GAMENET GROUP. Management's Report on the Group's Results as at June 30, 2017

Transcription

1 GAMENET GROUP Management's Report on the Group's Results as at June 30,

2 The following information is confidential and does not constitute an offer to sell or a solicitation of an offer to buy any securities of Gamenet Group S.p.A. or any of its subsidiaries or affiliates. Any such securities may not be offered or sold in the United States absent registration unless pursuant to an applicable exemption from the registration requirements of the U.S. Securities Act and other applicable securities laws. The information provided on the following pages is not intended for distribution into or within the United States of America or to U.S. persons other than to qualified institutional buyers as defined under Rule 144A of the U.S. Securities Act. Statements on the following pages, which are not historical facts, are forward-looking statements. All forward-looking statements involve risks and uncertainties which could affect s actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of,. 2

3 BASIS OF PRESENTATION (hereafter Gamenet Group, the Company or the Parent and together with its subsidiaries the Group or Gamenet Group ) is a company incorporated and domiciled in Italy, with registered offices in Rome, Corso d Italia 6, organized under the laws of the Republic of Italy. The Company was incorporated on June 21, 2016 to effect the acquisition (hereafter the Acquisition ) on June 27, 2016 of Intralot Holding & Services S.p.A. (hereafter Intralot ) by Gamenet S.p.A. (hereafter Gamenet ). The Company is controlled by TCP Lux Euroinvest S.à.r.l. (hereafter TCP ), which holds 79.1% of the share capital; the remaining share capital is held 20% by the Dutch company Intralot Italian Investments B.V. (hereafter Intralot B.V. ) and 0.9% by Stefano Francolini. Gamenet Group is one of the largest operators in the Italian public gaming sector, which is regulated by the Customs and Monopolies Agency (Agenzia delle Dogane e dei Monopoli hereafter ADM ). The Group is an active gaming concessionaire and has a product offering comprising AWP (Amusement With Prizes), VLT (Video Lottery Terminals), Betting & Online, as well as the management of its nationwide network of variously branded company owned gaming halls and direct management of AWP operations (Retail & Street Operations). This report on operations has been prepared to provide additional information and offer a more complete representation of the Group s financial position and economic results. OVERVIEW We are one of the largest players in the gaming industry in Italy based on total bet and distribution network with Euro 3.5 billion in bets collected in the six months ended June 30, 2017 across a network of approximately 12,100 points of sale. Italy, with a worldwide market share of over 5%, is the largest gambling and betting market in Europe followed by the United Kingdom and Ireland, which have a combined share of 5.0%. Followed by Germany with 3.1% of the market, France with 2.7% and Spain with 2.3%. As far as the size of the other major European gaming and betting markets is concerned, in absolute value in 2016, Italy has a Gross Win 1 of about Euro billion in 2016, followed by UK and Ireland with GGR 1 of Euro 18.4 billion. Germany, France and Spain recorded GGR for Euro 11.2 billion, Euro 10.0 billion and Euro 8.6 billion, respectively. The Italian market GGR are expected to continue grow and reach 19.6bn, 20.3bn, 20.8bn and 21.4bn in 2017, 2018, 2019, 2020, respectively. As of June 30, 2017, Gamenet Group distribution network included 768 gaming halls. Of the 768 gaming halls in our distribution network, we owned (or held a majority interest) in 65. In these gaming halls, we hold the required authorizations and the lease contracts. As indicated above, the Group operates in four main business areas: (i) amusement with prize ( AWP ) (ii) video lottery terminal ( VLT ), (iii) betting and online ( Betting and Online ), (iv) company owned gaming halls and direct management of AWP operations ( Retail and Street Operations ). VLT VLTs were first introduced to Italy in August 2010 and to date they represent the most innovative and attractive gaming solution for players, due to the wide variety of games offered and a high average payout ratio. They also offer the chance to win jackpots of up to Euro 500,000. At present, Gamenet offers three VLT platforms, Spielo, Novomatic and Inspired, which differ for the content of the games on offer and whether or not jackpots are foreseen. Group VLTs accept Euro 0.50, Euro 1 and Euro 2 coins as well as Euro 5, Euro 10, Euro 20, Euro 50 and Euro 100 notes. In each game, bets may range from a minimum of Euro 0.50 to a maximum of Euro Source: in H2 Gambling Capital definition, Gross Win is interchangeable with Gross Gaming Revenues. 2 Total Gross Win reported by H2 Gambling Capital is equal to Euro 19.5 billions, adjusted to exclude gaming machines contribution Comma 7, physical casinò, online games off.shore, betting exchange

