AS OF AND FOR THE SIX MONTHS. Unaudited Interim Condensed Consolidated Financial Statements GAMENET SPA

Transcription

1 Registered office: Corso d Italia ROME (RM) Share capital: Euro 2,520, (fully paid-up) Tax code Registered with the Rome Company Register no Unaudited Interim Condensed Consolidated Financial Statements AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2016

2 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 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 SpA 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 Gamenet SpA 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, Gamenet SpA.

3 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 Management s discussion and analysis of financial condition and results of operations OVERVIEW Gamenet SpA ( Gamenet or the Company and together with its subsidiaries the Gamenet Group ) is one of the largest players in the gaming industry in Italy based on total bet and distribution network with 2.9 billion in bets collected in the six months ended June 30, 2016 across a network of approximately 9,800 points of sale. As of June 30, 2016, our distribution network included 695 gaming halls. Of the 746 gaming halls in our distribution network, we owned (or held a majority interest) in 64. In these gaming halls we hold the required authorizations and the lease contracts. The Company and its subsidiaries operate in three main business areas: i) video lottery terminal ( VLT ), (ii) amusement with prize ( AWP ) and (iii) Betting and online. VLT VLTs offer a more attractive gaming proposition to players compared to traditional gaming products, due to the greater variety of games and higher average payout ratio, including the possibility to win a jackpot of up to 500,000. VLTs were first introduced in Italy in August 2010 and represent today s most innovative gaming product. AWP AWPs are represented by the traditional slot machines that provide some level of player interaction employing a graphical reel containing pictures and provide games of controlled chance, paying cash to winners. AWPs were legalized in Italy in AWPs are primarily based in bars, cafés, tobacconists, gaming and bingo halls. Betting and online The Gamenet Group is active in the betting and online games through its subsidiary Gamenet Scommesse, which held 88 concession rights for sport betting shops and 97 concession rights for the so-called betting corner licenses. In particular, we offer physical and online games such as online skill games including poker, casino games, bingo, sport and horse betting. Starting from March 2014, Gamenet launched a new variety of betting games: virtual games. Stability Law Under the 2016 Stability Law of December 28, 2015, no. 208, the legislator has clarified some interpretation doubts; in particular paragraph 920 has repealed paragraph 649 of article 1 of law no. 190 of December 23, 2014; therefore, starting from 2016, the gaming network is no longer required to pay the additional tax of 500 million on an annual basis. Furthermore, paragraph 921 has clarified the provisions governing the share of the 500M tax due by the concessionaires and by the supply chain in connection to year Paragraph 921 is interpreted to mean that the annual reduction in the public funds available to remunerate concessionaires and the parties which, according to their respective spheres of competence, manage gaming machines and collect the related bet referred to in article 110, paragraph 6, of the consolidated act under Royal decree no. 773 of June 18, 1931, applies to each operator in the network in proportion to its share in the distribution of this remuneration, on the basis of the related contractual arrangements and taking account of their duration in The 2016 Stability Law also introduced a major change: there will be a progressive change in AWP gaming technology from 2017 to 2019, by which time the AWP installed base will have been completely replaced by new remotely controlled gaming machines. As regards Gamenet Scommesse S.p.A., as a result of the application of article 1, paragraph 945, of Law no. 208 of December 28, 2015 (2016 Stability Law), with effect from 1 January 2016 the single tax on sports and non-sports fixed-odds betting referred to in Legislative Decree no. 504/98, is applied on the difference between the amounts of bets and the payout; the tax rate is 18% for physical sports betting and 22% for online sport betting. Based on paragraph 944, the tax rate applicable to all skill games played in tournament form is 20%. As regards the VLT (Video Lottery Terminal) segment pursuant to article 110, paragraph 6.b of the TULPS (Testo unico delle leggi di pubblica sicurezza, consolidated text of public safety laws), the ADM Directorial Decree of October 28, 2011, which was issued within the scope of the powers granted by Law Decree no. 138/2011, as converted by Law no. 148/2011, had set the PREU tax rate for 2015 at 5.0%. The Stability Law no. 208 of December 28, 2015 provided, under the single article, paragraph 919, for an increase in the PREU rate for 2016, setting it at 5.5%. 3

