Italy
Fabio Cairoli, CEO
2016
June 2016
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2
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3
Agenda
Market Context
Business Overview
Strategic Initiatives
Lottery
Gaming
Sports Betting
Interactive
Key Drivers
Market Context
Italy: One of the Most Developed Regulated Gaming Markets in the World
Italian Gaming Market Total Wagers Evolution
Strong, historical growth
fueled by progressive
regulation and innovation
100
89
80
62
60
54
35
40
20
26
7
15
0
4
2004
YoY
7
43
8
48
8
8
2
19
8
3
18
79
7
8
19
15
19
22
25
11
15
2005
2006
2007
2008
2009
2010
2011
14.3%
13.0%
12.0% 25.9% 19.7% 12.7%
18
22
2
13
16
14
31
88
85
85
7
8
9
13
12
13
Betting & Other
17
17
17
Interactive Games
Market now mature with
growing competition
Lottery
27
7
9
18
7
22
21
22
VLT
AWP
30
28
26
27
26
2012
2013
2014
2015
30.0% 10.9% -4.3%
-0.3%
4.5%
Future wager growth
expected to be modest
Potential upside from
further restriction of grey
market
6
Source: €b, 2003-2015 (AAMS) – Betting includes Horses, Bingo, Sports Pool and Betting Exchange
Italy Value Chain: Full Scope of Operational Capabilities Across an
“End-to-end” / B2C Model
R&D
Product development and
innovation (games and
technology)
Product and technology
deployment
Both locally driven and leveraging
centralized shared services/Group
resources
Operations
Sourcing
Logistics
Technology
Customer service
Collection of wagers
Payment of prizes
Sales & Marketing
Consumer management
Product portfolio
Consumer insight and segmentation
Retail network management
Sell in and retailing mix
PoS selection, contractualization and
trade marketing
Brand management
Positioning
Advertising and promotions
B2C model provides cross-fertilization opportunities across all our global operations
7
Lottomatica: Leading Position in a Fragmented Market
ITALY TOTAL WAGERS MARKET SHARE (2014)
Other 33%
LTO 34%
Fragmentation of mature
market segments will likely
result in consolidation
Recent consolidation
includes:
Snai/Cogetech: 11%
Cogetech 5%
Gamenet/Intralot: 7%
Sisal 8%
Gamenet 6%
Snai 6%
Bplus 8%
8
Source AAMS for Market Wagers and LTO Market Share; Internal estimates for Competitive Market Share
Lottomatica Uniquely Positioned in a Competitive Market
Lottery:
Exclusive Concessions
Lottery
1st
SoM Wagers
Lotto
41%
Scratch & Win
53%
Total LTO
94%
Jackpot (Sisal)
6%
Leading market positions built through
consistent product innovation within each
segment, leveraged across platforms
Machine Gaming:
Multiple Concessions
Company
1st
SoM Wagers
VLT
LTO (VLT)
Gamenet
HBG Gaming
Cogetech
Other
24%
14%
9%
9%
43%
AWP
LTO (AWP)
Bplus
Gamenet
HBG Gaming
Other
17%
16%
9%
9%
49%
3rd
Sports Betting*:
Multiple Concessions
Company
Bet365
Snai
LTO
Eurobet
Other
SoM Wagers
19%
13%
13%
12%
43%
*Only Fixed Odds Betting (FOB)
Source 2015 AAMS for Market Wagers and LTO Market Share; Internal estimates for Competitive Market Share; “SoM”: Share of market
2rd
Interactive*:
Multiple Concessions
Company
SoM GGY
Pokerstars
LTO
Sisal
Bet365
Other
13%
12%
9%
8%
58%
*Including Betting
9
Business
Business Overview
Overview
Well-diversified and Resilient Recurring Revenues
Sports Betting Interactive
3%
7%
100% recurring revenues
Commercial
Services
7%
Lotto
29%
2015
€1.5b
Machine Gaming
37%
Lotteries: 46% of revenues
Exclusive Concessions, nine-year terms
Lotto: secured until 2025
Scratch & Win: secured until 2019
Machine gaming: 37% of revenues
Multiple Concessions, nine-year terms
AWP, VLT: secured until 2022
Scratch & Win
17%
11
Resilience through Product Innovation and Cost Management
1,596
1,591
1,543
520
489
2013
2014
Revenue
€m
498
Stability maintained despite
soft Italian economic trends
Product Innovation
Retail network development
Disciplined cost management
2015
Operating Income
12
Strategic Initiatives
