Lottomatica Group S.p.a. · MIL:LTMC
Lottomatica — FY2004 Earnings Presentation
53 slides from Lottomatica's earnings presentation, Mar 10, 2005
Slide 1: Analyst Meeting: 2004 Results, 2005-2007 Business Plan
ANALYST MEETING 2004 Results 2005-2007 Business Plan Borsa Italiana - Milan, March 10%, 2005 GRUPPO ——___— LOTTOMATICA gioch! € servizi
Slide 2: Agenda
Agenda 1. Highlights 2004 2. Risultati 2004 3. Business Plan 2005-2007 F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 1
Slide 3: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 2
Slide 4: Financial Highlights 2002-2004
Financial Highlights 2002-2004 2002-2004 REVENUES 2002-2004 EBITDA 2002-2004 €m +40.3 7 €m +93. €m €m 582.8 272.2 600 542.5 300 499.5 199.6 178.5 400 200 200 100 0 0 2002 2003 2004 2002 2003 2004 F Revenues +17% vs. FY03 thanks to excellent year for Lotto wagers (2004 new historical peak) F Signific
Slide 5: Financial Highlights 2002-2004
Financial Highlights 2002-2004 2002-2004 NET DEBT 2002-2004 DIVIDENDS 2002-2004 €m 292.2 €m 300 264.4 -20 (45.2) (48.4) 177.7 200 -105 100 (168.6) -190 0 2002 2003 2004 2002 2003 2004 F Net Debt down to 48.4 €m thanks to Lotto collection, GBC disposal and NWC improvements F 177.7 dividend distribute
Slide 6: Delivery on Strategic Guidelines
Delivery on Strategic Guidelines STRATEGICGUIDELINES STRATEGIC GUIDELINES 2004DELIVERY 2004 DELIVERY Focus on Sale of 50% stake in GBC (Global core business Bingo Corporation) to Cirsa for 64 €m Diversification Successful launch of Scratch & Win lotteries (over 270 million tickets sold) of Gaming Po
Slide 7: Delivery on Strategic Guidelines
Delivery on Strategic Guidelines STRATEGICGUIDELINES STRATEGIC GUIDELINES 2004DELIVERY 2004 DELIVERY Improve Already achieved cost savings expected Efficiency and by 2005 (59 €m on top of 13 €m) boost margins Enhance Over 285 €m of Free Cash Flow cash generation generated Optimize Distributed divide
Slide 8: Shareholding structure
Shareholding structure 27.3% Fineurogames Nuova Tirrena De Agostini group Toro Assicurazioni Fidelity Investments Free floating 55.1% 7.7% 7.0% 3.0% Share Capital of 88.9 €m (88,939,280 outstanding shares) F New shareholders’ structure after placement of 5.6% Gesfin stake in September 2004 F Free fl
Slide 9: Share price trend
Share price trend 160 1,600,000 Lottomatica +56.7% 150 1,400,000 140 1,200,000 130 1,000,000 Price Volume 120 S&P/MIB +12.9% 800,000 110 Midex +11.7% 600,000 100 400,000 90 Dow Jones +3.6% 200,000 80 - 02/01/04 04/02/04 08/03/04 10/04/04 13/05/04 15/06/04 18/07/04 20/08/04 22/09/04 25/10/04 27/11/04
Slide 10: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 9
Slide 11: FY04 Results by segment
FY04 Results by segment Revenues EBITDA Capex (€ million) FY03 FY04 FY03 FY04 FY03 FY04 Lotto 412.8 494.2 168.3 250.9 38.7 14.1 Sports Games 9.5 13.2 (0.6) (3.3) 10.4 0.0 Scratch & Win - 23.5 - 3.6 *** 12.9 Services 30.9 48.9 14.5 21.6 2.6 12.7 Other* 46.3 3.0 17.4 (0.6) 5.5 13.2 Total 499.5 582.8 1
Slide 12: Lotto and Scratch & Win
Lotto and Scratch & Win LOTTO WAGERS S&W WAGERS th ow €m gr 11,689 % 12,000 68 th + €m ow gr 399.1 % 5,655 400 77 +318% growth + 6,938 8,000 1,350 225.9 200 4,000 5,588 6,034 +8% growth 0 0 2003 2004 2003 2004 Core wagers Late numbers Tickets 151 m 273 m Note: 2004 Lottomatica first year management
Slide 13: Services – Revenues
Services – Revenues SERVICES REVENUES €m th 60 r ow g % 48.9 26 + Other 6.7 38.9 Ticketing 40 4.6 Rai TV license 6.4 7.8 Car road tax 3.9 Top up cards 8.0 20 29.2 19.9 0 2003 2004 Note: 2003 revenues proforma to include Totobit 12
Slide 14: Revenues FY04 vs FY03
Revenues FY04 vs FY03 €m 18.0 582.8 23.5 600 82.6 -2.7 499.5 -38.3 400 200 0 2003 Deconsoli- Lotto New Services Other 2004 dation* business (*) Mainly Spanish Bingo operations 13