4 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 The percentage of bets paid out as winnings may not be lower than 85.0%, with reference both to the gaming system as a whole and to each individual game. The maximum payout for a single game is Euro 5,000. However, in the case of the Spielo VLTs, higher winnings are possible because of the Jackpot mechanism referred to above. As of June 30, 2017, we operated 8,384 VLTs. AWP AWPs are traditional slot machines that offer players a good level of interaction, using a graphical reel containing pictures; they also offer controlled-win games that pay cash to winners. The maximum cost of each single game is Euro 1.00 and the maximum win is set at Euro Each game must last at least 4 seconds and any winnings must be distributed immediately after the game (only) in coins. Winnings, which are calculated by the machines on a random basis over a cycle comprising a maximum of 140,000 games, must not fall below 70.0% of the amounts bet. New slot machines may not reproduce the game of poker nor, even partially, its basic rules. AWPs may be installed in all authorized betting shops pursuant to Articles 86 or 88 of the TULPS, including bars, coffee shops and similar outlets, public gaming halls, horseracing and sports betting shops and corners, etc. As of June 30, 2017, we provided network connection services to 41,675 AWPs. Betting and Online Gamenet Group is active in the betting and online segment through a network of 750 sport betting rights e 58 horses betting rights. The Company operates through its subsidiaries Gamenet Scommesse S.p.A., Intralot Italia S.p.A. and Veneta Servizi S.r.l. that offer their customers a wide range of games mainly including sports betting, virtual games and horse racing through 680 operating points of sale. In addition, a wide variety of online products including poker casino games, bingo and prediction games are offered through the websites Gamenet.it and Intralot.it. Retail and Street Operations In 2012, Gamenet Group began to pursue a strategy of vertical integration in the retail segment by establishing a company, Gamenet Entertainment S.r.l., to manage company owned gaming halls. Significant efforts have resulted in the Group now directly managing 65 company-owned gaming halls (seven of which are large-size gaming halls). More recently, the Group pursued its vertical integration strategy through: Retail: - the acquisition, in March 2015, of 51% of Billions Italia S.r.l. (which opened two additional gaming halls during 2016); - the acquisition through Gamenet Entertainment S.r.l. of 100% of Gamecity S.r.l. in August 2016; - Verve S.p.A. s company owned gaming hall started operations in 2016 (as also disclosed later in this document, the Group in May 2017 increased its equity interest in Verve S.p.A. from 51% to 100%); - the acquisition, in March 2017, through Gamenet Entertainment S.r.l., of 60% of La Chance S.r.l., which has the entire share capital of Slot Planet S.r.l (both La Chance S.r.l. and Slot Planet Sr.l. own 1 gaming hall each). Street Operations: - the acquisition of 100% of Gnetwork S.r.l. in August 2015; - the acquisition of 70% of Jolly Videogiochi S.r.l. and 51% of NewMatic S.r.l. in June 2016; - the acquisition in July 2016 of 60% of Agesoft S.r.l., a software company specialized in the development of software supporting AWPs operations; 4

5 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, during 2017, the company purchased four AWP related business concerns (as part of the distribution insourcing strategy, meant to further develop its Street Operations activities by purchasing third parties s AWP connected to Gamenet Group s concessionaires and manage them directly. Significant events Relating to Gamenet S.p.A. / Intralot Gaming Machines S.p.A. / Intralot Holding & Services S.p.A During the first quarter of 2017, the competent corporate bodies of Gamenet S.p.A. / Intralot Holdings & Services S.pA. / Intralot Gaming Machines S.p.A. approved the merger project ( Progetto di Fusione ) of both Intralot Gaming Machines S.p.A. and Intralot Holdings & Services S.p.A. into Gamenet S.p.A.. The merger is effective as from July 1, 2017 and it is meant to streamline the existing corporate structure. Relating to Gamenet S.p.A. / Verve S.p.A. On May 8 th, 2017, Gamenet S.p.A. entered into an agreement for the purchase of an additional 49% stake in Verve S.p.A. thus increasing from 51% to 100% its shareholding in the company. Relating to Gamenet Entertainment S.r.l. / Gamecity S.r.l. On June 20 th 2017, the competent corporate bodies of Gamenet Entertainment S.r.l. / Gamecity S.r.l. approved the merger project ( Progetto di Fusione ) of Gamecity S.r.l. into Gamenet Entertainment S.r.l.. The merger, which is expected to be completed on November 1, 2017, is meant to streamline the existing corporate structure. Relating to Gamenet Entertainment S.r.l. / Verve S.p.A. On June 20 th 2017, the competent corporate bodies of Gamenet Entertainment S.r.l. / Verve S.p.A. approved the merger project ( Progetto di Fusione ) of Verve S.p.A. into Gamenet Entertainment S.r.l.. The merger, which is expected to be completed on November 1, 2017, is meant to streamline the existing corporate structure. Relating to Gamenet S.p.A./ Gamenet Renting S.r.l. On June 20 th 2017, the competent corporate bodies of Gamenet S.p.A./ Gamenet Renting S.r.l. approved the merger project ( Progetto di Fusione ) of Gamenet Renting S.r.l. into Gamenet S.p.A. The merger, which is expected to be completed on November 1, 2017, is meant to streamline the existing corporate structure. Acquisition of AWP related business concerns As indicated earlier, as part of its distribution insourcing strategy (meant to further develop its Street Operations activities by purchasing third parties AWP connected to Gamenet Group s concessionaires and manage them directly), the Company purchased three AWP business concerns comprising a total of 1,342 additional machines as of June 30, Other significant events Law Decree n.50 dated April 2017 introduced further changes in the regulatory regime. In particular, it provided: PREU increase on AWP (by 1,5pp) from 17,5% to 19,0% and on VLT (by 0,5pp) from 5.5% to 6,0% starting from April 24 th, 2017; Taxation on winnings increase: with reference to VLT, G&V, Superenalotto from 6% to 12% for the amounts exceeding 500; with reference to Lotto from 6% to 8% on all winnings Reduction in the number of AWPs by 30%, compared to the number of AWPs as of July 31, 2015 (this reduction, as clarified by Law Decree 50/2017, must be finalized by April 30, 2018). 5