Italy Strategy: Strengthen Leadership and Protect Profitability in a Highly
Competitive Environment
Lottery
Machine Gaming
Betting & Interactive
Maintain Long-Term
Wagers Stability
Consolidate Market Share
and Protect Profitability
Grow Market Share
14
Lottery Market Share and Competition: Undisputed Leadership,
Consolidated Over the Years
18
2
1
3
13
11
19
18
18
17
17
17
2
1
1
1
10
10
9
9
7
6
6
7
7
2011
2012
2013
2014
2015
90%
92%
93%
94%
2
16
14
19
4
4
Lotto and Scratch & Win have
shown remarkable stability…
2
10
2
8
9
9
9
2
2
4
7
7
6
6
6
5
2004
2005
2006
2007
2008
2009
2010
LTO Market Share 87%
82%
84%
88%
86%
80%
81%
…despite progressive regulation
and growth of other gaming
products/segments
12
88%
The jackpot lottery declined from
2010-2015
15
Source: AAMS. €b Wagers
Lotto: Revitalizing the Most Developed Lottery in the World
7.3
6.6
6.2
5.9
0.2
2005
2006
2007
2008
6.8
5.7
5.2
0.5
6.6
0.5
7.1
6.2
6.3
2.8
3.0
3.1
3.0
3.4
3.3
3.0
2.8
2012
2013
2014
2015
1.3
2.4
5.5
4.7
4.4
2009
2010
2011
Numero Oro
10 e Lotto
Core Lotto wagers began to
decline in 2005
10eLotto revitalized the Lotto
game
Numero Oro proves there’s room
for further innovation
Lotto
16
Source: AAMS. €b Wagers
New Lotto Concession
Broader scope of opportunity over the long term with all “Fixed Odds” number games
Investment in state-of-the-art network infrastructure will support growth initiatives
Development to be leveraged globally
JV STRUCTURE
SCOPE
DURATION
Lottomatica: 61.5%; IGH: 32.5%; Arianna 2001: 4%; Novomatic: 2%
All “Fixed Odds” number games
9 years
CONCESSIONAIRE
FEE
Fixed at 6% of wagers
UPFRONT PAYMENT
€770m in three installments; pro rata contribution from partners
INFRASTRUCTURE
CAPEX
€130m; pro rata contribution from partners
17
Consumer Segmentation and Innovation Drive Scratch & Win Wagers
10.1
9.1
9.3
9.2
9.7
9.6
9.4
Compelling product offer and
constant flow of innovation
Retail network development
and continued optimization
Effective brand management
9.0
7.8
3.9
1.5
0.4
Innovation
Baseline
#PoS
(000s)
2004
2005
2006
2007
24
28
41
45
2008
47
2009
2010
2011
2012
2013
2014
2015
49
58
62
66
65
65
64
18
Source: AAMS. €b Wagers
Lottery: Strategic Initiatives
Continue to leverage 10eLotto growth potential
Continue to pursue product innovation
Enhance the in-store player experience by leveraging new mobile capabilities
Sustained investments in the Brand
Maintain
Long-Term
wagers Stability
Continue to drive innovation, leveraging consumer insights and
segmentation
Protect the retail network and improve point of sale productivity
Sustained investment in the Brand
19
Machine Gaming: Two Well-Defined, Stable Market Segments
Amusement with Prize (AWP)
Standalone machines
Lower Bets and Payout
Video Lottery Terminals (VLT)
Central Network
Higher Bets and Payout
AWP (Wagers)
VLT (Wagers)
22.3
22.1
21.4
31.1 30.0
22.2
27.7
25.5
25.7 25.6 26.2
21.7
14.9
14.7
15.6
15.8
16.8
18.8
Other
8.2
26.5 25.6
15.4
LTO
21.5
11.5
23.2
Other
21.2 21.1 21.8
LTO
18.2
17.2
14.8
0.9
LTO Market
Share Wagers
LTO VLT B2C
(000s)
LTO VLT B2B
(000s)
6.6
7.7
6.5
4.5 11.0
5.6
5.4
0.4
,5
2010
2011
2012
2013
2014
2015
55%
45%
34%
29%
26%
24%
LTO Market
Share Wagers 1%
4
9
10
11
11
11
LTO AWP(000s)
4
8
8
8
Source: AAMS. €b Wagers
3.5 4.0 4.6 4.4 4.5 4.5 4.5 4.4
,1
,6 1.6
,5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
4.4
4%
9
4%
10
9%
32
16%
16% 15% 15% 16% 18% 18% 17%
49
48
55
56
65
70
65
58
20
The Machine Gaming Value Chain
Gaming machines are distributed nationally and managed territory-by- territory
Concessionaires hold the licenses and provide infrastructure for the network
Gaming Halls, owned by local entrepreneurs, manage all PoS activities
Street Operators are an intermediary, providing services to PoS, given the size of the network
VLT
Concessionaire
Gaming Hall
5,000
Revenue
share
13
AWP
Revenue
share
Street Operator