Slide 15: OPEX FY04 vs FY03
OPEX FY04 vs FY03 €m 310.2 19.1 299.9 44.5 300 -27.3 200 -26.0 100 0 2003 Deconsoli- Savings** New Other 2004 dation* business (*) Mainly including Spanish Bingo operations (**) Including Network and Paper costs 14
Slide 16: EBITDA FY04 vs FY03
EBITDA FY04 vs FY03 €m 300 80.3 7.1 3.6 272.2 -2.9 -4.4 199.6 200 -11.0 100 0 2003 Deconsoli- Lotto Services Sports S&W Other 2004 dation* Games (PCC,VLT, Betting) (*) Mainly including Spanish Bingo operations 15
Slide 17: FY04 Consolidated Income Statement
FY04 Consolidated Income Statement (€ million) FY03 FY04 Gross Revenues 961.1 1,234.2 Net Revenues 499.5 582.8 Opex (299.9) (310.7) EBITDA 199.6 * 272.2 EBITDA margin % 40.0% 46.7% EBITA 133.5 197.3 Goodwill (61.7) (54.1) EBIT 71.9 143.2 EBIT margin % 14.4% 24.6% Financial income (charges) 21.0 (13.
Slide 18: Cash Flow and NFP as of December 31, 2004
Cash Flow and NFP as of December 31, 2004 (€ million) FY03 FY04 Initial NFP (45.2) (168.6) Cash Flow from Operations 182.3 274.2 Capex (57.1) (52.9) Investments 40.3 64.4 Dividends (292.2) (177.6) Other 3.3 12.2 * ** Closing NFP (168.6) (48.4) *** *: Consolidation difference **: Capital increase ***
Slide 19: Balance Sheet as of December 31, 2004
Balance Sheet as of December 31, 2004 (€ million) FY03 FY04 Net fixed assets 681.6 545.2 Net working capital (102.4) (196.2) Severance pay fund (5.7) (6.8) Net Invested Capital 573.5 342.2 Shareholders' Equity 401.0 286.1 Minority interests 3.8 7.6 Net Financial Debt 168.7 48.4 Sharehold. Equity and
Slide 20: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 19
Slide 21: 2005-2007 Business Plan Guidelines
2005-2007 Business Plan Guidelines 2005-2007 2004-2006 BP Strategic NEW BP 2005-2007 Objectives confirmed 2004-2007 EBITDA CAGR of approx. 5% 2005 Budget Law Innovations LOTTO Terminals Replacement Project Communication strategy to support product innovations S&W roll out after successful GAMING POR
Slide 22: 2005-2007 Business Plan Guidelines
2005-2007 Business Plan Guidelines 2005-2007 Further development of SERVICES FURTHER payment and collection services DEVELOPMENT (e.g. Utilities bills) and launch of Stamp Duties and Stored Value leveraging proprietary processing platform Network expansion and diversification (over 45,000 direct POS
Slide 23: Revenues and EBITDA targets
Revenues and EBITDA targets REVENUES-EBITDA REVENUES MIX . Re v 7 100% 3% % 0 5-6 R 04- 4% 6% G €m CA 60% 8% 13% 600 583 75% 16% 47% 40% 400 50% 85% 66% 20% 200 25% 0 0% 0% 2004 2007E 2004 2007E Revenues EBITDA % Lotto Services Scratch & Win Other F Mid single digit 04-07 compounded annual growth ra
Slide 24: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 23
Slide 25: Lotto – Market and Regulatory Framework
Lotto – Market and Regulatory Framework INNOVATIONS IN 2005 BUDGET LAW TERNO, bet on three numbers pays New Multipliers for 4,500x (4,250x before) Winnings QUATERNA, bet on four numbers, pays 120,000x (80,000x before) CINQUINA, bet on five numbers goes from 1,000,000x to 6,000,000x Tax Payable on wi
Slide 26: Lotto – Terminals Replacement Project
Lotto – Terminals Replacement Project Replacement with new generation Lotto Terminals terminals of approx. 33,000 10 year old replacement terminals fully depreciated and technologically obsolete by 2012 New terminals much more user friendly Rationale Significant improvement in functionality and flex
Slide 27: Lotto – Key Targets
Lotto – Key Targets WAGERS REVENUES-EBITDA 12 11.7 €m 494 €bn 500 454 415 413 9 5.7 60% 7.5 7.8 55% 6.9 1.9 1.3 1.7 51% 6 250 39% 41% 30% 5.6 5.6 6.0 6.1 3 0 0 0% Average 2003 2004 2007E Average 2003 2004 2007E '00-'02 '00-'02 Core wagers Late numbers Revenues EBITDA POS 27,400 33,000 35,000 F Conti