6 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 ECONOMIC TRENDS The following tables set forth key information relating to the Italian economy trend: Gross Domestic Product 3 For the six months ended June 30, June 30, September 30 and December 31 I Q II Q III Q IV Q I Q II Q III Q IV Q I Q II Q III Q IV Q I Q II Q % -0.30% -0.10% 0.00% 0.40% 0.30% 0.20% 0.10% 0.30% 0.00% 0.30% 0.20% 0.20% 0.40% Second quarter s 2017 Italian GDP increased by 0.4 per cent with respect to the first quarter of 2017 and by 1.5 per cent in comparison with the second quarter of The inflation rate for the six months ended June 30, 2017 in comparison with the same period of 2016 is set below: Six months ended June 30, Inflation rate 4 0.6% 1.2% The unemployment rate 5 as of June 30, 2017 decreased slightly vs the same period of 2016, as indicated in the graph below Unemployment rate Percentage changes versus previous quarter. Source: Istat 4 Source: Istat 5 Source: Istat 6

7 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 OPERATING INFORMATION The following table sets forth key information for the AWP business for the six months ended June 30, 2017 and 2016: For the six months ended June 30, ( in millions, except non-financial information and percentages) Number of AWPs in operation as of the period end 41,675 29,278 Average number of AWPs in operation for the period 40,358 28,833 AWP Bet (in millions) (*) 1,300 1,118 AWP PREU (as percentage of bet) 19.0% 17.5% (*)This figure does not include bet generated by gaming halls connected to other concessionaires, classified in the Retail & Street Operations segment amounting to Euro 82.6 million. For the six months ended June 30, 2017, we had an average of 40,358 machines in operation, an increase of 40.0% compared to the six months ended June 30, Total AWP bet increased by 16.3% amounting to Euro million for the six months ended June 30, 2017 and Euro million for the six months ended June 30, This is mainly due to the increase in the average number of AWPs in operation mentioned above (mainly due to the Intralot acquisition, which became effective as of July 1, 2016), partly offset by a 16.9% reduction in unit bet. This decline is a market wide event, primarily driven by the fact that the so-called gestori (i.e. the members of the supply chain who actually own the AWPs) temporarily reduced their investments in new games, waiting to have more clarity around the expected 30% reduction in the number of AWPs. In other words: players start to get used to existing games / there is limited novelty effect generated by new products being introduced into the market (and having new products available help offset the impact of AWP payout reduction, which increased by about 15% the unit cost of entertainment for players). The following table sets forth-key information for the VLT activities for the six months ended June 30, 2017 and the six months ended June 30, 2016: For the six months ended June 30, ( in millions, except non-financial information and percentages) Number of VLT licenses awarded 8,570 7,805 Average number of VLTs in operation for the period 8,272 7,473 Number of VLTs in operation as of the period end 8,384 7,530 As a percentage of VLT rights 97.8% 99.9% VLT Bet (in millions) (*) 1,592 1,520 VLT PREU (as percentage of bet) 6.00% 5.50% (*) This figure does not include bet generated by gaming halls connected to other concessionaires, classified in the Retail & Street Operations segment amounting to Euro million. As of June 30, 2017, Gamenet Group held 8,570 licenses, of which 8,384 VLT machines were in operation, equal to 97.8% of available licenses, which represents full deployment when considering the machines under maintenance or subject to asset management activities. Total VLT bet increased by 4.7% from Euro million for the six months ended June 30, 2016 to Euro million for the six months ended June 30, This is mainly due to a 10.7% increase in the average number of VLTs in operation during the period, partly compensated by a 5.4% decrease in unit bet. The following table sets forth key information for the Betting and Online business for the six months ended June 30, 2017 and 2016: For the six months ended June 30, ( in millions, except non-financial information and percentages) Number of licenses/concessions (1) Number of active points of sale as of June 30 (shops and corner) Average number of points of sale in operations (shops and corner) Total retail bet Average bet per point of sale for the period Total online bet (1) Does not include the 58 licenses related to horse racing bet 7

8 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Total bet for the six month ended June 30, 2017, increased by more than 100% compared to the same period of last year (moving from Euro 40.0 million in 2016 to Euro million in 2017), mainly due to the Intralot acquisition. Specifically, Retail bet increased from Euro 34.1 million in 2016 to Euro million in 2017 and Online bet increased from Euro 5.9 million to Euro million. The average bet per point of sale increased very significantly, from Euro 0.21 million for the six months ended June 2016 to Euro 0.37 million for the six months ended June This is because of Intralot s best in class product offering, now extended also to the heritage Gamenet network. As far as the Retail & Street Operations segment is concerned, bet increased from Euro million for the six months ended June 30, 2016 to Euro million for the six months ended June 30, 2017, representing an 20.3% year on year increase. After reclassifying bet generated in company owned gaming halls (through machines connected to the Group s Concessionaires) the Retail and Street Operations segment generated Euro million worth of bet for the six months ended June 30, 2017 (i.e. 34.6% up vs Euro million in the same period of last year). KEY FINANCIAL INDICATORS The following table provides details of the main financial and economic indicators. For the six months ended June 30, ( in thousands) Revenues 304, ,026 EBITDA(1) 36,347 30,755 Profit (loss) for the period (1,250) 173 Shareholders Equity 66,391 65,885 Net financial debt (139,634) (158,849) (1) EBITDA is defined as net profit (or loss) for the year adjusted for: (i) Income tax expense; (ii) Finance expenses; (iii) Finance income; (iv) Impairment of financial assets; (v) Depreciation, amortization and impairments; (vi) Reclassification to profit or loss of multiannual prepayments; (vii) Accessory expenses for the purchase of participations; (viii) Severance costs; (ix) Non-recurring income and expenses For the six months ended June 30, ( in thousands) Net profit (loss) for the period (1.250) 175 Income tax expense 3,492 4,014 Finance income (118) (99) Finance expenses 8,013 11,739 Share of (profit)/loss of equity accounted investments - 43 Impairment of financial assets - - Depreciation, amortization and impairment 19,094 12,547 Non-monetary costs (reclassification to profit or loss of multiannual prepayments) 2,900 2,774 Accessory expenses for the purchase of participations (1) 1,724 - Severance costs Non recurring employes benefits 845 Pre 2013 non-cashed VLT tickets paid to ADM 1,130 - EBITDA 36,347 30,755 8

