International Game Technology PLC (IGT) 2012 Q1 法說會逐字稿

Good day, and welcome to the Lottomatica First Quarter Results End March 30, 2012 Conference Call. Today's conference is being recorded.

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

Good evening, and thank you for joining us for Lottomatica Group's 2012 first quarter results presentation. Joining me for today's presentation is Alberto Fornaro, the CFO of Lottomatica Group, and Renato Ascoli, the Managing Director of Lottomatica. And Jaymin Patel, the CEO of GTECH, will join in for the question and answer session.

I'd like to begin by providing you with a high-level overview of our performance and the factors driving it. As you have seen from the announcement that was issued today, Lottomatica Group had a very good quarter. The momentum we created in 2011 is being sustained and, in fact, grew during the first quarter of 2012. And, most importantly, the sources of our growth are diversifying and balancing across the entire Group.

Revenues, EBITDA, and operating income experienced double-digit growth, while net income doubled. As has been evident in recent quarters, our business benefited in the first quarter from our investments, particularly in the machine gaming sector in Italy, as well as significant growth in California from improved prize payouts and Illinois, where we are renewing the interest in the lottery.

Multi-jurisdictional jackpot games in the US were driven to historic highs by cross selling, new pricing, and payout changes, and the whole precedent-setting launch of the internet channel for selling lottery products in the US. While jackpots in the United States helped our results, it would be noted that underlining same-store revenues across all geographies in GTECH experienced healthy growth that is continuing in April. We are finding that our customers are adopting the new ideas and best practices at a much faster rate than in previous years. Successful concepts in one jurisdiction are quickly replicated and launched in many more with our Group serving as the bridge between them.

Spielo International continued its turnaround and is solidifying its position as the leading solution provider in the Italian and Canadian machine gaming markets.

In Italy, the diversification of our portfolio of products and services is paying off. Machine gaming revenues continued to experience impressive growth in these interactive games, while lottery revenues were slightly lower. It is worth mentioning that year-over-year, quarterly comparison for lotto revenues were impacted by the high level of wagers for late numbers during the same quarter last year that were present in the past quarter. Eliminating the late numbers' impact, our core lotto game with the continued good performance of 10eLotto experienced solid growth.

Scratch & win revenues were lower than the similar period last year. Given the corresponding quarter last year was the highest quarter in the history of the game, that performance is not unexpected. We are cautiously optimistic that new promotions and game launches planned for the second and third quarter will help to better align us with the previous year results. We are monitoring the situation and expect to be better able to assess our progress at half year.

Overall, in Italy, we are pleased with the growth that has been driven by our innovations and diversification within the gaming market. Despite economic difficulties and worsening fiscal conditions, we achieved the EBITDA growth we anticipated.

I'd like to give you some insight into the progress that we have made on some key priorities.

As we began to see in previous quarters, machine gaming in Italy has become a major contributor to our results. As I noted in the past, one of our top priorities has been to focus our organization on our segment in Italy. To give you some perspective on the impact of machine gaming in this past quarter, revenues grew 24% and were higher in real terms than the individual revenues of either lotto or scratch & win.

Turning now to GTECH, the positive trend in same-store revenues is continuing and growing dramatically. The improvement in same-store revenues during the first quarter more than offset the price compression impact from [contract rebid]. For the period, overall same-store service revenues were up 12% over the comparable period of last year, supported by solid growth in all geographies, particularly in the United States, which was up 15%.

Internationally, the Czech Republic continued to recover and has reached levels equal to their pre-bankruptcy performance. In Poland, we were experiencing some price compression related to our successful rebid. There has been encouraging same-store revenue growth, much as we had hoped. And, in Colombia, we have put in a good deal of effort to assist our customer. We are seeing very positive growth.

The rebound in GTECH's same-store revenues growth is important. Even after excluding the favorable impact in the quarter from jackpots, same-store revenues were up a healthy 9%, aided primarily by growth in the United States instant ticket category and strong international online sales. Again, as I noted earlier, we are encouraged by the fact that our customers have demonstrated a higher acceptance of innovation and optimized product offerings that have helped drive and sustain our same-store revenues.