Slide 28: Scratch & Win – Strategy
Scratch & Win – Strategy OBJECTIVES GUIDELINES GUIDELINES OBJECTIVES Extension of pricing range with consequent increase in average price per Pricing ticket through 9 Optimization of current portfolio (1€/2€/3€) 9 Introduction of “special editions” (5€) Constant Product innovation Product Portfolio
Slide 29: Scratch & Win – Key Targets
Scratch & Win – Key Targets WAGERS* REVENUES* €bn 3.0 €m 100 2.4 0% 07 - 75 5-6 04 5 R 2.0 G CA 50 1.0 0.5 25 0.0 0 2004 2007E 2004 2007E Tickets 0.3 bn 1.2 bn POS 25,400 50,000 * Wagers and Revenues including Traditional Lotteries F Strong business growth between 2004-2007 F EBITDA margin up to app
Slide 30: Sports Games and Betting – Market and Regulatory Framework
Sports Games and Betting–Market and Regulatory Framework Betting–Market Declined market for soccer pools Totocalcio-Totogol despite the new regulatory framework and the efforts to re-launch the games 2005 budget law: pay out up to 50% from 35% Steady market for Tris game Tris Concession expiry at th
Slide 31: Sports Games and Betting – Key Targets
Sports Games and Betting – Key Targets WAGERS* REVENUES* €bn 1.5 €m 20 1.3 % 7 5-8 04-0 GR 1.0 CA 15 1.0 10 0.5 5 0.0 0 2004 2007E 2004 2007E POS 5,855 5,530 * Revenues and Wagers including Pari-Mutuel Betting starting from 2005 F Consolidation of market share over 26.5% for soccer pools F EBITDA to
Slide 32: Gaming Machines – Strategy
Gaming Machines – Strategy OBJECTIVES OBJECTIVES GUIDELINES GUIDELINES AWP terminals Approx. 8,000 AWP terminals installed installed Focus on Service Provider role Network leveraging Lottomatica core Service Provider competence delivering high quality role standards Strategic partnership agreements
Slide 33: Gaming Machines – Key Targets
Gaming Machines – Key Targets REVENUES-EBITDA €m 20 4 15 2 10 -1 5 -4 -1 2004 2007E -6 -6 Revenues EBITDA F Revenues over 15 €m and EBITDA to break even by 2006 32
Slide 34: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 33
Slide 35: Services - Market Overview
Services - Market Overview MOBILE Prepaid 9 Market reaching almost 10 €bn in 2004 with approx. 5-7% 2004- 2007 compounded annual growth rate 9 Continuous growth of on-line channel and cannibalization of scratch card segment FURTHER OPPORTUNITIES 9 Digital broadcast TV 9 Prepaid Utilities Payment and
Slide 36: Services – Strategy
Services – Strategy OBJECTIVES OBJECTIVES GUIDELINES GUIDELINES Network Network expansion up to 45,000 POS with focus on tobacconists and bars expansion Independent and dedicated proprietary network infrastructure that can be leveraged also for Processing and Stored value “Punto LIS” brand Launch of
Slide 37: Services – Key Targets
Services – Key Targets REVENUES EBITDA €m 120 €m 60 7 35% -0 - 0 4 7 100 30 R 33% -0 G - 0 4 CA 30 R New G 80 Services 40 CA Existing 60 Services 40 20 20 0 0 2004 2007E 2004 2007E F High compounded annual growth rate both in Existing and in New Services leveraging on proprietary network F Stable EB
Slide 38: Services – Key Targets
Services – Key Targets NETWORK POS POS 60,000 17,900 Outlets by type 40,000 13,400 Gas station Other 7,700 Indirect POS Newspaper Tobacconist stands Direc POS 44,500 20,000 Bar 29,000 32,300 0 2003 2004 2007E F Further extension of independent direct POS F Over 60,000 POS by 2007 comprising indirect
Slide 39: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 38
Slide 40: Savings
Savings €m 110 30 103 90 26 73 Maintenance Network 60 Logistics 34 Paper 30 13 0 2002 2003 2004 02-04 05-07 02-07 F Already achieved in 2004 Savings expected by 2005 (59 €m vs 2002) F Further improvement of approx. 30 €m by 2007 39