9 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 RESULTS OF OPERATIONS Six months ended June 30, 2017 compared to the six months ended June 30, 2016 For the six months ended June 30, Change % of % of (in thousands of Euro) 2017 revenues 2016 revenues (amount) % Revenues 304, % 221, % 83, % Other income 2, % 1, % 1,376 >100% Total revenues and income 306, % 222, % 84, % Cost of services (256,269) -84.2% (181,959) -82.3% (74,310) 40.8% Personnel expenses (15,746) -5.2% (9,758) -4.4% (5,988) 61.4% Other operating costs (4,948) -1.6% (1,418) -0.6% (3,530) >100% Depreciation, amortization and impairments (19,094) -6.3% (12,547) -5.7% (6,547) 52.2% Accruals and impairments (529) -0.2% (939) -0.4% % Finance income % % % Finance expenses (7,998) -2.6% (11,739) -5.3% 3, % Share of profit/(loss) of equity accounted investments (15) 0.0% (43) 0.0% % Impairment of financial assets - 0.0% - 0.0% - 0.0% Profit before tax 2, % 3, % (1,507) -40.2% Income tax expense (3,492) -1.1% (3,577) -1.6% % Net profit (loss) for the period (1,250) -0.4% % (1,423) <100% Revenues The following table sets forth a breakdown of revenues by segment for the six months ended June 30, 2017 and For the six months ended June 30, Change 2017 % of revenues 2016 % of revenues (amount) % AWP 152, % 104, % 47, % VLT 105, % 104, % 1, % Betting and Online 34, % 4, % 30,076 >100% Retail and Street Operations 10, % 7, % 3, % Unallocated/Elimination % (50) 0.0% 870 >100% Total 304, % 221, % 83, % AWP revenues AWP revenues amounted to Euro million for the six months ended June 30, 2017, with an increase of Euro 47.8 million, or 45.5%, from Euro million for the six months ended June 30, A key driver of the positive year on year change is the 16.3% bet increase (which has already been commented in previous sections of this report). The positive year on year change is also explained by the absence of the imbalance between timing of PREU increase and timing of payout reduction which characterized first half In fact, while PREU increased effective as of January 1, 2016, payout reduced gradually over time, since AWP motherboards had to be physically changed or re-programmed for the new payout to be implemented. This timing imbalance had a negative impact on first half 2016 revenues (while the same event is not applicable to first half of 2017 revenues). On the negative side the increase in the AWP related PREU tax rate, from 17.5% to 19.0%, implemented in April VLT revenues VLT revenues amounted to Euro million for the six months ended June 30, 2017, with an increase of Euro 1.6 million, or 1.5%, from Euro million for the six months ended June 30, The increase in VLT revenues is mostly related to the 4.7% increase in bet, already commented in previous sections of this document. On the negative side the increase in the VLT related PREU tax rate, from 5.5% to 6.0%, implemented in April Betting & Online revenues Betting & Online revenues amounted to Euro 34.9 million for the six months ended June 30, 2017, with an increase of Euro 30.1 million, or more than 100%, compared to Euro 4.8 million for the six months ended June 30, As already commented, the key driver of this year on year increase is the Intralot acquisition. 9

10 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Retail & Street Operations revenues Retail & Street Operations revenues amounted to Euro 10.2 million for the six months ended June 30, 2017, with an increase of Euro 3.0 million, or 41.9%, compared to Euro 7.2 million for the six months ended June 30, The increase essentially reflects the impact of acquisitions finalized in the period, as well as organic growth / improved performance of existing operations. Other income Other income amounted to Euro 2.4 million for the six months ended June 30, 2017, with an increase of Euro 1.4 million, from Euro 1.0 million for the six months ended June 30, The year on year increase in mainly attributable to the impact of Intralot acquisition. Cost of services Cost of services amounted to Euro million for the six months ended June 30, 2017, with an increase of Euro 74.3 million, or 40.8%, from Euro million for the six months ended June 30, As a percentage of revenues, cost of services accounted to 84.2 % for the six months ended June 30, 2017 compared to 82.3% for the six months ended June 30, Cost of services mainly relate to the compensation paid to the distribution network, which amounted to Euro million for the six months ended June 30, 2017, with an increase of Euro 61.8 million, or 40.0%, from Euro million for the six months ended June 30, This increase is mainly a function of the evolution of first half s 2017 revenues which has been commented earlier. Cost of services also includes the ADM concession fee which amounted to Euro 11.4 million for the six months ended June 30, 2017, with an increase of Euro 3.1 million, or 38.0% compared to Euro 8.3 million for the six months ended June 30, The ADM concession fee, calculated as a percentage of AWP, VLT and Betting and Online wagers, accounted to 0.35% for the six months ended June 30, 2017 compared to 0.31% for the six months ended June 30, The year on year increase refers primarily to the increase in betting wagers that carry a higher concession fee. Fee on VLT platform licenses amounted to Euro 6.1 million for the six months ended June 30, 2017, an increase of Euro 0.6 million, or 10.7%, from Euro 5.5 million for the six months ended June 30, Percentage wise, the year on year increase in VLT platform license costs exceeds bet increase. This is due to a mix effect with a higher proportion of bet from platforms with higher unit costs. Other cost of services increased from Euro 13.6 million for the six months ended June 30, 2016 to Euro 22.4 million for the six months ended June 30, The year on year increase is mainly linked to the Intralot acquisition, for about Euro 7.9 million, as well as to the full year impact of recently finalized acquisitions within the Retail and Street Operations segment (worth about Euro 0.9 million). The following table sets forth an analysis of cost of services for the periods indicated. For the six months ended June 30, (in thousands of Euro) % of % of revenues revenues (amount) % Distribution network compensation (216.4) -71.1% (154.6) -70.0% (61.8) 40.0% Concession Fee (11.4) -3.7% (8.3) -3.7% (3.1) 38.0% Fee on VLT platform licenses (6.1) -2.0% (5.5) -2.5% (0.6) 10.7% Other (22.4) -7.3% (13.6) -6.1% (8.8) 64.9% (256.3) -84.2% (182.0) -82.3% (74.3) 40.8% Change 10

