(in thousands of Euro) As of and for the year ended December

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1 Gamenet Group S.p.A. Consolidated Financial Statements Registered office in Corso D Italia ROMA (RM) Share capital Euro fully paid up Fiscal code REA (Rome) registration number DIRECTORS REPORT Dear Shareholders The consolidated financial statements of Gamenet Group S.p.A (hereafter Gamenet Group, the Company or the Parent and together with its subsidiaries and associates the Group or Gamenet Group ) are the first consolidated financial statements prepared by the Group following the acquisition of Intralot Holding & Services S.p.A. (hereafter Intralot ) on June 27, 2016 (hereafter the Acquisition ). Specifically, on March 21, 2016, Trilantic Capital Partners Europe, the controlling shareholder of Gamenet, and Intralot Global Holdings B.V., the controlling shareholder of Intralot, agreed to integrate the Italian operations of the two groups. Following the Acquisition, which took place on June 27, 2016, Trilantic Capital Partners Europe controls around 80% of the Gamenet Group. The new operator is one of the most significant players in the Italian gaming market, with a network of around 750 betting rights, 8,570 VLT rights, 45,700 AWP operating permits and around 660 gaming halls, of which 67 directly managed. The Company was incorporated on June 21, 2016 and therefore, in accordance with the applicable accounting standards, financial information reported in the consolidated financial statements for the period from January 1, 2014 to the Acquisition date relates solely to Gamenet, while information for the period from the Acquisition date to December 31, 2016 also relates to companies in the Intralot Group. For further details regarding the accounting treatment of the Acquisition and the presentation of financial information in the Consolidated Financial Statements, see Note 1. The explanatory Notes to the Consolidated Financial Statements include all the information required by IFRS 1, including details of the impact on the Group s income and financial position of the transition to EU-IFRS. The Acquisition that took place during 2016 further improved the Group s financial position and net financial debt and created the basis for further and more straightforward growth in future years. 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. The year ended December 31, 2016 concluded with very satisfactory economic and operational results for the Gamenet Group. The following table provides details of the main financial and economic indicators, which show continuous improvement during the three-year period (in thousands of Euro) As of and for the year ended December Revenues (*) 537, , ,314 EBITDA (**) 70,206 61,606 60,986 Net profit (loss) for the year (3,018) 7,815 6,724 1

2 Shareholders Equity 65,786 4,472 (8.010) Net financial debt (*) (158,249) (148,103) (171,070) (*) Excluding the effect of the 2015 Stability Law, revenues in 2015 amounted to Euro (**) EBITDA is not defined by IFRS. Such indicators are presented to aid understanding of the Group s financial performance and should not be considered as alternatives to those foreseen by IFRS 1. Macroeconomic context 1 Worldwide economic conditions improved slightly in 2016, although a number of uncertainties continue to weigh on the outlook, relating mainly to the economic policies that will be followed by the new administration in the USA; the fiscal policy measures announced could have an expansionary effect while the imposition and spread of restrictions on trade could have a negative impact. Growth in the Eurozone continued to be moderate, albeit with signs of gradual improvement. The risk of deflation receded, with inflation increasing in December, although at low levels. With a view to maintaining the expansionary monetary conditions necessary to ensure inflation continues on an upward path, the ECB Governing Council has extended its asset purchase programme until the end of December 2017, or beyond, if necessary. From April 2017 purchases will continue at a monthly rate of 60 billion, as in the initial phase of the programme. In Italy, in the final quarter of 2016 gross national product (GNP) increased by 0.2% with respect to the previous quarter and by 1.1% with respect to the same quarter in the previous year. The economic cycle saw an increase in value-added in the industrial and services