Now I'd like to give you an update on our private manager activities in Illinois. With ten months of management by our Northstar group, this state is on track to receive substantially more profit than it did for the similar period when the lottery was under state management. Under our management, the lottery has improved its brand image, expanded its retailer base, as well as offered new products and upgraded technology.

The launch of the first-in-the-nation, internet-wager channel for the lottery products was also effective in making the lottery more relevant to new demographics of players. As you will recall, the US authorities have now allowed lotteries to sell their product over the internet. Many of our US lottery customers are expected to follow suit. Over time, we expect internet sales to become part of our -- [a must] of US lottery and an important factor in reaching new players.

As to our performance under the private manager agreement, we are making good progress towards meeting our objectives. The state's fiscal year ends in June, and we will provide an update on our performance then.

In addition, other US states are considering adopting similar business models to Illinois. New Jersey has begun a process that we expect will result in a private manager style opportunity being offered. Pennsylvania has also begun a formal process that will likely result in another private manager opportunity. While New Jersey and Pennsylvania are expected to have formal procurements during this year, we expect that other states will conduct a series of reviews as well. As we have guided during the past, these are complicated undertakings that require significant political support. Nevertheless, we are encouraged by the activity.

There are also some significant privatization activities underway in the international jurisdictions, including Ireland and Greece. Each is impacted by the current economic crisis, and we will review them with our usual discipline towards a risk-adjusted deployment of capital.

Turning to Spielo, we expect to see their contribution grow in the coming months. The Canadian VLT replacement cycle is underway, and Spielo is anticipating an active year with a full complement of deliveries with some jurisdictions beginning to accelerate their deployment of machines. We have been successful in winning business in every Canadian VLT procurement to date and hope to maintain that success in the remaining bids.

In Italy, Spielo's leadership is increasing, with the deployment of new VLTs for operators other than Lottomatica, and we expect that growth to continue. Spielo's G2 division has had good success in the Spanish and Danish market and is proving to be an overall competitive advantage for us. G2 is contributing to numerous projects in Italy, Illinois, and other US jurisdictions preparing to begin selling on internet.

Now, I'd like to offer some comments on our earnings guidance. As you have seen in our announcement today, we are off of a good start in 2012. We are confident in the guidance we have given. Although we remain concerned with economic conditions in Europe, we have benefited from significant jackpot activity in the first quarter that has, in turn, taken some of the risk out of our plan going forward. Even with the current economic concerns, it is evident to us that the sustainability of underlining business is sound, and we expect the positive momentum to continue. We are confident in our prospects for the remainder of the year, and we will have more insight into that at half year.

Let me conclude by noting the recent announcement by Standard & Poor's, affirming our credit rating and improving the outlook from stable to positive. We have worked diligently to improve the capital structure of the Company, and we are pleased with the recognition. While it is only the first quarter, we are confident that we can sustain the progress that we have made in this area that is reflective of the continued improvement in our net financial position.

Now I'd like to hand over to Alberto for overview of the results.

I'm pleased to report that we continued to deliver solid results in the first quarter of 2012, despite the challenging business climate. In fact, we achieved growth across all of our business segments with EBITDA and operating income hitting new records.

Before I review our performance, I wanted to point out that we have integrated our GTECH G2 business into Spielo International. We made the decision to change the structure of the internal organization due to the recent convergence of land-based and i-gaming. We expect to leverage resources to give our customers higher-performing content, faster responsiveness, and an increased level of innovation. The combined entities will also be able to deliver a seamless product offering across different channels for both operators and players.

Now let's review the results.

Revenues for the first quarter were up 11%, to EUR780 million, compared to the first quarter of 2011. The increase in revenues is primarily attributable to strong year-over-year business performance.

