pursue operator-like opportunities, to add to their portfolio similar contracts in Illinois, Spain, Colombia, Costa Rica, and Caribbean. Our private manager agreement in Illinois is well underway and is a major focus of our attention. There are developing opportunities in other states. New Jersey is heading down a path that may include a private manager. There also seems to be significant interest in a handful of other states, including Pennsylvania and Michigan.

There is also a license being privatized in Ireland, where we are working closely with our customers.

In Greece, we are in a good position to become an operator of scratch & win, VLTs, and interactive games. However, it appears that the government is going to launch the offer for privatization this month, which is earlier than previously expected. The process will likely impact the timing and the scope of some of those tenders. We do expect the scratch & win tender to continue and have anticipated it in our investment plan for 2012.

Let me offer my view of the Greek opportunities. Even [when depressed] for the current economic crisis, Greece is a good-sized gaming market with a traditional high per capita spend. More importantly, it may offer attractive entry point because of the economic crisis. We will see how the process unfolds. Obviously, we will review opportunity in Greece in light of market conditions, proposed business models, and our investment standards and priorities.

Turning now to SPIELO with their initial success in the Canadian replacement cycle, the task is to win business in the remaining (inaudible) and deliver on the potential in those contracts in a timely fashion. There is also additional opportunity for SPIELO in supplying the Italian market, where it has established a leadership position.

In the interactive market, G2 is entering a dynamic period. Europe is adopting new regulatory models that may offer our lottery customers a preferred position. As noted, there are opportunities in Spain and Greece. The US has just issued a ruling that gives lotteries a chance to enter the interactive market. In fact, we expect that Illinois Lottery will be the first to offer internet sales of its product. We hope that the US lottery industry will take notice and follow that lead.

I want to point out that our analysis of the regulatory environment in each of the states in the US indicates that there are only a handful that currently have legal authority to launch interactive programs provided they receive appropriate approvals from their regulators. In the majority of states, legislation and executive branch approval is required to go forward. Nevertheless, state lotteries in the US could have a first-mover advantage if they react soon. We have dedicated the resources, working with our customers, to evaluate these opportunities. Clearly, interest is very high.

To address the interactive market, we have created a cross-organizational team that will allow for faster response times, greater access to expertise in the Group, and the maximum efficiency. We think that this approach will give us an advantage as interactive opportunities begin to emerge. We will continue to seek opportunities in both the government-sponsored and commercial sectors as interactive markets open up. We believe the interactive market in the US will begin with the Illinois Lottery launch and then begin to accelerate over the next 24 months.

We are encouraged by the success we have had outside the US, particularly in Italy and Spain.

I'd like to take a few moments to give you our perspective on the remainder of our plan. From a strategic perspective, we expect the growth to continue in the range that we have originally anticipated but on a higher base, taking into account the experience we had in 2011. That would indicate that EBITDA will be in the range of EUR1 billion to EUR1.102 billion (sic - see Slide Presentation) .

I think it is important to note that, in terms of costs, we intend to remain diligent and have developed plans to react to market downturns. It is our view that economic uncertainties, particularly in Europe, are not behind us, and we must be prepared for more developments.

As to the deployment of capital, it will remain a key priority and focus, as it has been over the past year. There are a number of opportunities for which we expect to compete. We will carefully analyze those opportunities using the same criteria in terms of risk-adjusted returns that will complement and enhance our portfolio of investment. We expect CapEx to be in the range of EUR255 million to EUR285 million.

And, finally, as noted, we have been able to deleverage much more quickly than anticipated. We expect our net financial position to be in the range of EUR2.6 billion to EUR2.65 billion. We expect to achieve a ratio of NFP to EBITDA of 2.4 to 2.5 times by 2013.

As to a dividend, consistent with the policy we announced last year, the board has approved a dividend of [EUR0.71] per share, calculated as 43% of levered free cash flow.

With that, I'd like to open up the call for

(Operator instructions). Matthew Gerard, Credit Suisse.

Three questions, I think, from me. Firstly, your comments on scratch card growth -- scratch & win growth in 2012 pointed to mid-single-digit growth. I think January was up 18% after a flat Q4. Why has it been so volatile? What's been driving the January performance?

And, perhaps relating back to what you said at the last conference call about marketing spend in Italy, could you give us some color on that and what's happened there?

Secondly, on CapEx, can I just make sure I'm not missing something, because your guidance says approximately 20% to 22% of EBITDA, but EUR255 million to EUR285 million on EUR1 billion seems to be nearer 27% or 28% to me. Am I just missing something? And can I confirm that you said that your interest in the Hellenic lottery's tender was included in the CapEx guidance that you've given?