2,500*
PoS
105,000
Revenue
share
21
*Internal Estimate
Regulatory Environment Drives both Headwinds and Opportunities
2016 Stability Law Highlights
Main Implications
Taxation profile
Near-term financial impacts:
Machine Gaming tax increase (PREU) from Jan 1st:
Negative impact from higher taxes
VLT: +0.5% to 5.5%
Mitigated by progressive payout reduction with
New Content deployment
AWP: +4.5% to 17.5%
Minimum payout for AWP reduced to 70% from 74%
Next-generation AWPs
New AWPs to entirely replace current AWP network:
Connected to central system
Content deployed centrally by Concessionaire
Mid/Long term opportunity
New system provider opportunity
Significant cabinet replacement cycle
Content opportunity
30% installed base reduction implemented gradually
through December 2019
22
Machine Gaming: Strategic Initiatives
Improve product offer by leveraging legacy IGT content, platform, cabinets
VLT
Further strengthen relationship with key distribution partners and continue to
develop best in class network of highly productive Gaming Halls
Consolidate
Market Share
and Protect
Profitability
AWP
Continue to enhance machine productivity to offset market-driven decline in
installed base, leveraging contents and improving PoS profile
Manage payout to mitigate increased taxation
Capture next-generation AWP opportunity in both B2C and B2B operations
23
Sports Betting: Major Growth Through Legalization of Operator Activity
Recent industry growth drivers:
Legalization of grey market operators
7.2
.6
5.6
.2
4.5
.1
3.9
.1
4.0
.1
1.1
1.1
3.8
Enlarged product offer, especially
online and “in play” betting
2.7
Other
Virtual Betting
Extremely competitive market conditions,
with both local players and global market
leaders
Fixed Odds Retail
3.0
2.7
2.7
2.5
2.6
Fixed Odds Online
2.9
LTO Market
Share Wagers
Payout
1.4
1.1
1.2
1.3
1.6
2010
2011
2012
2013
2014
21%
23%
22%
19%
79.4%
76.8%
82.5%
79.6%
Lottomatica strong Brand recognition,
SoM influenced mainly by dilution effect
from grey market legalization
2015
15%
12%
82.2%
86.6%
24
Source: AAMS. €b Wagers
Interactive: Signs of Growth After several Years of Stability
Market growth driven by Casino
games and Sports Betting, despite
weaker Poker trends
661
72
739
744
94
74
167
GGY
209
725
60
58
279
191
49
Casino
Lottomatica covers all business
segments
Poker
147
236
388
Other
Sport Betting
225
213
376
258
328
187
155
2015
Well positioned as leader in Casino
games and competitive offer in all
other segments
356
238
LTO Market
Share Wagers
728
Extremely competitive market
conditions, with both local players
and global market leaders
820
59
2010
2011
2012
2013
2014
15%
16%
16%
16%
15%
12%
25
Source: Internal estimates on AAMS data; Other includes: Bingo, Horse Betting, iLotteries, €m
Sports Betting & Interactive: Strategic Initiatives
Secure Sports Betting concession renewal (nine-year contract)
Expand product offer, with specific focus on “in play,” both online and at retail
Upgrade both Web and Retail consumer experience to maximize new offering
opportunities
Improve market
share
Expand Casino product offer, leveraging legacy IGT content
Leverage new “Lottomatica.it” branding strategy and site to showcase full
product portfolio and maximize cross-selling opportunities
Enhance CRM capabilities and continue to develop mobile
26
Business
Overview
Looking Forward
Key Drivers Going Forward:
Strengthen Leadership and Protect Profitability in a Highly Competitive Market
Lotto and Scratch & Win innovation; 10eLotto underlying growth
Consolidate Machine Gaming market share
Leverage introduction of IGT content and cabinets
Deepen/develop ties with premier gaming halls
Next-generation AWP offers potential medium-term upside
New content and expanded offerings in Interactive and Sports Betting
Cost management / operational efficiencies
28
Q&A
29