11 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Personnel expenses Personnel expenses amounted to Euro 15.7 million for the six months ended June 30, 2017, an increase of Euro 6.0 million, or 61.4%, from Euro 9.8 million for the six months ended June 30, 2016, mainly due to an increase in the average number of employees driven by acquisitions. Specifically, the year on year increase is mainly explained by the Intralot acquisition (worth Euro 3.9 million), as well as the full year impact associated with the other acquisitions (worth Euro 1.1 million). The average number of employees increased from 335 for the six months ended June 30, 2016 to 547 for the six months ended June 30, Most of the variance is explained by Intralot acquisitions. Other operating costs Other operating costs amounted to Euro 4.9 million for the six months ended June 30, 2017, with an increase of Euro 3.5 million, or more than 100%, from Euro 1.4 million for the six months ended June 30, The increase is primarily attributable to a price adjustment associated to a Retail & Street Operations related acquisition as well as to the amount paid to ADM in connection to pre-2013 non-cashed VLT tickets. Depreciation, amortization and impairments Depreciation, amortization and impairments amounted to Euro 19.1 million for the six months ended June 30, 2017, with an increase of Euro 6.5 million (+52.2%) with respect to the total of Euro 12.5 million booked in the six months ended June 30, The increase is mainly related to the Intralot acquisition. Accruals and provisions Accruals and provisions amounted to Euro 0.5 million for the six months ended June 30, 2017, a decrease of 43.7%, from Euro 0.9 million for the six months ended June 30, The decrease mainly relates to the reversal of a provision for risks and charges. Operating profit Operating profit amounted to Euro 10.1 million for the six months, ended June 30, 2017, with a decrease of Euro 5.3 million, or 34.3%, compared to Euro 15.4 million for the six months ended June 30, Two main reconciling factors: Retail Sport Betting payout moved from 82.9% (Gamenet only)/82.0% (Gamenet and Intralot aggregated) in first half 2016 to 85.7% (Gamnet Group consolidated) in first half If first half 2017 s Retail Sport Betting payout had been the same of last year (i.e. 82.0%) operating profit would have increased by Euro 5.4 million; Impact of first half 2017 s non recurring events excluded from EBITDA: Euro 4.2 million (including payment to ADM of pre 2013 non-cashed VLT tickets, severance, accessory expenses for the purchase of participations, etc see section Key Financial Indicators). Finance expenses Finance expenses amounted to Euro 8.0 million for the six months ended June 30, 2017, a decrease of Euro 3.7 million, or 31.7%, from Euro 11.7 million for the six months ended June 30, The decrease mainly relates to the lower interest rate applicable to the Euro 200 million senior secured notes due 2021 issued by on August 15, Profit before tax Profit before tax amounted to Euro 2.2 million for the six months ended June 30, 2017, with a decrease of Euro 1.5 million from the profit of Euro 3.8 million for the six months ended June 30, The drivers of this year on year decrease have been commented earlier. 11

12 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Income tax Income tax amounted to Euro 3.5 million for the six months ended June 30, 2017, with a decrease of Euro 0.1 million, or - 2.4%, from Euro 3.6 million for the six months ended June 30, Profit for the period As a result of the factors explained above, the loss for the period amounted to Euro 1.3 million for the six months ended June 30, 2017, with a decrease of Euro 1.4 million from a profit of Euro 0.2 million for the six months ended June 30,