4 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 As far as the AWP (Amusement with Prize machines) segment is concerned pursuant to article 110, paragraph 6.a of the TULPS, the abovementioned ADM Directorial Decree also provided, with effect from January 1, 2015, for a PREU percentage equal to 13% of the amount of bets. The Stability Law no. 208 of December 28, 2015 provided, under the single article, paragraph 928, for an increase in the PREU rate for 2016, setting it at 17.5%. Furthermore, starting from 1 January 2016, the percentage allocated to winnings (payout) is set at no less than 70%. It should be noted that, given that revenues are recognized as a difference between bet, payout and PREU, any change in the PREU tax rate, if not offset by an adequate reduction in the payout, generates a negative impact on such revenues. Significant events On 11 April 2016, Gamenet s sharesholding structure has been changed as a consequence of the transfer of 90,000 Class A and B shares from the Other Shareholders to TCP Lux Eurinvest S.à. r.l. (45,000) and to Gamenet S.p.a. (45,000). On 4 May 2016 Gamenet s Shareholders meeting approved the distribution of distributable reserves for an amount of Euro 16.6M. On May 9, 2016, Gamenet s Shareholders meeting approved to change the date the warrants can be exercised. The revised due date for exercising the warrants (May 11, 2016) expired, without any warrant being exercised. On June 15, 2016, the Company purchased 70% of Jolly Videogiochi S.r.l. ( Jolly ), an Awp Operator. The remaining 30% of the share capital of Jolly is held by Mr. Alberto Romano and Mr. Mauro Prandelli, who hold 25% and 5% of the share capital of Jolly, respectively. This acquisition represents a further step of the vertical integration strategy in the Street Operations segment being pursued by the Group. On June 21, 2016, TCP Lux Eurinvest S.à r.l. and Mr. Stefano Francolini, subscribed the entire share capital of the new holding company Gamenet Group S.p.A. (by contributing, inter alia, the shares of Gamenet S.p.A.) which became the sole shareholder of Gamenet S.p.A. On June 27, 2016, Intralot Global Holdings B.V. subscribed, effective from July 1, 2016, a capital increase of Gamenet Group S.p.A. by contributing, inter alia, the shares of Intralot Holding & Services S.p.A. and Intralot Gaming Machines S.p.A. As of the end of June 2016, the share capital of Gamenet Group S.p.A. amounted to 30,000,000, divided into 24,000,000 Class A shares and 6,000,000 Class B shares, each with a nominal value of 1.00, all of which are fully paid-up. TCP Lux Eurinvest S.à r.l. owns 79.1%, Intralot Global Holdings B.V. owns 20.0% and Mr. Stefano Francolini owns 0.9%. It should be noted that on June , effective from July 1, 2016, Gamenet Group S.p.A. contributed to Gamenet S.p.A. 100% of the equity interest in Intralot Holding & Services S.p.A. Therefore, on June 27, 2016 the aggregation of the Italian activities of the Intralot Group in Gamenet has been completed. This step follows the announcement of the signing of a Memorandum of Understanding between Trilantic Capital Partners Europe, the controlling shareholder of Gamenet S.p.A. and the Intralot Group aimed at merging the Italian operations of the Intralot Group into Gamenet as announced on 21 March 2016 and the signing of relevant binding agreements, as announced on 25 May The transaction was authorized by the competent Antitrust Authority and took effect from 1 July Gamenet Group S.p.A. will be one of the major players in the Italian gaming market, through a network of about 750 betting shops that will continue to use the Intralot s brand name, approximately 8,200 VLT licenses, more than 50,000 AWP licenses and 64 directly owned and managed gaming halls. On June 30, 2016, the Company purchased 51% of New Matic S.r.l. ( NewMatic ), an AWP Operator. The remaining 49.0% of the share capital of NewMatic is held by Mr. Claudio Blandino and Mr. Emilio Armando, who each hold 24.5% of the share capital of NewMatic. Similarly to the above mentioned acquisition of a 70% equity interest in Jolly, this acquisition represents a further step of the vertical integration strategy in the Street Operations segment being pursued by the Group. 4

5 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 ECONOMIC TRENDS The following tables set forth key information relating to the Italian economy trend: For the three months ended 31 March, 30 June, 30 September and 31 December Gross Domestic product I Q 2014 [1] II Q 2014 [1] III Q 2014 [1] IV Q 2014 [1] I Q 2015 [1] II Q 2015 [1] III Q 2015 [1] IV Q 2015 [1] I Q 2016 [1] II Q 2016 [1] -0,5% -0,3% -0,1% 0,0% 0.4% 0.3% 0.2% 0.1% 0.3% 0.0% Six months ended June 30, 2015 [2] 2016 [2] Inflation rate 0.2% -0.4% Unemployment rate -0.2% -0.6% Second quarter s 2016 Italian GDP (with a 0.7% increase vs the same period of last year) confirms, after a long period of recession, the positive evolution started in first quarter The relationship between the Italian GDP trend and the evolution of Gamenet s overall bet level is explained later in this document. (1) Percentage changes versus previous quarter. Source: Istat (2) Percentage changes from same period of last year. Source: Istat 5

6 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 OPERATING INFORMATION The following table sets forth key information for the VLT activities for the six months ended June 30, 2015 and 2016: VLT KPIs Six months ended June 30, Number of VLT licensed awarded 7,805 7,805 Average number of VLTs in operation for the period 6,949 7,473 As a percentage of VLT rights 88.2% 95.3% VLT Bet (in milions) (*) 1,482 1,520 VLT PREU (as percentage of bet) 5.0% 5.5% (*) Bet generated through other Concessionaires excluded from this table As of June 30, 2016, Gamenet Group holds 7,805 licenses, of which 7,473 VLT machines were in operation, equal to 95.3% of available licenses, which basically represents full deployment when considering the machines under maintenance or subject to asset management activities. Total VLT bet increased by 2.5% from 1,482 million for the six months ended June 30, 2015 to 1,520 million for the six months ended June 30, This is mainly due to the increase in the number of average operating VLTs (+7.5%), partly compensated by the decrease in unit bet (-4.6%). It should also be noticed that the 2016 Stability Law increased VLT PREU from 5.0% to 5.5% (eliminating in parallel the share of the 500 million cost introduced by the 2015 Stability Law). The following table sets forth key information for the AWP business for the six months ended June 30, 2015 and 2016: AWP KPIs Six months ended June 30, Number of AWPs in operation as of the period end 29,788 29,278 Average number of AWPs in operation for the period 29,479 28,833 AWP Bet (in milions) (*) 1,059 1,118 AWP PREU (as percentage of bet) 13.0% 17.5% (*)Bet generated through other Concessionaires excluded from this table As of June 2016, on average we operated 28,833 AWPs, with a decrease of 646 machines, or 2.2%, vs the same period of last year. This is due to the lead time required to change the AWP mother boards (so to allow reducing the payout from 74% to 70%). In other words, when the mother board gets changed or re-programmed, the machine is temporarily not operational. Total AWP bet increased by 59 million, or 5.6%, from 1,059 million for the six months ended June 30, 2015 to 1,118 million for the six months ended June 30, 2016, mostly due to the increase in unit bet (+8.0% vs the same period of last year). This increase in unit bet is mostly due to the novelty effect associated with the new games at 70% payout. It should also be noticed that the 2016 Stability Law increased AWP PREU from 13.0% to 17.5% (allowing in parallel, to reduce payout from 74% to 70%). Furthemore, the share 500 millions cost introduced by the 2015 Stability law was also eliminated. 6