sectors partly offset by a reduction in the agricultural sector. On the demand side, internal demand increased while overseas demand fell 2. Employment levels stabilized during the third quarter of 2016, with the number of employees on both permanent and fixed term contracts increasing. During the final months of 2016 the unemployment rate rose to around 12%, following a period of relative stability during the previous three quarters. Unemployment rate 12,6 12,4 12,2 12,0 11,8 11,6 11,4 11,2 11,0 10,8 12,3 12,2 11,6 11,7 12,4 12,3 12,1 11,5 11,6 11,5 12,2 11,6 11,7 11,5 11,5 11,5 11,8 11,5 11,8 11,6 12,0 12,0 11,5 11, In December 2016, the national consumer price index (NIC), including tobacco products, increased by 0.4% with respect to the previous month and by 0.5% with respect to December On average, consumer prices fell during 2016 by -0.1%, the first such fall since 1959 (when prices fell by -0.4%) 3. 1 Bank of Italy Economic Bulletin n.1/ Source: Istat, 14 febbraio 2017 IV trimestre 2016, Stima Preliminare del PIL 3 Source: Istat, 16 gennaio 2017 Dicembre 2016, Prezzi al consumo 2

3 The expansion of credit to the non-financial private sector continued with an increase in lending to companies; growth, however, remains modest. The credit quality of Italian banks continues to benefit from the improvement in overall economic conditions and there has been further reduction in credit deterioration. Forecasts for the Italian economy indicate that GNP will grow by around 0.9% in 2017 and by around 1.1% in both 2018 and Gaming sector regulation and the evolution of gaming tax In accordance with Article 43 of the Italian Constitution, a legal reserve regime is applied to public gaming in Italy; indeed, the State retains all rights relating to the organization and operation of public gaming (Article 1 of Legislative Decree no. 496 of April 14, 1948), thereby excluding unregulated initiative by private individuals who, in order to operate legal gaming activities, are required to apply for, and obtain, relevant concessions. The rationale for the State s involvement in the gaming industry is the need to ensure tax revenues at levels compatible with the protection of other relevant public interests, namely, consumer protection and the fight against crime. Regulation of the gaming sector is the responsibility of the Ministry of the Economy and Finance and, specifically, of the Customs and Monopolies Agency, - hereafter ADM - (the Agenzia delle Dogane e dei Monopoli, formerly the Amministrazione Autonoma dei Monopoli dello Stato - as provided for in Presidential Decree no. 33 of January 24, 2002, implementing Article 12 of Law no. 383 of October 18, 2001), which sets guidelines for the rational and dynamic development of the industry and verifies the lawfulness of the operations of concessionaires. Specifically, the ADM, which is the authority with responsibility for the gaming sector, entrusts the operation of gaming activities to entities that it selects through open and non-discriminatory competitive tenders, in accordance with the principles laid down in EU and national rules regarding concessions. The ADM regulates the public gaming sector through ongoing monitoring of the gaming operations of concessionaires and targeted action to combat any irregularities. In addition, it performs a control function in relation to the assessment of the sector specific flat-rate tax - the Prelievo Erariale Unico, which was introduced by Article 39 of Law Decree no. 269 of September 30, 2003, as amended and converted by Law no. 326 of November 24, 2003 (hereafter, the PREU). The PREU due to the ADM is calculated by applying the required percentage rate to the total of bets placed. With regard to the VLT segment - pursuant to Article 110, Paragraph 6.b of the Consolidated Text of Public Safety Laws (TULPS) - 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, set the PREU rate for 2015 at 5.0%. For 2016, the Stability Law no. 208 of December 28, 2015 under Article 1, Paragraph 919, provided for an increase in the PREU rate to 5.5%. With regard to the AWP segment - pursuant to Article 110, Paragraph 6.a. of the TULPS - the 3

