Slide 1: Investor Presentation September 2015
INVESTOR PRESENTATION September 2015
Slide 2: Forward-Looking Statements; Use of Non-GAAP Financial Measures
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, perfor
Slide 3: Today's Agenda
Today’s Agenda • Overview • Business of Pollard • State of the Industry • Competitors • Growth Strategies • Financial Update – 2014 and H1 2015 • Expectations for 2015/2016
Slide 4: Pollard Banknote Overview
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 10 years • Leadin
Slide 5: Financial Highlights
Financial Highlights ($Millions) 2014 2013 2012 2011 2010 SALES $194.5 $184.9 $162.4 $172.0 $163.4 INCOME BEFORE INCOME TAXES $12.5 $9.4 $8.8 $4.8 $3.5 NET INCOME $8.7 $5.4 $6.5 $3.1 $1.8 ADJUSTED EBITDA $25.6 $21.8 $20.2 $17.8 $17.3
Slide 6: Experienced and Aligned Management
John Pollard Co-CEO Experienced and Aligned • • 18 years as Co-CEO, 29 years with PBL Responsible for manufacturing, technical Management • and finance Previously worked as a senior associate with Deloitte Doug Pollard Co-CEO Rob Young EVP Operations • 4 years as Co-CEO, 18 years with PBL • 3 years
Slide 7: Board of Directors
Board of Directors Jerry Gray Del Crewson Garry Leach • Dean Emeritus of Asper • Former Vice-Chair of Deloitte & • Former CEO of Gerdau MRM School of Business, University Touche Steel of Manitoba • 10 years a Pollard director • 5 years a Pollard director • 10 years a Pollard director Doug Pollard Jo
Slide 8: Capital Structure
Capital Structure • 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 for i
Slide 9: Strong Governance
Strong Governance With a majority ownership position by the Pollard Family, we have taken a number of steps to ensure effective governance is in place: • 50/50 split independent/Pollard family directors • Independent lead director appointed • Audit, Compensation and Governance and Nominating committ
Slide 10: Our Primary Product: Instant Win Scratch Lottery Tickets
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 11: Our Primary Product: Instant Win Scratch Lottery Tickets
Our Primary Product: 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 app
Slide 12: Specialty and Proprietary Instant Win Scratch Lottery Tickets
Specialty and Proprietary Instant Win Scratch Lottery Tickets • A number of patented specialty products generates value added sales opportunities • Scratch F/X (Glossy scratch off) & Gamebooks (multiple games in one book) are 2 very successful products • A number of other print innovations exist to
Slide 13: Licensed Games
Licensed Games • Sale of licensed property generates additional royalty income • Themed merchandise prize packs often provided by Pollard • Incremental sales opportunity for leveraging into new customers
Slide 14: iLottery
iLottery • Pollard has formed a joint venture with a technological provider to pursue iLottery opportunities in North America • We won the RFP to operate the Michigan Lottery iLottery site which went live in 2014 • Full turn key operation offering instant tickets and keno • Early results have been v
Slide 15: App-Based Games
App-Based Games Over a 75% increase in digital related revenue in 2014
Slide 16: Charitable Games
Charitable Games • Approximately 10% of our revenue • Overall industry is steady to shrinking • Our business generates solid profits • Increasing market share in both pull tabs and bingo paper • Opportunity for industry consolidation
Slide 17: Largest Lotteries by Retail Sales of Instant Tickets (2014)
Largest Lotteries by Retail 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 State
Slide 18: Pollard Canadian Customers
Pollard Canadian Customers Total Sales Pollard Customer (US$MM) Primary Secondary Ontario Gaming and Lottery Corporation $882 X Loto-Quebec $370 X Atlantic Lottery Corporation $274 X Western Canada Lottery Corporation $268 X B.C. Lottery Corporation $194 X Canadian Lotteries Ranked By 2014 Retail Sa
Slide 19: Robust Industry
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 remaine
Slide 20: Instant Ticket Strengths
Instant Ticket Strengths • Strong, growing consumer demand for tickets • Constantly changing number and types of games • Increasing price points (ie $20, $50 even $100) have increased overall sales • Improved prize payouts, from 50% to 60% or even higher prize payouts • Increasing diversity of offer
Slide 21: Worldwide Instant Sales
Worldwide Instant Sales 2009 – 2014 Annual Retail Sales $90.0 $85.0 $83.1B $80.0 U.S. $ Billions $75.0 31% $70.0 growth $63.5B from $65.0 2009 to $60.0 2014 $55.0 $50.0 2009 2010 2011 2012 2013 2014 Annual Sales Source: La Fleur’s World Lottery Almanac