7 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 KEY FINANCIAL INDICATORS Below is reported the YoY evolution for the six months ended June 30, 2015 and 2016 of the income statement represented through the use of EBITDA (taking into account reclassifications to certain lines of the consolidated financial statements at June 30, 2015 made for comparative purposes. The effects of the reclassifications are summarized in paragraph Accounting Policy). The details of the evolution of the individual line items are reported in the next paragraphs. For the six months ended June 30, ( in thousands) Revenues 245, ,448 EBITDA (1) 29,913 31,208 Operating Profit 13,143 10,715 Profit (loss) for the period 1,773 (303) (1) EBIDTA is defined as profit for the period plus income tax, net finance income and expenses, impairment of financial assets, depreciation, amortization and impairments. EBITDA is a measure that is not defined by accounting standards. Below is reported the EBITDA calculation. For the six months ended June 30, ( in thousands) Profit (loss) for the period 1,773 (303) Income tax 3,051 2,407 Net finance expenses 8,319 8,081 Depreciation, amortization and impairments 16,770 20,493 Impairment of financial assets 530 EBITDA 29,913 31,208 As of December 31, 2015 As of June 30, 2016 ( in thousands) Net Debt (3) 150, ,744 (3) See Indebtedness for the breakdown of the net debt. It should be noted that Net Debt as of June 30, 2016, amounted to 166,7M, showing a decrease of 0.9M vs the same period of last year (equal to 165.9M). 7

8 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 RESULTS OF OPERATIONS Six months ended June 30, 2016 compared to the six months ended June 30, 2015 Six months ended June, 30 Change 2015 % of revenues 2016 % of revenues (amount) % (In thousands, except percentages) Revenues 243, % 251, % 7, % Other income 2, % 2, % (124) -5.6% Total revenues and income 245, ,448 7, % Cost of services (188,772) -77.5% (191,569) -76.2% (2,797) 1.5% Other operating costs (18,126) -7.4% (19,089) -7.6% (963) 5.3% Personnel expenses (7,462) -3.1% (9,724) -3.9% (2,262) 30.3% Accruals and provisions (1,113) -0.5% (1,081) -0.4% % Purchases of materials, consumables and merchandise (275) -0.1% (777) -0.3% (502) 182.5% Depreciation, amortisation and impairments (16,770) -6.9% (20,493) -8.2% (3,723) 22.2% Operating profit 13, % 10, % (2,428) -18.5% Finance income % % (41) -29.3% Finance expenses (8,459) -3.5% (8,180) -3.3% % Impairment of financial assets - 0.0% (530) -0.2% (530) n/a Profit Before Tax (PBT) 4, % 2, % (2,720) -56.4% Income tax (3,051) -1.3% (2,407) -1.0% % Profit for the period 1, % (303) -0.1% (2,076) % Revenues In order to better understand the trends that affect the various business segments of the Group, the table below summarizes a breakdown of revenues by business segments in the period ended June 30, 2015 and June 30, For the six months ended June 30, Change 2015 % of Total 2016 % of Total (amount) % VLT 99, % 104, % 4, % AWP 109, % 104, % -4, % Betting e online 33, % 35, % 2, % Retail & Street operations 5, % 11, % 6, % Eliminations -3, % -4, % % Total 243, % 251, % 7, % VLT revenues VLT revenues amounted to million for the six months ended June 30, 2016, vs 99.6 million for the same period of last year. The increase in VLT revenues is mostly related to the increase in bet (+2.5%), driven by the increased number of operating machines and partially offset by lower unit bet. On the positive side also the payout reduction (from 88.2% to