And then, lastly, on the minority interest charge, it certainly came in below what I was expecting, particularly given the lower ownership structure. Can you remind us of the capital structure within the scratch card concession and any guidance for that going forward? Thank you.

Well, as far as scratch & win is concerned, we -- there are two factors affecting January performance. One actually dates back to December, when we had some issues in the delivery of the tickets in the last part of the year. So we had a number of logistic issues that, in fact, delayed the distribution of the tickets already, let's say, going on. So we had an extraordinary acceleration of selling -- the selling of tickets to the retailers in the first week -- the first ten days of January, so to say. And this was the first cause of a high performance in January.

The second element is a very strong and successful launch of the first ticket in 2012, a EUR5 ticket called (spoken in Italian), which has been positively accepted by all retailers and, most importantly, by customers.

We had, on the other hand, another logistic issue, mainly related to bad weather conditions, snow, in the last part of January and in the first two weeks of February that will somehow compensate the strong boost in January.

Okay, regarding the CapEx, let me first clarify that, included in the guidance we have given, there are, first of all, the sports betting -- an amount for sports betting in Italy last year. We discussed about this, but it was not included in the CapEx. The tender has been postponed, and so we have included in this year.

Also, it is included [as par] potential bid in Belgium. The model in Belgium is changing from product sales to service revenue. And so we are including that. And this is in addition compared to last year.

And, finally, there is an amount related to Greece that we have not disclosed, obviously, for competitive reasons, that we have included based on the current level of the discussions that we are having in Greece.

So, when you eliminate all of this, we are a little bit higher than 20% or 22%.

And, finally, regarding your question on the minorities, (technical difficulties) is 51.5% during. The remaining is shared with the other (inaudible). 2011 first year full results of restructuring and license amortization is EUR89 million impacting directly the profit and lower than 2010. And, going forward, the P&L minorities will increase slightly, in line with increased profits.

Okay. Thank you very much.

Roohi Siddiqui, Bank of America Merrill Lynch.

A few questions from me, please. Firstly, just going back to Matthew's question on CapEx, could you just clarify whether something is in there for Ireland as well? Are you already sort of factoring that in?

And, in Greece, I thought the -- you were going to be bringing, let's say, technological expertise to the table. Are you -- ? It looks like now you're going to be contributing capital as well, potentially. So, if you could, just give some color on that.

The second question is on your costs. You said you were going to be more vigilant on costs. Could you give some clarification on the cost lines that you'd hope to target this year?

And, then, could you also give some color going forward on the dividend policy? Should we expect it to be around 50% of levered free cash flow going forward or actually a bit lower as you've done this year?

Okay. Let me start answering the first couple of questions about international jurisdictions, and I'll hand over to Alberto for the rest of the questions.

With respect to Ireland, you may have seen numerous press reports that talk about the desire for the Irish government to raise several hundred million euro by privatizing the Irish lottery. We do not have that kind of capital in our plan. The timing of that and the structure of the bid is not known yet. There are several press reports that talk about the government's desire. We're following it, and we have interest. But we do not have that covered in our plan at this point in time.

With respect to Greece, we have submitted a tender for the replacement of OPAP's technology infrastructure, and we remain interested in being a participant in that competition. We have not heard back from OPAP yet. That process is progressing.

With respect to the earlier comment made by Alberto on Greece, we also have an interest in the Hellenic lottery's privatization tender. We are a member of the consortium that bid for that tender, and our consortium, including OPAP, has been prequalified. We are awaiting for the government's final tender documents, which we expect will be in the next few weeks with a bid submission by June.

We are also advised that, due to the government's desire to sell its 34% stake in OPAP, there may be some delays in the final decision-making on the technology tender.

So that's the current stages of affairs in Greece.

And now I'll hand it over to Alberto for the questions on cost and dividends.

Regarding the cost, we have started a series of actions, both in Italy and outside Italy, in order to identify potential (inaudible) cost reduction. The project has been launched recently, and we are trying, basically, to identify potential efficiencies.

Going instead to the question regarding the dividends, let me say that, obviously, the rule has been set, and we will follow the rule. And every year, it's going to be the Board of Directors who make the proposal to the shareholders regarding the dividend. And we'll follow the rule that we adjust (inaudible).

Okay. Can I just follow up on the CapEx question, if you don't mind? You haven't quantified how much you sort of factored in for Belgium and the amount that relates to the Greek lotteries. But what about the -- last year, you talked about EUR25 million that you were setting aside over 2011/2012 for VLTs. Is that also baked into the CapEx number, or is that something separate?