Slide 41: Capital budget
Capital budget CAPEX €m 200 150 100 50 0 2004 cumulated 05-07 Maintenance Terminals project Other projects F New projects approx. 60% of total cumulated capital budget in 2005-2007 Plan period 40
Slide 42: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan Business Plan Guidelines Games - Lotto - Scratch & Win - Sports Games - Gaming machines Services Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 41
Slide 43: Profitability Ratios
Profitability Ratios EBITDA MARGIN 04-07 EBITA MARGIN 04-07 60% 50% 47% 46% 34% 34% 30% 25% 0% 0% 2004 2007E 2004 2007E EBIT MARGIN 04-07 NET PROFIT % 04-07 40% 14% 15% 26% 11% 25% 10% 20% 5% 0% 0% 2004 2007E 2004 2007E 42
Slide 44: Financial Policy
Financial Policy Strong Free Cash Flow generation (approx. 450 €m in 2005-2007) Increased focus on growth opportunities International lotteries markets Domestic and international services business International gaming machines markets Distribution of excess cash to shareholders Conservative Financia
Slide 45: Financial Ratios – Coverage & leverage
Financial Ratios – Coverage & leverage EBITDA INTEREST COV. 04-07 EBIT INTEREST COV. 04-07 36.9x 21.4x 30 20 20.1x 20 10.6x 10 10 0 0 2004 2007E 2004 2007E FFO/NET DEBT 04-07 NET DEBT/EBITDA 04-07 0.2 0.18X 500% 373% 0.1 250% n/m n/m 0.0 0% 2004 2007E 2004 2007E 44
Slide 46: Our Commitment
OUR COMMITMENT Focus on Value Creation FURTHER IMPROVEMENT IN SERVICES CONTINUOUS GAMING PORTFOLIO DIVERSIFICATION STRONG CASH FLOW GENERATION IN 2005-2007 FOCUS ON VALUE ACCRETIVE GROWTH OPPORTUNITIES HIGH ANNUAL DIVIDEND YIELD 45
Slide 47: Agenda
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan F Business Plan Guidelines F Games - Lotto - Scratch & Win - Sports Games - Gaming machines F Services F Savings and Capital budget 4. Financial Policy Outlook 5. Q&A 46
Slide 48: Agenda – Appendix
Agenda 1. 2004 Key Highlights 2. FY04 Results 3. 2005-2007 Business Plan Business Plan Guidelines Games - Lotto - Scratch & Win - Sports Games - Gaming machines Services Savings and Capital budget 4. Financial Policy Outlook 5. Q&A Appendix 47
Slide 49: Italian Gaming Market - Historical Trend
Italian Gaming Market - Historical Trend 24,320 €m Lotto 20,000 Other Games 17,414 11,689 15,626 15,127 15,000 14,440 14,527 13,747 11,021 10,090 10,758 7,863 7,336 6,938 6,357 7,349 10,000 8,940 3,213 4,537 7,610 6,575 2,796 5,404 5,771 2,801 5,000 2,517 12,630 12,630 1,637 2,005 7,545 7,545 7,390
Slide 50: Lotto Wagers – Historical Trend
Lotto Wagers – Historical Trend Late Numbers Wagers "Core" Wagers No. of PoS No. of PoS Wagers (€m) 11,689 12,000 30,000 10,090 10,000 5,654 Introduced 2nd weekly drawing 7,349 7,863 8,000 4,132 7,336 6,938 20,000 6,357 1,966 2,117 1,663 6,000 1.033 1,350 4,537 408 4,000 3,213 10,000 2,796 6,035 2,8
Slide 51: Italian Gaming Market – Other Games
Italian Gaming Market – Other Games €m 13,000 12,629 9,750 7,668 7,763 7,745 7,324 7,091 7,191 7,391 6,848 6,500 6,144 4,809 3,767 3,766 4,058 3,250 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E Horse betting Sports betting Totocalcio Tris Scratch & Win SuperEnalotto Bingo
Slide 52: Analyst coverage
Analyst coverage Broker Analyst Telephone ABN Amro Michael Pacitti +44 20 76784135 Caboto Ester Brizzolara +39 02 86335984 Cheuvreux Marco Baccaglio +39 02 80628320 Citigroup Mauro Baragiola +39 02 86484703 Euromobiliare Domenico Ghilotti +39 02 6204249 Intermonte Laura Pennino +39 02 77115742 Jeffe
Slide 53: Contacts
Contacts LOTTOMATICA S.P.A. Rosario Bifulco – CEO and Managing Director Fabio Celadon - Finance Director Simona D’Agostino - Investor Relator 52