4 aforementioned ADM Directorial Decree also provided, with effect from January 1, 2015, for a PREU rate of 13%. For 2016, the Stability Law no. 208 of December 28, 2015 under Article 1, Paragraph 919, provided for an increase in the PREU rate to 17.5%. Furthermore, starting from January 1, 2016, the payout must be no less than 70% (previously 74%). The following table shows the minimum payout levels set, expressed as a percentage of bet, for the AWP and VLT gaming segments for the three-year period , As of and for the year ended December Payout set by ADM AWP 70,0% 74,0% 74,0% VLT 85,0% 85,0% 85,0% It is noted that since VLTs were introduced to the Italian market, concessionaires have made payouts in excess of the minimum legal thresholds. Such policy is aimed at increasing customer loyalty and the creation of a positive gaming experience. To provide an overview of the laws and regulations that have had an impact on recent years and those currently being issued for 2017, it is important to recall that: Law no. 23 of March 11, 2014, known as the Enabling Law, under Article 14 provided for the reorganization of existing provisions governing public gaming, through the issue of a gaming regulations code, without prejudice to the organizational model based on a system of concessions and authorizations. Specifically, the Enabling Law (Article 14, Paragraph 2) contemplated a number of areas for action, including: 1. the application of transparent and uniform rules throughout the country for gaming business licenses, authorizations and controls; 2. ways of making it binding for municipal authorities to take part in the authorization procedure and in planning the locations of outlets; 3. compliance with the State s right to lay down the rules necessary in the interests of public order and safety, ensuring that the regulations already issued at local level are safeguarded, so long as they are consistent with the principles behind the implementing rules; 4. the introduction, even on a gradual basis, of a single license governing the public gaming offering; 5. geographic rationalization of the betting shops network, based on a policy aimed at reducing the numbers of betting shops and concentrating gaming in secure, controlled environments; 6. a review of the regulations governing public security matters, with a view to providing more effective controls over eligibility to hold the single license governing public gaming; 7. a review of the fees and compensation paid to concessionaires and other operators. The delegated powers were not, however, exercised within the stated time limits (Law no. 34 of 2015 converting Decree Law no. 4 of 2015, extended the time limit for the exercise of the abovementioned delegated power to June 27, 2015); 4

5 the provision at point 7 above was partially enacted by the provision in Article 1, Paragraph 649 of the 2015 Stability Law (Law no. 190 of December 23, 2014), which provided for a reduction from 2015, of the public funds available for payments of fees to Concessionaires and other Parties that according to their respective spheres of competence manage gaming machines and collect the related bets referred to in Article 110, Paragraph 6, of the TULPS. Such reduction required the supply chain to pay Euro 500 million to the State on an annual basis, in addition to the amounts already paid in taxes and other levies in accordance with current legislation and the concession agreements. The amount owed by Gamenet SpA and its supply chain totaled Euro 46,692, (ADM Directorial Decree File no. 4076/RU of January 15, 2015); the 2016 Stability Law (Law no. 208 of December 28, 2015) provides as follows: a. Paragraph 920 repeals Paragraph 649 of Article 1 of the 2015 Stability Law, with effect from January 1, 2016; b. Paragraph 922 precludes the issue, with effect from January 1, 2016, of operating permits for AWPs except where these replace operating permits relating to AWPs already in use. Accordingly, this provision, which precludes the issue of new operating permits, except where these substitute existing ones, sets a maximum for the number of operating permits for AWPs in use as at December 31, 2015; c. Paragraph 943 rules that, subsequent to December 31, 2017, authorizations for newslot machines can no longer be issued and envisages a proportional reduction of at least 30% of the authorizations referring to machines active as at 31 July 2015, referable to each concession holder. As from January 1, 2017, authorizations may only be issued for machines that permit remote gaming. However, the Customs and Monopolies Agency (ADM), in File no of December 28, 2016, has clarified that during the process of bringing