It's not anymore factored in our CapEx. What is factored now in our CapEx is the scratch & win license. And, of course, we do not disclose that because, from the competitive standpoint, it gives the idea of what we intend -- how we intend to bid for that license.

And, for the same reason, we do not anticipate also, as we do usually, our CapEx commitment for Belgium.

Right. Okay. Thank you.

Andrea Balloni, Fidentis.

I have three questions. The first question concerns the VLTs in Q4. Could you, please, recap the average number of operating VLTs in the quarter and also the average wager and the average sales in the business?

And my second question is about the Italian (inaudible) system. We heard in the past about another potential (inaudible) increase for gaming machines, as well as the new potential (inaudible) concerning the VLTs. Could you, please, give us your view and your expectation about this point?

And my last question is about GTECH and the US and the EBITDA generated in the US. I guess this amount is also factored in into 2011 some startup costs for (inaudible) Illinois. Could you, please, quantify or give us an idea about the amount accounting to 2011 and your expectation about 2012? Thanks a lot.

Okay. I take the second question regarding the rumor. That was something appeared through the media. But, as you can appreciate, when we look at the decree, the fiscal decree, no hints regarding the point of increasing taxation or improving or increasing the original license of VLTs were reflected in the real outcome. So we cannot comment anything else on that. There was not anything in this regard in the decree, and that's it.

Regarding the VLTs in the first question and the third question, I may pass over now to Renato.

So, as far as I understood, you're referring to Q4, and you're question is how many VLTs in that period. We ended up having 8,600 VLTs in that period.

Sorry. This is an average number.

End of period, 8,600, end of period of Q4, leading to an average for 2011 of about 6,500. In Q4, again, we had overall wagers of about EUR2.1 billion. Is that enough?

Yes. Sorry. Just regarding your EUR2.1 billion wagers, it's an average number for Q4, isn't it?

I was referring to the end of period. The average number for Q4 is a bit less than 8,000 -- 7,900.

Thank you.

Yes. With respect to your last question on Illinois, we did have some startup costs for the Northstar business. We estimate those to be in the range of EUR3 million to EUR4 million; so, call it EUR3 million, a round number, in fiscal year 2011.

Okay. Thanks a lot.

Richard Stuber, Nomura.

Just a couple of questions from me. First of all, on the potential for selling lottery tickets online in the US, could you give an idea of the potentials of market size and timing of that?

And the second question is on the potential -- on the share buyback. You want to authorize a share buyback through the year. Is any of that embedded within your sort of net financial position for 2012/2013 guidance, or should we assume that you [wouldn't] be buying back any shares? It's just an authorization to do so. Thank you.

With respect to your first question, it's very hard to give you a range of potential market size because there are a handful of lotteries, as Marco mentioned in his remarks, that will likely launch internet sales over the next year or two. And, of course, it depends upon whether they will launch existing draw-based games, electronic, instant, and other products.

There have been some estimates in the market that sales could be in the range of $0.5 billion per year all the way up to EUR1.5 billion or EUR2 billion per year. But it depends upon what products are launched and how many states will actually launch the product. So I think it would be too early to factor in projections of that nature.

Thank you for your question regarding the buyback. Let me tell you this. The process in Italy is quite long and requires a decision from the shareholders meeting. It usually happens once a year. We had in the past this program, so we have decided to get from the shareholder the okay to go. But, basically, it's a matter to have it there available, like we had it in the past. However, we are not planning to use it.

Thank you very much.

Vaughan Lewis, Morgan Stanley.

Just following on from the internet lottery question, can you give us a bit more of an idea about when that might launch in Illinois, which I think you said you expect it to be the first. And, then, will that launch in Illinois include scratch cards as well?

The second one. On page 15, with your EBITDA bridge, EBITDA for interactive in Italy was only up EUR2 million, despite very strong revenue growth. Can you just elaborate on why the sort of flow-through is so low there and if that's the sort of rate we should think about for this year as well?

And then the final one on the Deutsche lotto. I'm not sure I understood the comments on the outlook. Is that starting to stabilize now as you sort of lap the rollout of that product, or are you still seeing decent growth as customers get used to that product? Thanks.

Yes. With respect to your first question on Illinois, we are in the process of launching internet sales in Illinois. We expect to do so by the end of March; so, end of this month. At this point in time, the internet pilot program that has been approved will allow us to launch draw-based games; so, mega millions. I think powerball will be approved as well. There have been some discussions in the last few days about powerball and lotto.