9 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 %) as well as the elimination of the 500 million cost introduced by the 2015 Stability law. These positive factors are partially compensated by the PREU increase, from 5.0% in 2015 to 5.5% in AWP revenues AWP revenues amounted to million for the six months ended June 30, 2016, vs million for the six months ended June 30, The reduction in AWP revenues is explained by several factors. On the positive side, the 5.6% bet increase (driven by a strong productivity improvement partially offset by a lower number of average operating machines, whose rationale has already been explained in prior sections of this report). On the positive side also the elimination of the 500 million cost introduced by the 2015 Stability law. These positive factors are more than compensated by the net impact of Preu increase (from 13.0% to 17.5%) and payout reduction (from 74.4% to 73.1%). In other words, while Preu increased effective as of January 1, 2016, payout reduces gradually, since it requires changing or re-programming the mother board of each machine. Betting & Online Revenues Betting and online revenues amounted to 35.2 million for the six months ended June 30, 2016, an increase of 2.0 million or 6.2% versus the same period of the last year, mostly because of the increased number of average operating shops and corners, year on year, as well as because of the effective asset management of the existing licence portfolio. Retail & Street Operations Revenues Retail & Street Operations revenues amounted to 11.4 million for the six months ended June 30, 2016, vs 5.2 million for the six months ended June 30, The YoY growth essentially reflects: the acquisition of a 51% equity interest in Billions Italia srl finalized mid March 2015, further expanding Gamenet presence into the Retail segment; the acquisition of a 100% equity interest in Gnetwork srl, finalized in August 2015, which represents Gamenet s first step into the Street Operations business, in line with the overall vertical integration strategy; as indicated earlier in this report, two Street Operations related acqusitions were finalized in second quarter 2016 (Jolly Videogiochi Srl and New Matic Srl). However, since these acquisitions were finalized on June 15 and June 30 respectively, their contribution to June YTD revenues is limited. Other income Other income amounted to 2.1 million for the six months ended June 30, 2016, in line with the six months ended June 30, Cost of services Cost of services amounted to million for the six months ended June 30, 2016, an increase of 2.8 million, or 1.5%, from million for the six months ended June 30, As a percentage of revenues, costs of services accounted to 76.2% for the six months ended June 30, 2016 versus 77.5% of the six months ended June 30, In particular, cost of services mainly relates to the compensation paid to the distribution network, moving from million as of the end of June 2015, to million as of the end of June This reduction in distribution network costs is mostly connected to the reduction in AWP related revenues. Cost of services also includes betting winnings, amounting to 29.1 million, about 1.1M or 3.8% up vs last year (i.e. less than proportionally compared to bet growth, thanks to a year on year payout reduction; in fact, as a reference, Sport Betting payout reduced from 85.5% in the first six months of 2015 to 82.9% in the same period of 2016) Other cost of service increased from 9.6 million to 11.8 million also because of the consolidation of Billions Italia Srl and Gnetwork Srl. Other operating costs Other operating costs amounted to 19.1 million for the six months ended June 30, 2016, an increase of 1.0 million, or 5.3%, from 18.1 million for the six months ended June 30, Other operating costs mainly include the ADM concessions fee ( 8.5 million), the fee on VLT platform licenses ( 5.5 million), the lease of gaming halls and of the head office ( 1.9 million), betting taxation and other duties ( 1.5 million) and other expenses ( 1.7 million). The year on year increase is primarily a function of increased AWP / VLT bet (+3.8%) driving increased concession fee costs, increased VLT bet (+2.5%) driving increase VLT platform costs, as well as a consequence of Billions Italia / Gnetwork consolidation (driving higher year on year gaming halls lease costs). 9

10 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 Personnel expenses Personnel expenses amounted to 9.7 million for the six months ended June 30, 2016, an increase of 2.3 million from 7.5 million for the six months ended June 30, 2015, mainly due to the impact of Billions Italia Srl s and Gnetwork s consolidation. Accruals and provisions Accruals and provisions amounted to 1.1 million for the six months ended June 30, 2016, in line versus the same period of the last year. Depreciation, amortization and impairments Depreciation, amortisation and impairments amounted to 20.5 million for the six months ended June 30, 2016, reflecting an increase of 3.7 million vs the same period of last year, mainly related to the acquisition and consolidation of Billions Italia and Gnetwork ( 1.1 millions) and to the accelerated depreciation of the expenses related to the Bond issued on 2013 fully redeemed on August 15, 2016 ( 1.9 millions). Operating profit The Operating profit amounted to 10.7 million for the six months ended June 30, 2016, a decrease of 2.4 million, or 18.5%, from the operating profit of 13.1 million for the six months ended June 30, Operating Profit as a percentage of revenues decreased from 5.4% for the six months, ended June 30, 2015 to 4.3% for the six months ended June 30, 2016, because of the same drivers (including depreciation and amortization) which have been already commented earlier. Finance expenses Finance expenses amounted to 8.1 million for the six months ended June 30, 2016, basically in line with the same period of last year. Finance expenses primarily include interests on the 200 million senior secured notes issued on August 1, Impairment of Financial Assets As of year end 2015 Gamenet had a receivable worth 0.5 million against Verve, a non consolidated entity, reclassified in Financial assets. In Q1 2016, this receivable was written-off to support the start up phase of the company. Profit before tax Profit before tax amounted to 2.1 million for the six months ended June 30, 2016, 2.7M down vs the same period of last year. Income tax Income tax amounted to 2.4 million for the six months ended June 30, 2016, a decrease of 0.6 million, or 21.1%, from 3.1 million for the six months ended June 30, Loss for the period As a result of the factors explained above, the loss for the period accounted to 0.3 million, with a decrease of 2.1 million versus the same period of last year. 10