EBITDA is up approximately 10% in the quarter to EUR280 million. All three business units contributed to the increasing profitability at the EBITDA level. GTECH recorded an improvement of EUR16 million. Our Italian operation improved by EUR5 million. And Spielo improved by EUR3 million. The main drivers of the year-over-year increase are the strong performance of the instant ticket and the growth of the online sales driven by jackpots in the United States, as well as machine gaming in Italy and the one-time recovery of a foreign investment. All taken into account, I believe we are on track to achieve our 2012 guidance. The EBITDA margin was stable at approximately 36%.

Revenues from Italian operations in the first quarter were EUR482 million; compared to the same period of last year, up 5%. This increase was primarily attributable to higher revenues from machine gaming and interactive, partially offset by lower revenues from lotto, instant tickets, and sport betting. Expected lower late number wagers and higher payouts impacted revenues for lotto and sports betting, respectively.

EBITDA from Italian operations was up 2% versus the first quarter of last year to EUR204 million. Machine gaming and interactive EBITDA improvements more than offset the lotto late number impact, while scratch & win EBITDA was in line with the first quarter of last year. I would like to note that interactive EBITDA more than doubled when compared to 2011. The VLT business was a key contributor, despite the increasing taxation from 2% to 4%, which we had already anticipated. The bottom line is that our Italian operation was still able to generate a EUR5-million EBITDA increase over the same period last year.

Total Italian market wagers for Lottomatica Italian operations were up 13% compared to the first quarter of last year. Instant ticket wagers were approximately EUR2.62 billion in the first quarter of 2012. The 4% decline compared to the same period last year was partially attributable to inclement weather conditions and transportation strikes in February. Additionally, March 2011 scratch & win had record sales following the launch of the EUR20 ticket introduced on a permanent basis during the first quarter of last year.

Adjusted for the late numbers impact, lotto wagers were up 3.4% compared to the same quarter of 2011. Total wagers were just north of EUR1.5 billion due to the healthy performance of 10eLotto. Late numbers represented less than 6% of total lotto wagers, including 10eLotto, as opposed to nearly 18% in the first quarter of last year.

Machine gaming wagers were up 35% compared to the same period last year, at EUR3.2 billion, including replay credits. The increase was attributable to the newly installed VLTs, which generated EUR823 million of additional wagers versus last year, while overall AWP wagers were stable. The number of installed machines in the first quarter of 2012 grew to more than 70,000, up 18% versus last year.

During the first quarter of 2012, on average, 8,860 VLTs were in place, compared to 5,113 machines over the same period last year. As you are aware, since January 1, the VLT tax increased from 2% to 4% of wagers. Total VLT wagers over the period were EUR2 billion, which is a 69.1% increase compared to the first quarter of 2011.

Sports betting wagers were impacted by higher payouts this year versus the first quarter in 2011.

Interactive wagers were up fivefold, to EUR590 million, compared to the first quarter of last year. This performance benefits from a favorable comparison, as new games such as Poker Cash and Casino games were introduced in July 2011.

Lottery revenue was down 7%, to EUR206 million, versus the first quarter of last year. Machine gaming revenue was up 24% to EUR169 million. VLT revenues grew to EUR108 million from EUR77 million in the same period of 2011.

Revenue for sports betting in the quarter was EUR48 million versus EUR59 million in the first quarter of last year. Commercial services revenue grew by 12%, principally due to an increase in [bill] payments and electronic top-up services for prepaid cellular phone recharges. It should be noted that the gross gaming yield of the newly introduced interactive games in Italy is structurally lower than the average of skill games and tournament poker. This explains the fivefold increase in wagers. It is reflected in yield of our interactive revenues.

Revenues for GTECH lottery and Spielo International were EUR298 million, up from EUR242 million in the first quarter of 2011, primarily due to higher GTECH lottery same-store revenue growth. And the compensation for Northstar management services in Illinois was EUR14 million. Revenue growth also benefited from some favorable foreign exchange difference.

EBITDA for GTECH lottery and Spielo International was EUR76 million, up from EUR57 million last year. EBITDA was positively impacted by higher same-store revenue growth and the EUR4.5-million one-time recovery from a foreign investment, partially offset by GTECH lottery contract renewals; in particular, Texas and Poland.

