Slide 1: Investor Presentation Fall 2016
INVESTOR PRESENTATION Fall 2016
Slide 2: Forward-Looking Statements; Use of Non-GAAP Financial Measures
2 FORWARD-LOOKING STATEMENTS Certain statements in this presentation may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, perf
Slide 3: Today's Agenda
3 Today’s Agenda • Overview • Business of Pollard • State of the Industry • Competitors • Growth Strategies • Financial Update – 6 months 2016 • Expectations for 2017
Slide 4: Pollard Banknote Overview
4 Pollard Banknote Overview Company Overview Product Overview • Founded in 1907 • 2nd largest instant ticket provider in the world • 100% focus on the Lottery market for • Over 12 billion tickets produced annually the last 25 years • Growing presence in iLottery • Publicly traded for 11 years • Lead
Slide 5: Financial Overview
5 Financial Overview ($Millions) 2016 2015 2014 2013 2012 2011 6 months SALES $118.0 $221.0 $194.5 $184.9 $162.4 $172.0 INCOME BEFORE $7.5 $12.2 $12.5 $9.4 $8.8 $4.8 INCOME TAXES NET INCOME $5.6 $7.5 $8.7 $5.4 $6.5 $3.1 ADJUSTED EBITDA $12.8 $26.8 $25.6 $21.8 $20.2 $17.8
Slide 6: Our Primary Product: Instant Win Scratch Lottery Tickets
6 Our Primary Product: Instant Win Scratch Lottery Tickets • 90% of our revenue • Diversified product mix and client mix • Over 12 billion standard tickets produced per year (2” by 4”) • Almost 30 years of experience in producing instant win lottery tickets
Slide 7: Our Primary Product: Instant Win Scratch Lottery Tickets (contracts)
Our Primary Product: 7 Instant Win Scratch Lottery Tickets • Most business awarded through formal RFP • Contracts are 3-5 years in length with usually 1-3 years in renewals • Contracts can be exclusive, primary (supplier produces the majority) or secondary (less than majority) • We currently serve a
Slide 8: Largest Lotteries by Retail Sales of Instant Tickets (2014)
Largest Lotteries by Retail 8 Sales of Instant Tickets (2014) Rank Lottery Country Total Sales Pollard (US$MM) Customer 1 Lottomatica S.p.A. Italy 11.429 2 La Française des Jeux France 7,043 * 3 U.K. National Lottery U.K. 3,866 4 New York Lottery United States 3,744 * 5 California Lottery United Sta
Slide 9: iLottery
iLottery 9 Starting in 2012 individual U.S. state So far only a handful have started and to lotteries were allowed to sell lottery date sales have been mixed, very low in products over the Internet most jurisdictions EXCEPT Michigan Pollard has formed a joint venture with a technological provider to
Slide 10: The Space Between
The Space Between Interactive Web Play games on their PC or their Smartphone. Over 30 million Pollard-designed games have been played for fun and prizes!
Slide 11: Charitable Games
11 Charitable Games • Approximately 10% of our revenue • Overall industry is steady or shrinking slightly • Our business generates solid profits • Increasing market share in both pull tabs and bingo paper • Opportunity for industry consolidation
Slide 12: Robust Industry
12 Robust Industry • Approximately 200 lotteries operate in the world • Two main products: Instant Win Scratch tickets and Draw Based Games (649, Powerball, etc.) • Instant ticket revenue have grown dramatically over the past decade, now generating 55% of lottery revenue • Draw based games have rema
Slide 13: Worldwide Instant Sales 2009-2015
13 Worldwide Instant Sales 2009 – 2015 Annual Retail Sales $95.0 $90.0 $85.0 U.S. $ Billions $80.5B $80.0 24% growth $75.0 from $70.0 $64.9B 2010 to $65.0 2015 $60.0 $55.0 2010 2011 2012 2013 2014 2015 Annual Sales Source: La Fleur’s World Lottery Almanac
Slide 14: Barriers to Entry
14 Barriers to Entry • Extremely difficult to produce, technological know how is very hard to learn • Lotteries are very risk adverse and have no interest in trying a new supplier • Most RFP’s require extensive, long term experience • Lotteries’ business based on credibility, not willing to risk tha
Slide 15: Few Competitors
15 Few Competitors Currently only 2 other companies compete MARKET SHARE* with Pollard in this space, a market situation Sci Games Pollard Gtech that has been in place for over the last 5 years 8% 20 years ago there were 10-12 producers, but 22% economies of scale, technical proficiency and risk adv
Slide 16: Few Competitors