13 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Information by business activity The following table sets forth business activity information for the periods indicated. (in thousand of Euro, except percentages) AWP VLT 1H H H H 2016 Betting and Online 1H H 2016 Retail and Street operations 1H 1H Unallocated/Elimination Total 1H H H H 2016 BET 1,300,490 1,118,490 1,591,551 1,520, ,768 40, , ,168 3,509,724 2,874,752 of which related to Retail and Street Operations 65,652 30, , , , ,029 Bet 1,300,490 1,118,490 1,591,551 1,520,047 2,892,042 2,638,537 Payout (913,504) (818,010) (1,397,367) (1,335,255) - (2,310,871) (2,153,265) GGR 386, , , , , ,272 Taxes (PREU, IU, etc.) (234,605) (195,736) (90,396) (83,602) - (325,001) (279,338) NGR 152, , , , , ,934 Non-bet based revenues ,912 2,944 2,252 3,143 Gaming revenues towards third parties 152, , , ,134 34,899 4,823 10,179 7, (49) 304, ,026 Other income toward third parties , ,404 1,028 Intragroup Revenues (17) (34) 7,508 4,186 (7,491) (4,309) - - Intragroup Other income (47) (186) - - Distribution costs (135,917) (92,891) (62,727) (61,103) (20,051) (1,872) (489) (464) 6,218 3,208 (212,966) (153,122) Taxes-concession fee- other (3,901) (3,355) (4,797) (4,613) (3,016) (534) (11,703) (8,493) Other distribution and platform costs - - (6,067) (5,599) (1,641) (670) (7,579) (6,263) Other direct costs (1,690) (1,846) (1,604) (1,619) (1,220) (475) (4,575) (4,114) (327) (228) (9,416) (8,282) Contribution margin 11,520 7,275 30,854 31,384 9,000 1,387 13,060 7, (1,345) 65,059 45,894 Contribution margin/bet Contribution margin/total revenues and income 0.9% 0.7% 1.9% 2.1% 2.4% 3.5% 5.6% 3.7% n.a. n.a. 1.9% 1.6% 7.5% 6.9% 29.1% 30.1% 25.8% 28.1% 72.1% 61.1% -11.6% 31.0% 22.1% 20.7% Indirect costs (35,828) (17,914) (35,828) (17,914) Depreciation, amortization and impairments (19,094) (12,547) (19,094) (12,547) Finance income Finance expenses (7,998) (11,739) Costs related to valuation of investments (15) (43) Impairment of financial assets Profit before tax 2,242 3,750 Income tax (3,492) (3,577) Profit for the period (1,250)

14 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 In the following table, bet generated by company owned gaming halls connected to Gamenet Group s concessionaires is reclassified from the AWP/VLT segment into the Retail and Street Operations segment; accordingly, AWP/VLT bet refers exclusively to the pure Concessionaire business. (in thousand of Euro, except percentages) Bet 1H H 2016 AWP 1,234,838 1,088,448 VLT 1,446,053 1,414,060 Betting and Online 381,768 40,047 Retail and Street Operations 447, ,197 Total 3,509,724 2,874,752 AWP AWP contribution margin increased by Euro 4.2 million, or 58.3%, from Euro 7.3 million for the six months ended June 30, 2016, to Euro 11.5 million for the six months ended June 30, As a percentage of bet, contribution margin was 0.9% for the six months ended June 30, 2017, compared to 0.7% in the same period of last year. The year on year increase is mostly attributable to the positive contribution deriving from the increased number of company owned machines, as well as by the positive contribution deriving from the Intralot acquisition. VLT VLT contribution margin decreased, moving from Euro 31.4 million for the six months ended June 30, 2016 to Euro 30.9 million for the six months ended June 30, This reduction is mainly explained by Gamenet Group s share of VLT PREU increase (Euro 0.8 million) as well as by the year on year reduction in non bet based revenues (Euro 1,0 million) more than offsetting the positive impact associated to increased year on year bet. As a percentage of bet, contribution margin was 1.9% for the six months ended June 30, 2017 compared to 2.1% in the same period of last year. Betting and online Betting and online contribution margin amounted to Euro 9.0 million for the six months ended June 30, 2017, with an increase of Euro 7.6 million, or more than 100%, from Euro 1.4 million for the six months ended June 30, The year on year increase is mainly attributable to Intralot acquisition. The disalignment between the year on year increase in bet generated by the Retail Sport Betting business and the year on year contribution margin increase is due to the negative evolution of the Retail Sport Betting payout which has been commented earlier. If first half 2017 s Retail Sport Betting payout had been the same of last year (i.e. 82.0%) contribution margin would have been of Euro 14.4 million. Retail and Street Operations Retail and Street Operations contribution margin amounted to Euro 13.1 million for the six months ended June 30, 2017, with an increase of Euro 5.9 million, or 81.5%, compared to Euro 7.2 million for the six months ended June 30, The drivers of contribution margin increase have already been commented (acquisitions, performance of existing operations, etc.). The positive disalignment vs bet increase (calculated after reclassifying into the Retail & Street Operations segment bet generated by company owned gaming halls connected to Gamenet Group s concessionaires) is due to new M&A acquisitions generating a higher contribution margin (expressed as a % of bet), as well as by non-bet based revenue streams. 14