On slide 12, we provide a breakdown of GTECH lottery and Spielo International service revenue for the first quarter of 2012 versus the first quarter of 2011. GTECH US same-store revenues in the quarter were up 15%. GTECH benefited from extraordinary jackpot activity and the continued growth of the instant ticket sales.

In the United States, the Mega Millions jackpots grew to $656 million, the largest in the history of any multi-state game. Of the 15% increase in same-store revenues, we estimate approximately 6% can be attributed to the strong quarter-over-quarter growth in the jackpot activity. And, as you may recall, the first quarter of last year was also a high jackpot quarter. In fact, it was the best quarter of 2011 in terms of jackpot activity.

As I mentioned, instant ticket sales increased across the board but particularly in California, where sales increased 47%, Illinois, which saw an increase of 41%, and Texas, where sales increased 14%.

As Marco mentioned earlier, the Illinois lottery began selling lottery tickets for its residents over the internet on March 25. While still in its early stages, preliminary results are encouraging. In terms of sales volume, $1.4 million has been wagered over the internet, with approximately 120,000 users registered.

We also experienced robust growth in our international jurisdictions. Same-store revenue grew by 8% in the first quarter. This increase is principally due to solid performance in Jamaica and Colombia, jackpot activity in Poland, and the recovery in the Czech Republic, where our customer emerged from bankruptcy and recaptured close to 100% of pre-bankruptcy sales.

Now let's look at the P&L below the EBITDA. Operating income in the first quarter of 2012 was EUR170 million, up 11% year over year. Interest expense was EUR39 million, down slightly versus the same period last year. Foreign exchange losses declined from EUR34.5 million in the first quarter of 2011 to EUR5 million in the first quarter of this year, primarily as a result of lower GTECH euro-denominated borrowings, as well as smaller fluctuation in exchange rate. Income before tax was EUR124 million, compared to EUR74 million last year. Net income attributable to the owners more than doubled to EUR58 million, resulting in earnings per share of EUR0.33. As adjusted for stepped-up amortization and certain nonrecurring items, pro forma earnings per share grew to EUR0.41 from EUR0.31 in the first quarter of 2011. Detailed calculations are available in the appendix.

For the quarter, we had a strong cash flow performance with EUR185 million of cash from operations. Our net financial position at the end of the quarter was EUR2.65 billion versus EUR2.74 billion at the end of 2011. On a constant-currency basis, in the first quarter, the net financial position is improving by approximately EUR80 million. I believe this is on track to achieve our yearend guidance of EUR2.6 billion to EUR2.65 billion.

The significant cash generation in the first quarter will provide, in part, the capacity to fund in the second quarter the dividend and minority payments and significant cash outlays for income tax expected in the second and third quarter. As far as our liquidity is concerned, our spare capacity, had EUR888 million of cash and committed undrawn lines of credit available at the end of March.

Now I'd ask the operator to open up the lines for Q&A.

(Operator Instructions). Matthew Gerard, Credit Suisse.

I have four questions, two on numbers. Firstly, can you just confirm -- I'm sorry if I missed it -- the period end number of video lottery terminals now installed in Italy and whether you're on track to roll out all of the remaining licenses before the end of December, which I think was your previous guidance. I guess you are, but, if you could, just confirm that.

Secondly, I know you put some more marketing spend behind some of your Italian businesses in Q4. In Q1 2012, it looks like your Italian costs are up about 7% or maybe 7.5%. Have you further increased marketing spend year over year in Italy in the first quarter?

And then two more strategic questions, if I could. Firstly, on Pennsylvania, I know it's a tight deadline. So I guess you've got some idea of how you're going to approach the privatization. Given you're not an incumbent in Pennsylvania, is there a distinct advantage of retaining the Northstar structure and teaming up with Scientific Games? And could you give us some thoughts on that process?

And then, lastly, now everything's kind of calmed down in terms of trading, we've had the S&P debt upgrade. Can you just give us your thoughts on what the right level of debt is for this business either on a kind of absolute or multiple basis, because I respect your guidance, but it doesn't really give us an idea on what you feel the appropriate gearing is for Lottomatica Group. Thank you.