16 Few Competitors Scientific Games Gtech (IGT) • Invented instant tickets 1974 • Dominant supplier of draw based • Market leader terminals and systems • Historically large M & A focus • Small instant ticket provider, to offer • Bought the #2 & #3 slot machine full suite of products manufacturers •
Slide 17: Pollard Growth Strategies
17 Pollard Growth Strategies • Grow revenue and market share • Grow capacity to deliver instant tickets • Expand offerings in mobile and interactive • Increase commitment to innovation • Extend product offerings in customer’s value chain • Increase our presence through additional strategic alliances
Slide 18: Expanded Capacity
18 Expanded Capacity • Completed the installation of the new Tresu 22 station inline press in Ypsilanti, Michigan • Investment of approximately C$25MM in total • Ultimate net capacity increase of 35% • Transition of work to new press is now complete • Production efficiency improvements will be achie
Slide 19: Fiscal Sales
19 Fiscal Sales ($M) $250 Foreign Exchange Rate Adjusted $221 $210 $213 $198 $201 $201 $200 $184 $188 $180 $184 $188 $168 $164 $156 $150 $125 $107 $100 $50 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Slide 20: Adjusted EBITDA
20 Adjusted EBITDA ($M) $30.0 $25.8 $26.8 $25.0 $21.8 $20.2 $20.0 $17.3 $17.8 $15.0 $10.0 $5.0 $0.0 2010 2011 2012 2013 2014 2015
Slide 21: Strong Cashflow
21 Strong CASHFLOW ($M) 2015 2014 Net Cash Flow before CAPEX $16.8 $16.0 CAPEX $15.4 $17.6 Net Cash Flow $1.4 -$1.6 (source: 2015 PBL Statement of Cash Flow) Large investment in new press 2014 & 2015 financed primarily by internal resources. Historical CAPEX of $5.0-$6.0 million is anticipated for 2
Slide 22: 6 Months 2016 Highlights
22 6 Months 2016 HIGHLIGHTS ($M) 6 months 2016 6 months 2015 Sales $118.0 $105.9 Gross Margin $22.3 $20.8 Gross Margin % 18.9% 19.6% SG + A $14.1 $11.9 Income from Operations $8.6 $9.2 Adjusted EBITDA $12.8 $13.0 Net Income $5.6 $4.3
Slide 23: 6 Month 2016 Sales
23 6 month 2016 Sales New Six Month Record ($M) $4.3 $122.0 $118.0 $118.0 $3.9 $1.1 $114.0 $7.6 $105.9 $4.8 $110.0 $106.0 $102.0 $98.0 $94.0 $90.0 6 months Lower Impact of Higher Higher Higher AVG 6 months 2015 Sales Weaker Ancillary Charitable Price 2016 Volume CAD $ Sales Gaming Sales
Slide 24: 6 Month 2016 Adjusted EBITDA
24 6 month 2016 Adjusted EBITDA ($M) $17.0 $16.0 $2.2 $2.1 $15.0 $14.0 $13.0 $0.3 $12.8 $13.0 $12.0 $11.0 $10.0 6 months 2015 Impact of Higher gross Higher SG+A 6 months 2016 Weaker CAD $ Margin
Slide 25: Six Month Highlights
25 Six Month Highlights • Production volumes up about 7% vs 2015, sale volumes down 5% due to timing of shipments • Strong contribution from sales of our SureTrack lottery management system • New press producing all volume in Ypsilanti, manufacturing efficiencies will improve over future quarters •
Slide 26: Looking Forward
26 Looking Forward 2017 Competitors Available Capacity Growing Market Distracted Opportunities for iLottery/Interactive Low Canadian Dollar Innovative Products Efficiency Growth
Slide 27: Capital Structure and Strong Governance
Capital Structure 27 • Approximately 73% owned by Pollard family, fully committed and supportive of the business • Pollard family open to reduced % of ownership based on using additional treasury shares as currency for acquisitions or financings • Committed to a dividend policy to generate return fo
Slide 28: Value of $100 Investment in PBL Shares
28 Value of $100 Investment in PBL Shares $200 Value of $100 investment $180 $160 $140 $120 $100 $80 $60 $40 $20 Pollard Banknote S&P/TSX Composite Index (Total Return) Pollard Banknote S&P/TSX Composite (Total Return)
Slide 29: Investment Thesis
29 Investment Thesis Revenue is >$220 recurring in million in nature Revenue Government Growing Contract EBITDA Base Leading Lottery Expanding Large Barriers Experienced Supplier Market to Entry Management • Leader in instant • Strong instant • Complex • Management has ticket market ticket growth te
Slide 30: For More Information Contact
30 FOR MORE INFORMATION CONTACT: Doug Pollard John Pollard Co-Chief Executive Officer Co-Chief Executive Officer Telephone: (204) 474-2323 Telephone: (204) 474-2323 E-mail: dpollard@pbl.ca E-mail: jpollard@pbl.ca Rob Rose Chief Financial Officer Telephone: (204) 474-2323 E-mail: rrose@pbl.ca