the new machines (which are not yet regulated) to market, the aforementioned ruling should be taken to mean that, as in 2016, replacement operating permits may be issued up to a date (to be determined), when the new machines are put into use, however, in any case, no later than December 31, d. The Law introduces a significant reduction of advertising space and an increase in the flat-rate tax; e. Paragraph 936 provides that the Joint Conference shall define: a) the characteristics of wager collection points; and b) the criteria for the territorial distribution and concentration of points of sale where public gaming wagers are collected. The objective of such ruling is to guarantee the highest levels of security in order to protect health, public order and player trust and prevent access to minors. On May 5, 2016, the Joint Conference began its review of gaming sector regulations, which is still ongoing. 2.1 The 2015 and 2016 Stability Laws As noted in the previous paragraph, 2015 was mainly characterized by the application and operation of the 2015 Stability Law. In this context, as provided for by the aforementioned law, the ADM issued Directorial Decree file no. 4076/ RU of January 15, 2015, which defined, under Article 2, the 2015 amount due by Gamenet and its supply chain, amounting to 46,692,325.15, to be paid, pursuant to Article 3, in an amount equal to 40% of the full year amount attributable to Gamenet and its network pursuant to Article 2 by April 30, 2015, according to the procedures laid down under Article 17 of Legislative Decree no. 241 of July 9, 1997, as amended, through the form F24-excise duties, to the national budget, chapter no title V named Payments of sums by concessionaires running the gaming machines specified in 5

6 Article 110, Paragraph 6, of the consolidated code referring to royal decree no. 773 of June 18, The residual 60% must be paid by each concessionaire by October 31, 2015 according to the same procedures. The combined provisions of Law no. 190/2014 and Directorial Decree no. 388 of January 15, 2015 (File no. 4076/RU) raised serious doubts regarding their interpretation and this forced the company to take legal action to safeguard its position. The company decided to challenge the aforementioned rules on the assumption that the law now unilaterally imposed a further substantial reduction in concessionaires fees, achieved by requiring a fee of Euro 500 million per year to be shared with the supply chain. The Company and its advisors have been heavily engaged both organizationally and financially in preparing the actions summarized below: on February 9, 2015, the Company filed an application with the Lazio Regional Administrative Court (2nd division, TAR) (General register 2243/2015), challenging ADM Decree no. 388 of January 15, 2015 and Article 1, Paragraph 649, of Law no. 190 of December 23, 2014; the Company requested the annulment of these regulations and, as an interim measure, further requested that their effects be suspended, following the disapplication of the challenged provisions due to non-alignment with the Treaty on the Functioning of the European Union (TFEU) and the European Convention on Human Rights. The Company also requested that the matter be remitted to the Constitutional Court and/or the European Court of Justice for a ruling on the interpretation of the above provisions. During the proceedings, the interim pleas were rejected because the court did not consider that irreparable harm was being caused to the concessionaire. At the end of its preliminary investigation, on October 22, 2015, the Regional Administrative Court, by Order no /2015, suspended its judgment and ordered the case to be submitted to the Constitutional Court. On September 27, 2016, Gamenet filed pleadings with the Constitutional Court to declare the unconstitutionality of Article 1, Paragraph 649, of Law no. 190/2014. The matter is currently pending scheduling of the hearing On September 29, 2015, the Company filed another Appeal with the Lazio Regional Administrative Court, in the form of an application for interim relief pursuant to Article 58 of the Italian Code of Administrative Procedure (2nd Division, TAR) (General register no. 2243/2015), requesting annulment of the second tranche equal to 60% of the amount due. On October 22, 2015, by Order no /2015, the Regional Administrative Court rejected the application to suspend the payment