Slide 22: Barriers to Entry
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 that •
Slide 23: iLottery
iLottery • Starting in 2012 individual U.S. state lotteries were allowed to sell lottery products over the Internet • So far only a handful have started. Approximately 35 remaining U.S. lotteries are studying • To date sales have been mixed, very low in most jurisdictions EXCEPT Michigan • Canada an
Slide 24: Few Competitors
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 adverse
Slide 25: Few Competitors
Few Competitors Scientific Games Gtech • 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 • Recently bought the #2 & #3 slot full suite of products machine manufacturers •
Slide 26: Company Growth Strategies
Company 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 in
Slide 27: Expanded Capacity
Expanded Capacity • Purchased new Tresu 22 station inline press • Installed in Ypsilanti, Michigan • Went live September 2015 • Relocate existing Ypsilanti press line to Winnipeg (2016) • Investment of approximately C$25MM in total • Corporate net capacity increase of 35%
Slide 28: TRESU Press
TRESU Press POLLARD banknote limited
Slide 29: Michigan iLottery Sales Success
Michigan iLottery Sales Success • Launched ontime August 2014 % of Lottery Sales • Other North 7 American lotteries 10% struggling for 1% 3 of sales Of Lottery Sales • Michigan paper 2015 YTD Run-rate ticket sales have continued to grow
Slide 30: Virginia iLottery - NeoPollard 2nd Contract
Virginia iLottery - NeoPollard 2nd Contract • Recently awarded our 2nd iLottery contract • Initially for E-subscriptions only • Customers can pre-order draw based games numbers • Will include free to play internet based instant games 10% Of Lottery Sales • Includes all of the functionality of a full
Slide 31: Fiscal Sales
Fiscal Sales ($M) $192 $195 $200 Foreign Exchange Rate Adjusted $181 $184 $184 $180 $168 $172 $165 $168 $172 $160 $154 $150 $143 $140 $120 $114 $98 $100 $80 $60 $40 $20 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 32: Fiscal 2014 Sales
Fiscal 2014 Sales ($M) $210.0 $0.9 $5.4 $5.4 $9.0 $0.3 $194.5 $200.0 $184.9 $190.0 $180.0 $170.0 $160.0 $150.0 $140.0 2013 Higher Higher Higher LMS Lower Lower 2014 Revenue AVG Selling and Sales Charitable Due to Price Licensed Volumes Games Weaker Games CAD $ Revenue
Slide 33: Adjusted EBITDA
Adjusted EBITDA ($M) $30.0 $25.8 $25.0 $21.8 $20.2 $20.0 $17.3 $17.8 $15.0 $10.0 $5.0 $0.0 2010 2011 2012 2013 2014
Slide 34: 2014 Adjusted EBITDA
2014 Adjusted EBITDA ($M) $2.7 $1.9 $30.0 $5.4 $1.6 $25.8 $25.0 $21.8 $20.0 $15.0 $10.0 $5.0 $0.0 2013 Higher AVG Weaker CAD Higher SG + A Lower Sales 2014 Selling Price Dollar Expenditures Volumes
Slide 35: H1 2015 Highlights
H1 2015 HIGHLIGHTS ($M) H1 2015 H1 2014 Sales $105.9 $97.8 Gross Margin $20.8 $20.2 Gross Margin % 19.6% 20.6% SG + A $11.9 $11.4 Income from $9.2 $8.9 Operations Adjusted EBITDA $13.0 $12.8 Net Income $4.3 $5.0
Slide 36: H1 2015 Sales
H1 2015 Sales New Six Month Record ($M) $7.5 $3.2 $120.0 $0.5 $1.4 $105.9 $5.7 $110.0 $97.8 $100.0 $90.0 $80.0 $70.0 $60.0 $50.0 H1 2014 Higher Impact of Lower Lower Lower AVG H1 2015 Volume Weaker Ancillary Charitable Price CAD $ Sales Gaming Sales
Slide 37: H1 2015 Adjusted EBITDA
H1 2015 Adjusted EBITDA ($M) $1.0 $0.4 $15.0 $1.4 $1.0 $14.0 $13.0 $12.8 $13.0 $12.0 $11.0 $10.0 H1 2014 Higher Impact of Higher SG+A Lower AVG H1 2015 Volume Weaker Price CAD $
Slide 38: H1 Highlights
H1 Highlights • Sales volumes up approximately 4% versus 2014 • Slightly lower average selling prices versus H1 2014 due to product mix • Similar manufacturing cost structure compared to prior quarters • Weaker Canadian dollar contributes to higher EBITDA and operating income • New press installatio
Slide 39: Looking Ahead
Looking Ahead Industry outlook remains very strong Contract portfolio and production capacity in place to efficiently produce higher volumes New press installed and in production of live tickets Michigan iLottery operation continuing to grow • Weak Canadian dollar increases our cash flow and
Slide 40: Investment Thesis
Investment Thesis Revenue is $200 million recurring in in Revenue nature 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 techno
Slide 41: Thank you for your time and your attention today
Thank you for your time and your attention today 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 Telephon