11 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 Information by business activity The following table sets forth business activity information for the periods indicated. Business activity reporting 55,262 61,811 (in thousands) VLT AWP Betting and Online Reatil and S treet Operations Unallocated/Elimination Total giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 BET 1,482,375 1,520,047 1,059,159 1,118,490 38,494 40,047 69, ,168 2,649,747 2,874,752 of wich gaming halls and Street operation 120, ,987 15,428 30,042 Bet 1,482,375 1,520,047 1,059,159 1,118,490 2,541,534 2,638,537 Payout (1,307,423) (1,335,255) (787,911) (818,010) (2,095,334) (2,153,265) GGR 174, , , , , ,272 Tax (preu IU, ecc..) (74,119) (83,603) (137,693) (195,736) (211,812) (279,338) NGR 100, , , , , ,934 Non-bet based revenues 3,405 3, ,515 3,220 Stability Law (4,653) (24,492) (341) (29,486) 0 Gaming reveues 99, , , ,844 33,178 35,223 5,188 11,378 (3,672) (4,391) 243, ,363 Other income ,209 2,085 Total Revenues and Income 100, , , ,268 33,214 35,372 5,595 11,809 (3,129) (4,216) 245, ,448 Distribution costs (55,556) (61,982) (98,452) (92,595) (1,910) (2,116) (771) (464) 3,678 4,436 (153,011) (152,722) Betting retated Winnings (28,027) (29,080) - - (28,027) (29,080) Tax- concession fees - other (4,448) (4,613) (3,225) (3,552) (1,698) (1,678) 10 9 (9,362) (9,835) First level margin 40,518 38,620 7,782 9,121 1,579 2,498 4,824 11, ,262 61,811 Platform & other distribution costs (5,209) (5,599) (651) (668) - 6 (5,860) (6,261) Other direct costs (1,507) (1,619) (112) (188) (294) (477) (2,484) (4,084) 184 (228) (4,214) (6,596) Contribution margin 33,802 31,403 7,670 8, ,353 2,341 7, ,189 48,954 Contribution margin/bet 2.3% 2.1% 0.7% 0.8% 1.6% 3.4% 3.4% 3.7% n.a. n.a. 1.7% 1.7% Contribution margin/total revenues and income 33.6% 29.8% 7.0% 8.5% 1.9% 3.8% 41.8% 61.5% -23.7% -0.1% 18.4% 19.3% Indirect costs (15,387) (17,746) (15,387) (17,746) Depreciation, amortisation and impairments (16,659) (20,493) (16,659) (20,493) Operating profit 13,143 10,715 (*) 136.0M of Bet in 2016 and 136.0M in 2015 exposed in Gaming halls, were referred to Gamenet 13, ,457 Bet associated to Billions Italia and Gnetwork are reclassified into the Gaming halls and Street operations segment In the table below, Gamenet Entertainment related bet has been reclassified from the AWP / VLT segment into the retail and Street Operations segment (with the AWP / VLT segments now basically representing the pure Concessionaire business). This view better reflects the vertical integration strategy being pursued by Gamenet. VLT AWP Betting and Online Reatil and Street Operations Unallocated/Elimination giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 giu-15 giu-16 BET 1,361,815 1,414,060 1,043,731 1,088,448 38,494 40, , , ,649,747 2,874,752 Total VLT The performance of the VLT business for the six months ended as of June 30, 2016 was characterised by an increase in bet (+3.8%), from 1,362 million for the six months ended as of June 30, 2015, to 1,414 million in As already indicated in prior sections of this report, the increase in bet is mainly attributable to the growth in the number of operating VLT, from 6,949 in 2015 to 7,473 in 2016 (average number of VLT in operation for the period), partially offset by a decrease in unit bet. First level margin decreased by 1.9 million or 4.7%, mostly because of Preu increase (only partially compensated by the payout reduction and the elimination of the 500M tax), and higher distribution costs (so to support VLT retailers - a market wide event; it should be noted that this event applies also to the relationship between Gamenet and Gamenet Entertainment, generating an intercompany shift in between the pure Concessionaire and the Retail segments). Contribution margin decreased by 2.4 million (or 7.1%) year on year, i.e. more than proportionally compared to First Level Margin, also because of a mix effect at the VLT platform level (with bet shifting to more expensive providers). AWP The performance of the AWP business for the six months ended as of June 30, 2016, was mainly characterized by an increase of 5.6% in total bet, from 1,044 million for the six months ended as of June , to 1,102 million in the same period of As already commented in prior sections of this report, this increase in bet is primarily related to the higher unit bet 11

12 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 (+7.9%), due to the novelty effect of the new games with 70% payout partially offset by a slight reduction in the number of average operating machines (when the mother bord is changed or re-programmed, to implement the new payout, the machine is temporarly not operational). First level margin increased by 1.3 million (or 17.2%) from 7.8 million for the six months ended as of June 30, 2015, to 9.1 million for the six months ended as of June 30, This is mostly due to the elimination, in 2016, of the 500M tax. In fact, since most of Gamenet AWPs are not directly owned, all the other changes introduced by the 2016 Stability Law in terms of Preu increase (+4.5%) and payout reduction (-4.0%) have no P/L impact for Gamenet. Contribution margin increased by 1.3 million (or 16.5%) from 7.7 million for the six months ended as of June 30, 2015, to 8.9 million for the six months ended as of June 30, Contribution margin evolution follows the same drivers discussed above for First Level Margin. Betting and online Betting and online revenues and income amounted to 35.4 million for 2016, showing an increase of 2.2 million, equal to 6.5%, compared to 33.2 million for the six months ended as of June 30, First level margin amounted to 2.5 million for 2016, an increase of 0.9 million from 1.6 million as of June 2015, mainly due to lower period to period payout ratios (as a reference, Sports Betting payout moved from 85.5% for the six months ended June 30, 2015 to 82.9% for the six months ended June 30, 2016). Because of the same drivers, as of June 2016 contribution margin increased by 0.7 million vs the same period of last year. Retail and Street Operations Revenues and income from Retail and Street Operations segment, amounted to 11.8 million in 2016, showing an increase of 6.2 million, compared to 5.6 million in the six months ended as of June 30, This is mostly due to the acquisition, finalized Mid-March 2015, of a 51% equity interest in Billions Italia S.r.l., as well as to the acquisition of a 100% equity interest in Gnetwork srl consolidated starting from August First level margin increased by 6.5 million compared to last year. Contribution margin,which amounted to 7.3 million for 2016 (i.e. 4.9 million up vs the same period of last year) increased more than proportionally compared to first level margin. This is mainly due to the impact of cost reduction initiatives. Cash Flows The table below provides a summary of our consolidated statement of cash flows for the periods indicated. Six months ended June 30, ( in thousands) Cash flows provided by (used in) operating activities 16,873 20,343 Cash flows provided by (used in) investing activities (5,183) (16,260) Cash flows provided by (used in) financing activities (9,240) (17,535) Total increase / (decrease) in cash and cash equivalents 2,450 (13,452) Cash and cash equivalents at the beginning of the period 32,553 50,071 Cash and cash equivalents at the end of the period 35,003 36,619 Cash flows from operating activities are positive by Euro 20.3M as of the end of 1H The year on year comparison shows a positive evolution of about Euro 3.4M as of the end of 1H Cash flows used in investing activities mainly refer to the following items: Euro 4.8M worth of payment by Gamenet Entertainmnet Srl associated to the acquisition of new gaming halls and the acquisition by Gamenet Spa of new subsidiaries; 12