Okay. I think that the first couple of questions will be answered by Renato Ascoli, and, after, Jaymin will talk about Pennsylvania. And Alberto will elaborate on your last question.

Coming to your first question regarding the VLTs, yes, we think we are on track. As we speak, we have more than 9,000 machines installed and operating in field. So I think we are on track regarding our guidance.

Regarding marketing spend for our different businesses, as you perfectly recall, we decided in the last quarter of 2011 to increase our visibility, our brands in the market. And so we, as I said, decided to push nearly all the brands, interactive, lottery, sports betting, so that we could have a fast start in 2012. This is why we have reduced somehow the pressure on marketing in Q1, but we do not expect to, let's say, exceed our marketing spending in 2012. We will keep the same pressure and the same kind of visibility that we did last year.

With respect to Pennsylvania, Matthew, you may be aware that the request for qualification, the request for information, required response by May 1, and we did submit our response. We are looking forward to the state's response and being in the process. It is our expectation that the state is going to issue an invitation to bid as a next step. We expect that within -- in the next several weeks or, certainly, the next two months. And we expect that there will be a competition sometime this year. That's not at all conclusive. That's certainly our understanding of the overall situation.

I think, for us, it's too early to tell yet what our strategy will be here. Pennsylvania is a very well run lottery organization. We are excited about the opportunity here. And we will determine our strategy, once we know what the RFP or the invitation to bid looks like, and how we will respond accordingly.

Regarding the debt, as you know, our capital expenditures tend to be cyclical and can be higher or lower, depending on the size of the contract up for renewal. Right now, we are in a phase in which we are approaching the bottom of the CapEx cycle, and so we are building flexibility. So, when we will have commitments in the future we are able to meet. The financial strategy is not, therefore, to pursue a single number in terms of gearing ratio but to be able to, at the peak of the capital spending, maintain an investment-grade type of rating.

Okay. Thank you. If I could just come back on one of them, to Jaymin and Pennsylvania, is it fair to say you have a default situation that you'd revert to, irrespective of the kind of structure of the RFP? I'm not quite sure I understand correctly how the Northstar structure could be migrated outside of Illinois. Is it easy to replicate in your view?

Well, I certainly wouldn't say that we have a default structure. I mean, we are in business, and we will put in place the right structure for every business opportunity. So, you know, we have no obligations to do anything. I think the only obligation is for us to compete and put together the best business structure for the opportunity, which we'll make a decision on once we see the bid and as we move forward.

Okay. Thanks, guys.

Domenico Ghilotti, Equita.

I have three questions. The first is on the operating leverage that you had in lottery and sport betting in Italy, because you had EUR26 million declining sales and just EUR8 million EBITDA. I wonder if it is only due to the lower marketing spending that you mentioned before or if you had also some other elements offsetting the lower sales.

The second question is more in general, on the situation on what kind of consumer behavior are you seeing in Italy in the current weak consumption scenario and if you had adjusted your product offering in some way to adjust to the scenario.

And the third question is on the US performance. In particular, you mentioned that there is a faster adoption of product innovation in new jurisdictions. So, if you can, give us some flavor, apart from Illinois and California, what's going on in the other jurisdictions.

Excuse me. We didn't get the first question precisely. Can you repeat it, please?

Yes. Operating leverage, because I saw a decline in sales in lottery and sport betting in Italy of around EUR26 million sales, while EBITDA was down just EUR8 million. Renato previously mentioned that marketing was slightly lower in Q1 compared to Q4 because you had already invested a lot.

Now we definitely got, and we have the answer. Renato is going to provide you the answer, and Jaymin will answer the other question.

Right. Coming to the numbers, the first question, yes, you see there is not such an impact on EBITDA on lottery, particularly, thanks for, let's say, at least a couple of reasons. The first one is the one I mentioned before. So, thanks to the opportunity we decided to take in the last part of 2011, we could, let's say, reduce the pressure in terms of advertising in the first quarter of 2012 versus the same effort we did in 2011.