Future games, such as instants and other games will not be launched today but maybe so in the future.

I'll ask my colleague, Renato, to answer the question about internet in Italy.

Right. So, regarding the (technical difficulties), of course, you should consider that we will -- of course, we are pleased of the progress of the overall business. But two things have to be considered first. The launch of the new games happened -- took place in August. So we expect to have the full deployment of the innovation process in 2012. And, because of that, we deliberately decided to invest a huge amount of money in marketing activities in order to have both an increase of awareness for our brands and, secondly, an increase in the population of players that would have come to visit our Websites.

Being the period between Christmas and the beginning of the year, particularly, say, relevant in terms of acquisition of new customers, we decided to invest in that period of the year particularly. And I have to say we are harvesting results in the beginning of 2012.

I must confess. I did not quite understand your point regarding Terno Lotto. Could you repeat, please?

Yes. Just on the outlook for this year, are you still expecting strong growth in that product, or is it starting to stabilize (technical difficulties)?

Okay. Well, what we can say is that we have not reached yet the full potential of (inaudible). We have quite strong evidence from the market that, from one side, the number of customers are still approaching this new game. And, secondly, we also see that a number of points of sale are still below what we consider a good potential in terms of penetration in the market. So this is why we do expect some increase, of course, not as evident as the previous year, but, still, an increase for 2012.

Great. Thank you.

(Operator instructions). Domenico Ghilotti, Equita.

I have two questions. The first is on the Irish privatization. I wonder if you have timing for this process.

And the second question is on the Italian [video] lotteries. You have been running video lotteries for a few weeks with a higher taxation. So I wonder if you can give us an indication on how this is affecting the metrics and the profitability in the video lotteries.

Yes. With respect to the Irish lottery, I don't really have any solid answer for you on the timing of the privatization. It's being discussed now. So there may be something that happens this year, but I really cannot be more specific. I just don't know.

If you're referring to the taxation which affects concessionaires and the value chain, this has been managed in a way that does not affect the consumer behavior. So, if I got your question correctly, what we have done is find a way in order to guarantee the same consumer experience in the outlets.

So we do not envision at the moment any particular change in the trends on the customer (inaudible).

So, basically, you are not changing the payout in the video lotteries in order to recover this part -- really, higher taxation?

No. We are, of course, continuously maneuvering the payout, but we have not deliberately, say, delivered to the customer the bad news regarding the press.

I would also add that, because the taxation on wins in VLTs has been suspended by the ruling of (spoken in Italian), the effects of the taxation on wins in VLTs is not perceivable at the moment. But, let's say, taking into consideration the effects that we do see in scratch & win, we do not expect to have any particular issue in the market trend.

In the case of scratch & win, the new ruling of the taxation, as we predicted, does not affect, at all, consumer behavior.

Okay. Thank you.

Fabio Pavan, Mediobanca.

A couple of questions. The first one is related to (inaudible). I just would like to understand if, in your view, Terno Lotto could be as strong to offset the drop expected for late number. And, I would say, did I -- your view is that you can increase the number of point of sales for both lotto and scratch & win?

The second question is on VLTs in Italy. I would like to have more color on your view for 2012 in terms of increasing competition. What are you expecting this sector could provide [international growth].

Finally, on GTECH's side and US side, two questions, the first one related to California (inaudible) seeing strong growth, even more stronger in the last quarter. So which is your view for 2012, as well, and a little bit more color on the $2 ticket for powerball. Thank you very much.

Regarding lotteries in Italy, as we said, the forecast is to have, I would say, stable, let's say, performance in 2012. Of course, it will be different dynamics within this context, and we do expect (inaudible) will still have some potential. And so, [surely], one digit increase

In case of lotto, we do expect late numbers to come back to the standard, statistical share in terms of wagers, and we do expect an increase (inaudible).

But, again, on the whole, the combined lottery business is supposed to be stable.

Regarding the other question you made regarding the competition in VLTs, of course, competition is not, let's say, deploying all the effects. Other concessionaires have still a backlog of VLTs to be deployed. So our expectation that our market share will be affected -- of course, we are struggling, getting the best location and the best conference in the market before our concessionaires. So we still think we have good position in order to compete with other partners at the moment.

With respect to your questions on the United States market, we still believe that California has substantial growth potential. We don't provide growth outlook by contract, but the trends that we saw in 2011 are continuing. Obviously, that pace can't continue forever because we are -- in 2011, we were working off lower sales than 2010; hence the high growth rate. But we still expect that the market can grow quite substantially over the next several years.