13 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 Euro 4.4M worth of PPE investments out of which Euro 2.5M refer to the purchase of new AWP, Euro 0.5M refer to the purchase of new VLT and Euro 0.4M refer to the purchase of furniture for gaming halls network; Euro 8.1M worth of investments in intangible assets, mainly related to: Euro 5.3M worth of investments in NOE (nullaosta esercizio) and business development programs, coupled by Euro 1.5M worth of investments in rebranding projects. The financing activity has been impacted by the purchase of own shares by Gamenet S.p.a. ( 0.9M) and by the distribution of distributable reserves to Gamenet s sahreholders ( 16.6M). Capital Expenditure The table below sets forth a breakdown of total capital expenditures incurred by the Group for the six months ended June 30, 2015 and Six months ended June 30, % of total % of total ( in thousands, expect percentages) Plant and machinery (40) -0.7% % Industrial and commercial equipment and hardware 1, % 6, % Other assets % % Assets under construction and payment on account % % Property, plant and equipment 1, % 7, % Intangible assets 3, % 7, % Total capital expenditures 5, % 14, % As also described in notes 5, 6 and 7, the period to period increase mainly refers to the acquisition of a 70% equity interest in Jolly Videogiochi Srl and a 51% in New Matic Srl, consolidated for the first time in the current Financial Statements. Lines affected by the above mentioned increase are Industrial and commercial equipment and hardware and Other assets. As also described in note 5 the period to period increase in Industrial and commercial equipment and hardware also refers to the purchase of AWP devices. Investments in intangible assets also refer to the costs for developing and strengthening the business relationships with key partners, at the cost of about 100 per AWP device, incurred by the concessionaire for the release of operating permits (NOE, nullaosta d esercizio), to the entry fees paid to secure contracts with new gaming halls, to the cost of Gamenet Entertainment s gaming halls rebranding project, the costs associated to the improvements of Billions gaming halls. 13

14 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 Indebtedness (1) The Company s main source of financing, basically relates to senior secured notes, issued on August 1, 2013 for an amount of 200 million and maturity date in 2018; Gamenet pays 7.25% fixed rate interest. The table below provides a breakdown of Indebtedness as of June 30, 2016 and related comparative period; more in detail, Net debt is equal to million as of June 30, 2016 showing an increase of 16.4 million, from million as of December 31, For the drivers in the period to period change in cash at banks, please refer to the Cash Flows section. As a reminder Net Debt as of June 30, 2015, amounted to 165.9M, a year on year reduction of about 0.9M. ( in thousands) As of December As of June 31, , 2016 Cash and cash equivalents Cash at banks 50,071 36,619 Financial assets 5,853 4,588 55,924 41,207 Senior Secured Notes Due to bondholders - capital 200, ,000 Due to bondholders - interest 6,163 6, , ,082 Banks overdrafts - 1,804 Other financial liabilities Total debt 206, ,951 Net debt 150, ,744 (1) Net debt is a Non-GAAP Financial Measure and is calculated as the total consolidated debt of the Company excluding amounts due under the Shareholder Loan and amounts due to other shareholders and net of cash at banks, investments in bonds and financial assets related to restricted cash in connection with concession agreements. Reclassifications were made to certain lines of the consolidated financial statements as of March 31, 2015 for comparison purposes. 14

15 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 (in thousands of Euro) Assets As of December 31, 2015 As of June 30, 2016 Property, plant and equipment note 5 23,806 27,502 Goodwill note 6 31,667 35,438 Intangible assets note 7 97,419 92,465 Investments note Non-current deferred tax assets note 18 10,135 9,555 Non-current financial assets note 9 5,848 3,989 Other non-current receivables note 10 16,955 14,966 Non-current trade receivables note 11 4, Total non-current assets 190, ,675 Current deferred tax assets note 18 2,845 2,270 Inventories Current Trade receivables note 11 46,994 55,172 Current financial assets note Other current receivables note 10 33,305 21,624 Cash at banks note 12 50,071 36,619 Total current assets 133, ,475 Total assets 323, ,150 15