of the second instalment, stating, inter alia, that the applicant has not demonstrated to the full extent that the reduction in its fees pursuant to Article 1, Paragraph 649, of Law no. 190/2014, would have such an effect on its overall financial stability as to put its operations at risk pending a final decision in these proceedings. On October 30, 2015, Gamenet brought an Appeal against this interim ruling with an application for an Interim Presidential Order before the State Council (Consiglio di Stato) (General register no. 9013/2015). Following the hearing held on December 1, 2015, the proceedings ended with the State Council rejecting the Appeal and confirming that the potential constitutional issues identified by the Company were not necessarily unfounded. On October 3, 2015, Gamenet, as a member of the ACADI trade association, filed a complaint with the European Commission in order to trigger the initiation of an infringement procedure based on the clear violation of European Union laws, which constitutes an evident breach of the Italian Republic s obligations; specifically, reference was made to a breach of laws and Articles 49 and 56 of the Treaty on the Functioning of the European Union governing freedom of establishment and provision of services, as well as of Articles 101 to 106 of the Treaty on the Functioning of the European Union governing competition and the breach and erroneous application of Directive 6

7 2014/23/EU on the award of concession contracts. During 2016 and up to the present date, the company has been required to defend itself against actions brought by certain operators and/or trade associations aimed at challenging the 2015 Stability Law and actions taken by concessionaires in compliance with such law. Such actions have required the Company to devote significant efforts to the related proceedings. While the outcome of such actions is not yet known, the likelihood of losing is considered to be remote, following the issue of rejection rulings in relation the counterparts applications. Details of the economic effects of Article 1, Paragraph 649 of the 2015 Stability Law on the various line items of the Group s 2015 income statement are provided in the table in paragraph 4 below on the Group s results. The legislator has clarified certain doubts regarding interpretation with the publication of the 2016 Stability Law (Law no. 208 of December 28, 2015); specifically, Paragraph 920 repeals Paragraph 649 of Article 1 of Law no. 190 of December 23, Accordingly, starting from 2016, the supply chain is no longer required to pay the additional tax of Euro 500 million on an annual basis. Furthermore, Paragraph 921 clarifies the provisions governing fees due to concessionaires and the supply chain. 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/collection using machines 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 supply chain in proportion to its share in the distribution of the fee, on the basis of the related contractual arrangements, having taken into account their duration in As noted in paragraph 2 above, the 2016 Stability Law also regulates taxation on gaming and payout levels. It also introduced an important development regarding the progressive upgrade of AWP gaming technology over future years, which by will have resulted in a total replacement of AWP with new remotely controlled gaming machines. With regard to the Betting and online segment, as a result of the application of Article 1, Paragraph 945, of Law no. 208 of December 28, 2015, effective from 1 January 2016, the flat-rate tax on sports and nonsports fixed-odds betting referred to in Legislative Decree no. 504/98 is applied on the difference between bets made and related payouts; the tax rate is 18% for physical sports betting and 22% for online sports betting. Paragraph 944 of the same law, effective from 1 January 2016, operationalizes the taxing of margins on all online skill games (20%). The margin is the difference between amounts bet and related payouts and the new rule extends to all skill games played in tournament form, which had previously been subject to a 3.0% tax on collections. Among the other changes introduced by the 2016 Stability Law (Paragraph 936) is the provision relating to the definition of rules on the territorial distribution and concentration of public gaming venues. Paragraphs 937 and 938 contain more rigorous rules on advertising, however, their impact on the Gamenet Group s key business sectors is limited. 7