And, secondly, since we launched in the last years a number of actions regarding operational efficiency, now we are exploiting part of the actions that we have taken in the past. And, particularly, in the lottery business, we are taking advantage of a number of renegotiations, a number of changes in the processes regarding maintenance on terminals, regarding using, let's say, TLC in operating our business, and also in the price and the cost of the (inaudible). This is why we still think we have opportunity to exploit throughout the years. We expect to have at least EUR10 million efficiency to deliver throughout the year that might help us in matching potential difficulties coming from the top line, particularly lotto.

Coming to your second question, yes, we see some, say, trends in the top line. You can see it very easily. But different reasons behind them. Let me just quote some of them.

As far as lottery is concerned, we are not particularly worried about the current trend line because we are comparing, as Alberto clearly stated, a very healthy 2011 (technical difficulties) in terms of late numbers 2012. As he said, 6% has been the contribution of late numbers in 2012, compared to 18% in 2011. So we rely on statistics, and we are quite confident that late numbers will appear.

(Inaudible), you see a decrease of about 4%. Again, here, we are comparing a very strong 2011, very strong in terms of product portfolio. The EUR20 and the EUR3 launch last year was really impressive. This year, we have planned a different step of tickets. We expect Q2 and, potentially, Q3, to be in better shape. So we'll have some time to make a final assessment regarding the potential of scratch & win.

Then, as far as sports betting is concerned, again, here we have some -- all the business, I would say -- all the market has some problems in managing sports betting programs this year for bad weather conditions and a number of reasons. Our market share has been strong. So we do not feel a specific issue in our positioning. We are, rather, a bit concerned regarding the market performance on the whole.

Let me just add a final comment on the sports betting. The fiscal decree recently became law and allows us a huge opportunity in terms of regulating the black market and returned to the point of the lower (technical difficulties) are asked to deliver a tender for up to (inaudible). That would be the great opportunity to define exactly who are the legal players in Italian business versus the illegal ones. So, should this standard produce the expected results, we will be in better shape in the following years in terms of clearly identifying legal versus illegal operations.

With respect to your question on US same-store sales growth, I think there are four things to mention here to help you understand what the overall drivers are of the growth of 15% in the first quarter.

First of all, as Alberto mentioned, we had the record Mega Millions jackpot of $656 million, and so our estimate is that approximately 6 points of the 15% came from the benefit of that Mega Millions jackpot.

We also had the innovation from the launch of $2 Powerball. The price point change took place on January 15, the second week, and we have seen a consistent increase in Powerball sales in the first quarter in the order of 35% versus the same period last year. So that innovation has sustained itself, and we feel quite comfortable it's doing well.

The third point to mention to you is that we have seen no real effect of cannibalization of other online games, such as in-state lotto, such as keno, in view of the Powerball price point change and the effect of the Mega Millions jackpot.

And then, finally, a second innovation is that many jurisdictions are really innovating their instant ticket game portfolio with higher price points, with more creative use of the prize payout, with substantial help from our organization. And so that innovation has been launched in the market in the last part of 2011 and the beginning of 2012, which is contributing roughly half of the growth that you are seeing in the first quarter.

Thank you.

Vaughan Lewis, Morgan Stanley.

A couple of questions on Illinois, if I can. When do you plan to launch the scratch cards sales on the internet, please?

And then a second one on that. I'm not sure if I heard it correctly. But when are you expecting to get an incentive payment for the Illinois lottery for this year, and, if not this year, then, do you think you will get one next year?

A second one on the internet in the US. Which other states do you think are most likely to launch, and what could the total sales impact be for GTECH, rather than just the total wagers?

And then a final one on Italy, on the VLTs. Have there been any more discussions about raising taxes here? And have there been any more discussions about further tenders for additional machine allocations? Thanks.

Okay. So let me answer your first question and, I think, your last question with respect to the potential sale of internet in the United States. And Alberto will answer your questions about the Illinois contract performance itself.

So, with respect to scratch cards, the short answer is that we do not have a mandate at this point in time to launch scratch cards on the internet in Illinois. The enabling legislation only allowed for Mega Millions and in-state lotto. There's a chance that we may be able to launch Powerball later this year, but there is no legal framework today to be able to launch internet games.