16 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 (in thousands of Euro) Shareholders' Equity As of December 31, 2015 As of June 30, 2016 Share capital 2,520 2,520 Legal reserve Share premium reserve 23,125 12,103 Other reserves 6,185 1,409 Negative reserve (3,974) (4,874) Retairned earnings (losses) (21,378) (15,185) Profit for the period (loss) 7,027 (292) Total shareholders equity attributable to the Group 14,009 (3,815) Equity of minority interest 6,391 7,368 Profit (Loss) for the period attributable to minority interest 321 (11) Total shareholders equity attributable to minority interest 6,712 7,357 Total shareholders' equity 20,721 3,542 Liabilities Non-current financial liabilities note , Employee benefit liability note 16 2,757 3,594 Non-current Deferred tax liabilities note Non-current Provisions for risks and charges note Non-current Tax payable note Other non-current liabilities note 15 18,314 8,717 Total non-current liabilities 223,138 13,632 Current financial liabilities note 13 6, ,927 Current Deferred tax liabilities note Current Provisions for risks and charges note Current Trade payables note 14 13,435 15,680 Current Tax payable note 16 39,599 30,243 Other current liabilities note 15 20,175 29,474 Total current liabilities 80, ,976 Total liabilities 303, ,608 Total liabilities and Shareholders' Equity 323, ,150 16

17 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 (in thousands of Euro) June 30, 2015 June 30, 2016 Revenues note , ,363 Other income 2,209 2,085 Total revenues and income 245, ,448 Cost of services note 21 (188,772) (191,569) Other operating costs note 22 (18,126) (19,089) Personnel expenses note 23 (7,462) (9,724) Accruals and provisions note 24 (1,113) (1,081) Purchases of materials, consumables and merchandise (275) (777) Depreciation, amortisation and impairments note 25 (16,770) (20,493) Operating profit 13,143 10,715 Finance income note Finance expenses note 26 (8,459) (8,180) Impairment of financial assets note 27 - (530) Profit before tax 4,824 2,104 Income tax note 28 (3,051) (2,407) Net income/(loss) for the period 1,773 (303) Attributable to minority interest (6) (11) Attributable to the Group 1,779 (292) 17

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 (in thousands of Euro) Description Share Capital Share Legal Other Total Group Premium Retained Profit (Loss) Reserve Reserve reserves Earnings for the year Equity (Losses) Equity attributable to minority shareholders Profit (Loss) attributable to minority shareholders Total Consolidated Equity Balance as of December 31, , ,125 5,865 (25,551) 4,173 10, ,636 Allocation of the result for the 2014 period ,173 (4,173) Changes Minority shareholders ,391-6,391 Net income for the period ,779 1,779 - (6) 1,773 Balance as of June 30, , ,125 5,865 (21,378) 1,779 12,415 6,391 (6) 18,800 (in thousands of Euro) Description Share Capital Share Legal Other Total Group Premium Retained Profit (Loss) Reserve Reserve reserves Earnings for the year Equity (Losses) Equity attributable to minority shareholders Profit (Loss) attributable to minority shareholders Total Consolidated Equity Balance as of December 31, , ,125 2,211 (21,378) 7,027 14,009 6, ,721 Allocation of the result for the 2015 period ,027 (7,027) - (6,391) (321) (6,712) Changes (11,022) (5,676) (835) - (17,533) - - (17,533) Minority shareholders - Net income for the period ,368 7, (292) (292) - (11) (303) Balance as of Jnune 30, , ,103 (3,465) (15,186) (292) (3,815) 7,368 (11) 3,542 18

19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 STATEMENT OF CASH FLOWS 30/06/ /06/2016 A)Cash flows from operating activities (indirect method) Profit (loss) for the year 1,773 (303) Income tax 3,051 2,407 Interest expense/ (interest income) 8,317 8,081 (Capital gains)/losses arising from disposals of assets Profit (loss) for the year before income tax, interest, dividends and capital gains / losses on disposal 13,141 10,248 Adjustments for non-cash items with no contra-entry in net working capital Accruals to provisions Amortization and depreciation of fixed assets 15,585 19,054 Write-downs for impairment losses 1,115 3,050 Other adjustments for non-cash items (122) 0 Total adjustments for non-cash items 16,923 22, Cash flow before changes in net working capital 30,064 32,790 Changes in net working capital Decrease/(increase) in inventories (2) 27 Decrease/(increase)in receivables from customers (2,059) (5,111) Increase/(decrease) in payables to suppliers 58 (137) Decrease/(increase) in accrued income and prepaid expenses (844) (462) Increase/(decrease) in accrued expenses and deferred income (628) (923) Other changes in net working capital (518) 2,828 Total changes in net working capital (3,994) (3,777) 3. Cash flow after changes in net working capital 26,070 29,013 Other adjustments Interest collected/(paid) -Interest expense paid (8,481) (8,233) -Interest income collected (Income taxes paid) (160) (407) Dividends collected - - (Use of provisions) (687) (119) Total other adjustments (9,196) (8,670) Cash flow from operating activities (A) 16,873 20,343 19