8 3 Italian gaming market and the Group s positioning Total collections in the Italian gaming market amounted to Euro 96 billion in 2016 (+ 8.8% on the previous year). The Gamenet Group is one of the major operators in the gaming market in terms of total bets collected and size of distribution network, with Euro 6.4 billion in bets collected during the year ended December 31, 2016 through our network of approximately 14,700 points of sale. Specifically, at December 31, 2016, the Group s distribution network included [659] gaming halls, of which 67 managed directly as they are owned by the subsidiaries Gamenet Entertainment, Billions Italia, Intralot and Verve. Indeed, since 2012, the Group has followed a strategy of vertical integration in its Gaming halls segment. The Gamenet Group operates in four main operating segments: i) video lottery terminals ( VLTs ), (ii) amusement with prize ( AWPs ), (iii) betting and online businesses ( Betting and Online ) and (iv) direct management of owned VLT gaming halls/awp management and rental ( Retail and Street Operations ). The following table shows the latest available figures relating to the gaming market: in millions, except percentages 2014 (1) 2015 (3) 2016 (3) 2015 vs vs 2015 Bet (2) % of bet Bet (2) % of bet Bet (2) % of bet % % VLT 21, % 22, % 23, % 3.77% 4.12% AWP 25, % 25, % 26, % 2.12% 1.55% Betting 4, % 5, % 7, % 13.38% 34.21% Other games 32, % 34, % 39, % 5.23% 13.16% Total 84, % 88, % 95, % 4.40% 8.81% 1 Source:ADM 2 Bet refers to the total amount of wagers on which gaming taxes are applied 3 Source: Ministero dell'economia e delle Finanze The four operating segments are described below: 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 two VLT platforms, Spielo and Novomatic, which differ in terms 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 10. The percentage of bets paid out as winnings may not be lower than 85%, 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 as a result of the Jackpot mechanism referred to above. Eleven concessionaires have been granted licenses to conduct business in the VLT market. Figures relating to the number of licenses granted show that Gamenet Group is one of the largest operator in the sector, with 14.9% of total licenses. 8

9 In 2016, Gamenet Group collected VLT bets totaling Euro 3,156 million, representing an increase of 4.6% compared to the previous year, when VLT bet collected totaled Euro 3,017 million. AWP AWPs are traditional slot machines that offer players a good level of interaction, through the use of 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% of the amounts bet. New slot machines may not reproduce the game of poker nor, even partially, its basic rules. New slot machines 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, horse racing and sports betting shops and agencies, etc. In 2016, Gamenet Group collected AWP bets totaling Euro 2,460 million, representing an increase of 11.1% compared to the previous year when collections totaled Euro 2,215 million. At December 31, 2016, there were 46,587 operating permits compared with 38,256 at December 31, Betting and Online The sports betting segment collected Euro 7.5 billion in 2016, representing an increase of 34% compared to Online gaming also increased significantly to around Euro 16 billion (+20.8%). Gamenet Group is active in the betting and online games segment through its subsidiaries Gamenet Scommesse and Intralot Italia, both of which offer their customers a wide range of games including, but not limited to: poker, casino games, bingo, horse racing and other sports betting. In 2016, bet collection totaled around Euro million, representing an increase of more than 100% with respect to the previous year when bet collection totaled Euro 72 million. 