What I would comment on with respect to $2 powerball is that we are off to a good start in the first part of 2012. The expectation that overall online sales will grow in the United States, net of cannibalization, is proving to be true. So off to a good start, and we feel comfortable that our expectations will be met.

Thank you very much.

Matthew Gerard, Credit Suisse.

Just following up on that question on powerball, actually, for Jaymin, obviously, Scientific Games, I think, in their call last week cited your powerball sales up 50%; i.e., a good conversion for price increase to revenue or ticket sales. Can you just talk us through the mechanism of how we would be expected to benefit from that, because, clearly, your guidance for GTECH's same-store sales in FY 2012 is broadly similar to the exit rate that you've experienced in FY 2011. I would have thought there would be some incremental uplift, even despite California running against more difficult comparatives.

I don't know that I can say that (technical difficulties) net lift is 50% versus last year because I think, to understand the true dynamics of the change -- the price point change, you have to understand what happens to megamillions, which is the other large multistate game in the United States, and also what happens to in-state lotto across the various states. So I think you have to have a holistic view of online games to understand the impact of a price point change like this.

So my comments earlier were intended to suggest that, if you look at the overall impact of the price point change in powerball in dollars and you factor in the change in megamillion sales for the first few weeks of this year and you think about the impact of the online games, the overall picture is a net positive, which we feel very pleased about.

Looking at powerball specifically, yes, sales are up quite substantially period to period, and I think that that trend will continue with overall sales being up.

With respect to the guidance that we've given for 2012, we do think that the online growth rate -- the overall growth rate, including (inaudible) tickets, for 2012 will be a little bit higher than 2011. That's the guidance, I believe, that we provided.

Just coming back on one follow-up, is there any suggestion that the megamillions consortium might raise prices?

Not to my knowledge. I haven't heard the discussions at all.

Okay. Thank you.

Roohi Siddiqui, Bank of America Merrill Lynch.

Guys, a couple of questions from me, please. One, could you just remind us how substantial is California in terms of revenue versus GTECH lottery revenue?

And the second question is just on the Czech lottery. Is it profitable once again? And, if so, could you just clarify whether you'd expect to get back to full profitability this year? Thanks.

Regarding the Czech Republic, Jaymin has already anticipated that we are back in these days at the same level of pre-crisis. So I think, this year, we can enjoy the same contribution (inaudible) was providing us in the previous years. (Inaudible), of course, a good growth opportunity, when we are going to compare 2012 versus 2011 in this jurisdiction.

Now Jaymin should be -- will reply to you regarding California.

California is around 5% of the total revenues of GTECH worldwide. That's the size of the market.

Great. Thank you very much.

(Operator instructions). Domenico Ghilotti, Equita.

I have a question on the VLT rights because you have not, let's say, fully developed your -- deployed your VLT rights. And, if I am correct, you are not allowed to sell these rights to third parties. So I wonder if you are, let's say, targeting the full deployment this year.

Yes. We are going to deploy all our rights this year, taking advantage at this point in time of the good profitability that these rights are providing that will more than offset the issue we are facing with the increased (inaudible) for 2012.

What could be the timing for, say, completing the deployment?

I think, by the end of third quarter, we should have deployed all our machines.

Okay. Thank you.

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

Thank you. (Inaudible), you can see our future is promising. We have tremendous visibility into our business. There aren't many companies that can say they have 70% of their revenues under contract for the next seven years. That provides us with a great foundation from which we can take advantage of new opportunities.

Let me conclude, though, with some comments about integration and cooperation within the Group.

To be successful in capturing the opportunities that are now emerging in the gaming space, companies must offer solutions across many channels and platforms. Joint efforts among the Group's organization will become the norm and not the exception. The sharing of expertise and resources will be an ever-increasing priority. More and more, we are finding examples such as that of Northstar in Illinois, where resources from Lottomatica and GTECH are implementing, integrating the offerings of (inaudible) services. Our success in the Italian VLT market could have not been achieved without the integrated efforts of SPIELO and Lottomatica.

The same is true in the Italian interactive market, where (inaudible) integrated into our efforts to launch and operate interactive games. Further, it was being integrated into the support team for GTECH interactive solutions as their customers consider entering that channel.

The convergence that we have anticipated in the role of operator and technology solution provider is accelerating. We have aligned our organization and are well positioned for the new type of opportunities that will come from this convergence.

I firmly believe our extensive global footprint, prominence in all gaming channels, and strong consumer relationships give us a unique competitive advantage.

Thank you for joining us, and good evening.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.