20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND /06/ /06/2016 B) Cash flows from investing activities Property, plant and equipment (Investments) (1,250) (4,369) Realizable value of disinvestments Intangible assets (Investments) (1,938) (8,148) Realizable value of disinvestments Non-current financial assets (Investments) (100) 803 Realizable value of disinvestments 27 3 Acquisition or disposal of subsidiaries or business units, net of cash and cash equivalents (3,112) (4,759) C) Cash flows from financing activities Borrowed capital Cash flow from investing activities (B) (5,183) (16,260) Increase (decrease) in short-term payables to banks (9,205) - Raising of loans - - Repayment of loans (35) (35) Equity Capital increase against payment - - Disposal (purchase) of own shares (900) Dividends (and advances on dividends) paid - (16,600) Cash flow from financing activities (C) (9,240) (17,535) Increase (decrease) in cash and cash equivalents (A+B+C) 2,450 (13,452) Cash and bannks at 1 January 32,553 50,071 Cash and banks at 30 June 35,003 36,619 General information Gamenet SpA (the Company and together with its subsidiaries the Group ) operates in the Italian gaming industry. The Group is a concessionaire for : i) the creation and management of the online network to manage legal public games by AWP and VLT machines, the concession for which has been renewed for nine years on March 20, 2013; ii) land based betting operations through the activation and management of the distribution network and iii) on-line betting operations. Furthermore, Gamenet SpA directly manages through its subsidiary Gamenet Entertainment small-medium size gaming halls, through Billions Italia Srl large size gaming halls and through Gnetwork Srl, Jolly Videogiochi Srl and New Matic Srl direct Awp operations. The registered office of the Company is at Corso d Italia 6, Rome, Italy. 1. Basis of preparation These unaudited interim condensed consolidated financial statements of and for the six months ended June 30, 2016 (the Unaudited Interim Condensed Consolidated Financial Statements ) have been prepared in accordance with OIC 30, Interim financial reporting, which governs interim financial reporting. OIC 30 permits a significantly lower amount of information to be included in interim financial statements from what is required for annual financial statements prepared in accordance with the accounting principles promulgated by O.I.C. Organismo Italiano di Contabilità, the Italian Accountancy Body ( Italian GAAP ). As permitted by Italian GAAP, the income statement and balance sheet have been classified into international format. The Interim Condensed Consolidated Financial Statements are prepared in condensed form and should be read in conjunction with the Company s consolidated financial statements as of and for the year ended December 31, 2015 (the 2015 Consolidated Financial Statements ). The Interim Condensed Consolidated Financial Statements have been prepared taking into consideration Legislative Decree n. 139/2015. Changes introduced mainly affect line non-current Financial assets, for the elimination of Own Shares and line Shareholders Equity, for the addition of the new line Negative reserve (related, 20

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2016 again, to the elimination of the Own Share) and for the elimination of the line Extrordinary income/(expense). Unless otherwise stated, all amounts are disclosed in thousands of Euro. These Unaudited Interim Condensed Consolidated Financial Statements were approved by the Company s Board of Directors on September 27, Change in scope of consolidation In March 2012 we incorporated Gamenet Entertainment Srl, for which we held a 60% shareholding, as part of our strategy to expand our concession based business into the retail segment. Gamenet Entertainment Srl was incorporated to manage small to medium size gaming halls and has been consolidated in our financial statements since August In February 2013 we acquired 10% of Gamenet Entertainment Srl and in April 2013 we acquired the remaining 30% shareholding held by Romagna Giochi Srl. Gamenet Entertainment Srl is therefore now 100% owned by Gamenet SpA. On July 8, 2013 the merger by incorporation of Gamenet Arcades Srl in Gamenet SpA has been finalized by notarial deed. As Gamenet Arcades was hold 100% by Gamenet SpA, no accounting effects has been recognized at consolidated financial statement level. In March 2015 we acquired a 51% equity interest in Billions Italia Srl. Billions Italia manages two large size gaming halls located in Rome and Bologna. This acquisition represents a significant step in our strategy to expand, beyond our pure concessionaire s role, into the retail segment. In July 2015 we acquired a 100% equity interest in Gnetwork Srl, an Awp Operator which manages about 1400 machines. The purchase price for the acquisition was paid by transfering Gamenet s shares. This acquisition represents Gamenet s first step in the Street Operations business, the other key pillar of our vertical integration strategy, together with the expansion into the retail segment. On June 15, 2016, the Company purchased 70% of Jolly Videogiochi. On June 30, 2016, the Company purchased 51% of New Matic. 3. Accounting policy The accounting policies adopted are consistent with those applied in the 2015 Consolidated Financial Statements, that is the law governing the preparation of consolidated financial statements, as interpreted and integrated by the accounting principles established by O.I.C. from time to time updated. Reclassifications were made to certain lines of the consolidated financial statements at June 30, 2015 for comparative purposes. In particular, the effects of the reclassifications are summarized below: Profit & Loss (in thousands of Euro) As of June 30,2015 As of June 30,2016 (reclassified) Changes Revenues 243, ,452 (416) Other Income 2,210 2,209 (1) Purchase of materials, consumables and merchandise (278) (277) 1 Cost of services (188,678) (188,772) (94) Personnel expenses (7.368) (7.462) (94) Depreciation, amortisation and impairments (15,587) (16,770) (1,183) Other operating costs (18,530) (18,126) 404 Finance income Finance expenes (8,458) (8,459) (1) Extrordinary income/(expense) 1,383-1,383 21

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND Information on transactions with related parties The following table shows information relating to transactions with related parties as of December 31, 2015 and June 30, 2016 and for the six months ended June 30, 2015 and As of December 31, 2015 As of June 30, 2016 Non-consolidated subsidiaries: Verve SpA Gamenet Renting Srl Gamenet Formazione Srl Other related entities: Nature of transaction Receivables Payables Receivables Payables Financial Commercial / Financial Commercial / Financial Dgplay Srl Commercial / Financial 1, ,203 1,668 Billions Bologna Commercial / Financial , ,487 1,678 Total 2, ,777 1,815 For the six months ended June 30, 2015 For the six months ended June 30, 2016 Non-consolidated subsidiaries: Verve SpA Gamenet Renting Srl Gamenet Formazione Srl Other related entities: Nature of transaction Revenues Expenses Revenues Expenses Commercial / Financial Commercial / Financial Commercial / Financial Dgplay Srl Commercial / Financial Billions Bologna Commercial / Financial Total