15 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Cash Flows The following table provides a summary of the cash flows statement for the periods indicated. For the six months ended June 30, (in thousands of Euro) Cash flow provided by (used in) operating activities 46,100 20,843 Cash flow provided by (used in) investing activities (27,352) (9,707) Cash flow provided by (used in) financing activities (11,753) (24,627) Total increase / (decrease) in cash and cash equivalents 6,995 (13,491) Cash and cash equivalents at the beginning of the period 49,767 50,110 Cash and cash equivalents at the end of the period 56,762 36,619 Cash flows from operating activities are positive by Euro 46.1 million as of the end of 1H The year on year comparison shows a positive evolution of about Euro 25.3 million from Euro 20.8 million as of the end of 1H The key reconciling factors are the following: o o o o increased Ebitda generation (worth about Euro 6 million) at costant DSO, an increase in Preu tax rates generates an increase in client receivables. Since last year s Preu increase (from 13.0% to 17.5%) was much higher than this year s (from 17.5% to 19.0%), this year s client receivable growth (driven by PREU increase) is significantly lower than last year s (by about Euro 8 million) increased betting tax related payables (worth about Euro 6 million): betting tax related payables grow significantly in 1H of each year since most of the payments are concentrated in H2. This impact is maximized by the strong year on year growth in betting volumes generated by the Intralot acquisition (Intralot was not part of the consolidation area in 1H 2016) increased Payables to tax authorities for PREU (worth about Euro 5 million): as a reminder Preu tax rates were increased effective as of April 24, From April 24 until the end of June, the accumulation of new payables took place at the new / higher Preu tax rate. On the contrary, based on the rules set by ADM, during the same time period Preu payments were still based on prior months, where the old / lower tax rate was still applicable. Cash flows used in investing activities amounted to Euro 27.4 million for the six months ended June 30, 2017 compared to Euro 9.7 million for the six months ended June 30, The negative year on year delta of about Euro 17.6 million is mainly explained by the following key reconciling factors: o Euro 5.9 million worth of increased M&A related payments (deferred purchase price components associated with prior year s deals, as well as 2017 acquisitions) o Euro 11.8 million worth of increased year on year investments (including Euro 3.6 million associated to company owned AWPs; Euro 1.7 million associated to increased investments in hardware for our point of sale Betting network; Euro 4.8 million worth of increased software related investments, including internally developed software, etc.). Cash flows used in financing activities amounted to Euro 11.7 million for the six months ended June 30, 2017 compared to Euro 24.6 million for the six months ended June 30, After deducting the impact of last year s dividend payment and purchase of own shares (worth Euro 17.5 million) the year on year delta reduces to Euro 4.6 million, mostly explained by Euro 5 million RCF repayment finalized in 1H

16 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Financial Position Net financial debt As of June 30, As of December 31, Cash and cash equivalents Cash at banks 56,762 49,767 Financial assets 13,450 13,389 70,212 63,156 Senior Secured Notes Due to bondholders - capital (195,442) (195,531) Due to bondholders - interest (4,500) (5,000) (199,942) (200,531) Bank overdrafts (1,143) (6,859) Other financial liabilities (8,760) (14,615) Total debt (209,845) (222,005) Net financial debt (139,633) (158,849) (*) Financial assets includes both current and non-current financial assets as well as certain non-current trade receivables with longer payment terms than those typically granted in normal operations and these have been discounted accordingly. (**) Net financial debt is not defined by IFRS. Accordingly, it may be calculated on a different basis from similar measures used by other groups and may, therefore, not be comparable with such information presented by other groups Net financial debt amounted to Euro million as of June 30, 2017, compared to Euro million as of December 31, Line Senior Secured Notes refers to the bond issued on August 15, 2016 by with a nominal value of Euro 200 million; the bond, recorded at amortized cost, amounted to Euro million as of June 30, 2017, in line with December 31, 2016 figures. Line Bank overdrafts mainly refers to Gamenet S.p.A. s utilization of the Senior Secured Revolving Credit Facility granted by Unicredit S.p.A. and Banca IMI S.p.A.. As of June the utilization of the Euro 30 million SSRCF is zero. Line Other financial liabilities mainly comprises put option related liabilities (worth Euro 2.0 million) as well as other acquisition related payables (worth Euro 3.7 million), associated to the Group s vertical integration strategy. This line also includes the present value, amounting to Euro 3.0 million as of June 30, 2017, of a shareholders loans granted by Intralot Italian Investment B.V. as part of the Framework agreement supporting the Intralot acquisition. The evolution vis-à-vis December 31, 2016 figures refers to acquisitions related payables which have been liquidated in the first six months of the

17 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Annex Introduction This annex presents the pro forma consolidated income statement and the pro forma consolidated cash flow statement for the year ended December 31, 2016 of Gamenet Group (the Pro Forma Financial Information ). The accounting policies adopted in preparing this Pro Forma Financial Information are the same as those utilized for the consolidated financial statements of (the Company ) as of and for the year ended December 31, 2016, which should be referred to for complete information. The Pro Forma Financial Information has been prepared to represent the effects of the establishment of the Company as the holding company of Gamenet S.p.A. ( Gamenet ) and, indirectly, Intralot Holding & Services S.p.A. and their subsidiaries (hereafter Intralot Group ), pursuant to the Framework Agreement. In particular, the Pro Forma Financial Information has been prepared to retrospectively reflect the effects of the Intralot acquisition and the offering of the notes by the Gamenet Group (the Offering ) used to repay the 200 million senior secured notes due 2018 of Gamenet (the Refinancing ), as if they had occurred on January 1, It should be noted that the Company was formed on June 21, 2016 and therefore has limited operating history. As a consequence, the Pro Forma Financial Information has been prepared assuming that the Company was already incorporated as of January 1, The Pro Forma Financial Information does not represent the results of operations of the Gamenet Group. The Pro Forma Financial Information has been prepared for illustrative purposes only. Had the transactions referred to above taken place on January 1, 2016, the actual effects would not necessarily have been the same as those presented in the Pro Forma Financial Information. It should be noted that the Pro Forma Financial Information does not attempt to predict or estimate the future results of the Gamenet Group and should not be used for this purpose. Pro-forma consolidated income statement for the year ended December 31, 2016 (in Euro thousands) Consolidate d income statement Intralot contribution Pro-forma adjustments Purchace Intralot Price acquisition Allocation costs Refinancing Pro-forma consolidated income statement (A) (B) (C) (D) (E) (F) = (A+B+C+D+E) Revenues 537,495 69, ,506 Other income 3, ,117 Total revenues and income 541,005 69, ,623 Cost of services (445,090) (61,755) (506,132) Personnel expenses (24,742) (4,344) (29,086) Other operating costs (3,944) (286) (4,230) Depreciation, amortization and impairments (32,536) (4,482) (1,165) - - (38,183) Accruals and impairments (3,151) (3,151) Finance income Finance expenses (25,743) (602) - - 9,203 (17,142) Share of profit/(loss) of equity accounted investments (57) (57) Profit before tax 5,928 (1,849) (1,165) 713 9,203 12,830 Income tax expense (8,947) (1) 339 (208) (2,531) (11,348) Net profit (loss) for the period (3,019) (1,850) (826) 505 6,672 1,482 Loss for the period attributable to minority interests (888) (888) Net profit (loss) for the period attributable to the owners of the parent (2,131) (1,850) (826) 505 6,672 2,370 17