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, to conduct gaming hall business. Significant efforts have resulted in the Group now directly managing 67 company-owned gaming halls, with bet and numbers of gaming halls both forecast to grow in Bet increased from Euro 233 million in 2015 to Euro 442 million in 2016, representing an increase of 90%. As also indicated under paragraph 6, it should be noted that, after reclassifing bet generated in company owned gaming halls (through machines connected to the Gamenet Concessionaire) in 2016 the Retail and Street Operations segment generated about Euro 759 million worth of bet. In recent years, Gamenet Group has invested in its vertical integration strategy through: the acquisition in March 2015 of 51% of Billions Italia Srl (which opened a further two halls during 2016); the acquisition through Gamenet Entertainment of 100% of Gamecity S.r.l. in August 2016; and the start, during 2016, of the operations of the hall managed by Verve S.p.A. (51% owned), all initiatives with a specific focus on large gaming halls. the acquisition of 100% of Gnetwork Srl in August 2015 and the acquisition of 70% of Jolly Videogiochi S.r.l. and 51% NewMatic S.r.l. in June 2016, all aimed at developing the Group s position in the management and gaming machine (AWP) hire business 9

10 the acquisition in July 2016 of 60% of Agesoft S.r.l., a company specialized in the development of software for the AWP business. 4 Review of Gamenet Group results The following table shows the income statements for the years ended December 31, 2016, 2015 and It is noted that all 2016-related income statement figures and business data (collections, payout, number of points of sale, rights etc.) in this report relating to Gamenet Group consolidated companies with a Gamenet background refer to a 12-month period. On the other hand, the income statement figures and business data relating to consolidated companies coming of the Intralot Group refer solely to the period from July December As of and for the year ended December 31 Delta Delta % of % of % of (in thousands of Euro) revenues (1) / /2014 revenues revenues Revenues 537, % 473, % 502, % 64,040 (28,859) Other income 3, % 2, % 2, % Total revenues and income 541, % 475, % 504, % 65,038 (28,660) Cost of services (445,090) (82.8%) (393,782) (83.2%) (425,651) (84.7%) (51,308) 31,869 Personnel expenses (24,742) (4.6%) (16,789) (3.5%) (13,647) (2.7%) (7,953) (3,142) Other operating costs (3,944) (0.7%) (4,414) (0.9%) (5,190) (1.0%) (470) 776 Depreciation, amortization and impairments (32,536) (6.1%) (22,670) (4.8%) (21,492) (4.3%) (9,866) (1,047) Accruals and impairments (3,151) (0.6%) (2,529) (0.5%) (3,594) (0.7%) (622) 1,065 Finance income % % % (237) (281) Finance expenses (25,743) (5%) (20,060) (4.2%) (18,865) (3.8%) (5,683) (1,195) Share of profit of equity accounted investments - 0.0% (61) 0.0% (49) 0.0% 61 (12) Impairment of financial assets (57) 0.0% - 0.0% (782) (0.2%) (57) 782 Profit before tax 5, % 16, % 16, % (10,157) 155 Income tax expense (8,946) (1.7%) (8,270) (1.7%) (9,337) (1.9%) (676) 1,067 Net profit (loss) for the year (3,018) (0.6%) 7, % 6, % (10,833) 1,091 Net profit (loss) for the year attributable to minority interests Net profit (loss) for the year attributable to the owners of the parent Revenues (888) (0.2%) % - 0.0% (1,759) 871 (2,130) (0.4%) 6, % 6, % (9,074) 220 The following table provides a breakdown of revenues by operating segment for the years ended December 31, 2016, 2015 and

11 2016 % of revenues For the year ended December 31, 2015 % of revenues 2014 (in thousands, except percentages) % of revenues Change 2016 vs 2015 % 2015 vs 2014 % VLT 213, % 206, % 207, % 7, % (1,657) (0.8%) AWP 267, % 250, % 287, % 16, % (36,764) (12.8%) Betting and Online 37, % 8, % 6, % 29,590 >100% 1, % Retail and Street Operations 28, % 16, % 8, % 11, % 7, % Unallocated/Elimination (9,234) (1.7%) (7,746) (1.6%) (7,761) (1.5%) (1,488) 19.2% 15 (0.2%) Total 537, % 473, % 502, % 64, % (28,859) (5.7%) VLT, net of Stability Law effect 213, % 215, % 207, % (1,663) (0.8%) 7, % AWP, net of Stability Law effect 267, % 288, % 287, % (21,074) (7.3%) 1, % Betting and Online 37, % 8, % 6, % 29,590 >100% 1, % Retail and Street Operations, net of Stability Law effect 28, % 17, % 8, % 11, % 8, % Unallocated/Elimination (9,234) (1.7%) (7,746) (1.5%) (7,761) (1.5%) (1,488) 19.2% 15 (0.2%) Total, net of Stability Law effect 537, % 521, % 502, % 16, % 18, % 2016 vs 2015 Revenues for the year ended December 31, 2016 totaled Euro million, an increase of Euro 16.4 million (+3.2%) with respect to Euro million for the year ended December 31, 2015, (excluding the impact of the 2015 Stability Law). The increase was mainly due to: the growth of the Betting and Online segment (> 100%) that took on significant relevance following the merger with Intralot (for which this is the main business line); the development of the Retail and Street Operations segment (+64.3%), explained also