There are a handful of US jurisdictions that are actively considering the sale of interactive games. I would say that, by the end of 2013, we will likely have -- in addition to Illinois, we will likely have four or five states that are selling internet.

It's very hard to answer your question on the magnitude of sales. I mean, if you look at worldwide performance, internet sales represent anywhere from 2% to 10% or 12%, in some cases, higher than that, of total sales in the jurisdiction. So it's very hard to predict that, and I think we have to get some experience behind us before we can give you some accurate estimates of that.

Regarding the question on the incentive and penalties regarding to Illinois, you know that our Northstar subsidiary is competing in the first year of operation. Our expectation is that the state will benefit a likely material increase in the profits. And there is also a process underway to calculate Northstar performance against the metrics of the contract. Our best estimate today is based on some conservative -- the minimum profit level guarantee, net of the incentive compensation, is not going to be material. And then we will await the result of the process to assess Northstar performance. So, in the end, if there is a penalty, if any, it will not be material.

I'll take the question regarding taxation. I mean, even though there were rumors in the previous months regarding a possible increase in taxation, in the end, if we look at tax -- in other words, how the fiscal decree has been transformed in law, we do not have an increase in taxation to any product within the Italian gaming portfolio. And that, I think, is the clear answer to all of these speculations.

Having said that, we do not have any hint regarding an enlargement of rights as far as VLTs are concerned.

Great. Thank you.

Richard Stuber.

I read the article in "The Financial Times" about you, saying that the Italian lottery market is reaching towards maturity, and you've seen that lottery wagers haven't gone up by a huge amount. Do you have any plans to [sort of introduce] new products in the second half? And can you give us an idea what they would be? Thank you.

We are always looking after innovation in order to grow our businesses. I mean, our recent experience in lotto is demonstrating it after five years of declines of about 5% per year after we introduced an innovation in lotto that was able in one year to recover five years of losses. So, I mean, we are always working on innovations.

By the way, I mean, next month, we will launch what we consider a minor innovation in lotto. But that can help us in keeping on the -- some news on our brand. We have other plans for the remainder of the year for lotto, as we have done so far. Also, scratch & win will enjoy some new launches in the remaining part of the year.

But my point is that (inaudible) overall, if I look strategically going forward, talking about three years' time, I see Italy approaching overall maturity. I mean, we have one of the highest per-capita consumptions in the world. We have regulated all the sector in the gaming industry. We can innovate in order to keep on momentum on our product portfolio.

But, at the end of the day, I'm expecting the growth of the Group going forward coming more from international developments and, then, from the Italian possible further growth.

Okay. Thank you.

(Operator Instructions). Domenico Ghilotti.

I have a follow-up. In the same article, you mentioned that Asia is one of the fastest-growing areas in the gaming business. And your presence there is still very limited. So, from a strategic point, how are you addressing this market in the next three years?

You are right. I mean, we have a minor presence in the Far East, notwithstanding it's providing us good results. The Chinese market grew 30% in the two provinces where we have presence. Last year, it grew by 30%. And we are devoting more energies there. I mean, we are reviewing quite carefully what's going on in Vietnam, where there is -- not short term, as always, in those countries. There are some opportunities in sports betting. And we are reviewing carefully our position in the Chinese provinces in order to bring forth our effort there in order to get advantage of any possible development there. So it is more than in the different parts (inaudible).

Could you consider also acquisitions? Or are you going to move organically?

We are moving more organically. I mean, let's say, this is for sure. This is for sure what we will do. By the way, we hired a quite skilled guy in China, a Chinese guy, in order to bring forth our team in the territory. And we are looking more for internal development according to opportunity there. Of course, if it will happen to consider acquisition, we will do that, but it's not the priority.

Okay. Thank you.

Thank you. There is no further question at this time.

Okay. Thank you very much for calling in, and we will have our next call at the end of second quarter. Thank you.

Thank you. That should conclude today's conference call. You may now disconnect.