18 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Pro-forma consolidated cash flow statement for the year ended December 31, 2016 (in Euro thousands) Consolidated cash flow statement Intralot contribution Pro-forma adjustments Purchace Intralot Price acquisition Allocation costs Refinancing Pro-forma consolidated cash flow statement (A) (B) (C) (D) (E) (F) = (A+B+C+D+E) Profit before tax 5,928 (1,849) (1,165) 713 9,203 12,830 Adjustments: Depreciation, Amortization and Impairment of intangible assets and property, plant and equipment 32,536 4,482 1, ,183 Accruals and write-downs for impairment losses 3, ,151 Other accruals 1, ,336 Share of profit/loss of equity accounted investments Net financial expenses 25, (9,203) 16,954 Other adjustments for non-cash items 4, ,242 Cash flow from operating activities before changes in net working capital 72,807 3, ,753 Changes in net working capital Decrease/(increase) in inventories Decrease/(increase) in trade receivables (15,441) (1,228) (16,669) Decrease/(increase) in trade payables (1,624) (1,513) Advances to suppliers (8,186) (8,186) Other changes in net working capital (1,106) (143) Cash flow from changes in net working capital (26,357) (154) (26,511) Income taxes paid (3,755) (3,755) Accruals to employee benefits and provisions for risks and charges (645) (592) Cash flow from operating activities 42,050 3, ,895 Cash flow from investing activities Investments: (22,650) (489) (23,139) -intangible assets (7,654) (826) (8,480) -property, plant and equipment (14,996) (14,659) Disposals of assets Deferred purchase consideration for acquisition of subsidiaries/business units (3,858) (3,858) Disposal of business units Acquisition net of cash and cash equivalents 19,264 (21,112) (1,848) - Cash flow from investing activities (6,952) (21,601) (28,553) Cash flow from financing activities Change in other financial liabilities (70) (70) Shareholders loans 3, ,500 Increase (decrease) in short-term payables to bank 5, ,028 Repayment of bond (203,625) ,625 - Proceeds from bond issuance 200, (200,000) - Net financial expenses on raising of loans (4,788) ,788 - Changes in current and non-current financial assets Net financial expenses (18,128) (600) - - 1,935 (16,793) Dividends paid (16,902) (16,902) Incorporation of Gamenet Group Capital increase paid in cash (900) (900) Cash flow from financing activities (35,441) (600) ,348 (25,693) Net Cash flow (343) (19,069) ,348 (8,351) Description of financial information and pro forma adjustments Note A This column represents the consolidated income statement and the consolidated cash flow statement of Gamenet Group for the year ended December 31, Note B This column represents the consolidated income statement and the consolidated cash flow statement of Intralot Group for the period from January 1, 2016 to June 30, Note C This column includes the amortization of intangible assets arising from the purchase price allocation process. Note D This column includes the elimination of the transaction costs related to the acquisition of Intralot Group. 18

19 MANAGEMENT S REPORT ON THE GROUP S RESULT AT JUNE 30, 2017 Note E This column represents the pro forma adjustments to reflect the effects of the Refinancing as if they had occurred on January 1, The effects of the Refinancing have been calculated as follows: (in thousands of Euro) Total Reversal of finance costs of 2018 Notes and 2013 Notes (a) 14,054 Reversal of unamortized costs of 2018 Notes (b) 4,255 Redemption costs of 2018 Notes (c) 3,625 Finance expense on Senior Secured Notes (d) (12,731) Total 9,203 Fiscal effect (IRES 27,5%) (2.531) Net impact (a) Relates to the elimination of the finance expenses recorded in the income statement for the year ended December 31, 2016 both on the Senior Secured Notes due 2018 and on Senior Secured Notes due (b) Relates to the unamortized cost recorded in the income statement for the year ended December 31, 2016 on the Senior Secured Notes due (c) Relates to the call premium on the Senior Secured Notes due 2018 which were reimbursed on August 15, 2016 and for which the cost had been recorded in the consolidated income statement for the year ended December 31, (d) Relates to the finance costs related to the Senior Secured Notes due 2021 for the year ended December 31, 2016 assuming that the issuance had taken place on January 1, Pro Forma contribution margin by segment *** Pro forma contribution margin by operating segment has been calculated by aggregating the consolidated historical segment information of Gamenet and Intralot Group, after giving the pro forma effects to the transactions as described in the Pro Forma Financial Information. The following table sets forth a breakdown of our pro forma contribution margin by operating segment for the year ended December 31, 2016: For the year ended December 31, 2016 (in Euro thousands) AWP 20,440 VLT 64,473 Betting and Online 23,761 Retail and Street Operations 20,387 Unallocated 1,381 Contribution margin 130,442 19