by recognition of a full year of activities for Billions and GNetwork, which were acquired in March and August 2015 respectively, and the acquisition of Jolly Videogiochi S.r.l., NewMatic S.r.l. and Gamecity S.r.l vs 2014 Revenues for the year ended December 31, 2015 totaled Euro million, a decrease of Euro 28.9 million (-5.7%) with respect to Euro million for the year ended December 31, Excluding the impact of the 2015 Stability Law on the Gamenet Group (and therefore on the subsidiaries Gamenet Entertainment, Billions Italia and Gnetwork amounting to Euro 47.6 million), revenues totaled Euro million, an increase of Euro 18.7 million (+3.7%) with respect to Euro million for the year ended December 31, The increase related to all the operating segments, especially the Retail and Street Operations segment, and is explained by optimization of the network and the effect of the aforementioned acquisitions during VLT As at December 31, 2016 the Gamenet Group held 8,750 licenses (7,805 at both December 31, 2015 and 2014). During 2016, Gamenet increased the 7,805 licenses held at the start of the year by adding a further 765 rights acquired from IGM following the merger between Gamenet and Intralot (of which 382 were acquired after the merger). The average number of operating machines in 2016 was 8,243 (7,606 in 2015 and 7,420 in 2014), representing an increase of 8.4% with respect the prior year (the average number for 2015 was 2.5% higher than that for 2014). 11

12 The following table provides details of the main indicators relating to the VLT segment Number of VLT licenses awarded as of December 31 8,570 7,805 7,805 Average number of VLTs in operation for the year 8,243 7,606 7,420 Percentage of active VLTs over total VLTs 96.2% 97.5% 95.1% VLT total bet (in millions) 3,156 3,017 3,008 VLT PREU (as a percentage of total bet) 5,5% 5.0% 5.0% (1) The figure does not include bets generated by the Retail segment in the Isola del tesoro, Gamecity and Billions (Rome and Bologna) gaming halls relating to other concessionaires, amounting to Euro million vs 2015 VLT revenues amounted to Euro million for the year ended December 31, 2016, a decrease of Euro 1.7 million (-0.8%) with respect to Euro million for the year ended December 31, 2015 (excluding the impact of the 2015 Stability Law). The decrease was mainly due to the increase (from 5% to 5.5%) in the PREU flat-rate tax, partially offset by an increase of 4.6% in bet, relating to the higher average number of operating VLTs vs 2014 VLT revenues amounted to Euro million for the year ended December 31, 2015, a decrease of Euro 1.7 million (-0.8%) with respect to Euro million for the year ended December 31, Excluding the impact of the 2015 Stability Law (equal to Euro 8.9 million), VLT revenues amounted to Euro million for the year ended December 31, 2015, representing an increase of Euro 7.3 million (+3.5%) with respect to Euro million for the year ended December 31, Such increase was mainly due to the higher average number of operating VLTs. AWP 2016 vs 2015 AWP revenues amounted to Euro million for the year ended December 31, 2016, a decrease of Euro 21.1 million (-7.3%) with respect to Euro million for the year ended December 31, 2015 (excluding the impact of the 2015 Stability Law). The decrease in AWP revenues was due to the increase (from 13% to 17.5%) in the PREU flat-rate tax, partially offset by the reduction (from 74% to 70%) in payout, which, however, took several months to implement across all the AWP machines held. Net of the increase in the PREU and the decrease in payout rate, AWP revenues for the year ended December 31, 2016 would have amounted to Euro million (+11.1%, excluding the impact of the 2015 Stability Law) vs 2014 AWP revenues amounted to Euro million for the year ended December 31, 2015, a decrease of Euro 36.8 million (-12.8%) with respect to Euro million for the year ended December 31, Excluding the impact of the 2015 Stability Law (equal to Euro 37.8 million), AWP revenues amounted to Euro million for the year ended December 31, 2015, representing an increase of Euro 1.0 million (+0.4%) with respect to Euro million for the year ended December 31, It is noted that the number of machines held at the year-end was 5.5% higher than the number held at the previous year end, while the average number held during the year decreased by 9.5% due mainly to market phenomena related to the introduction of the 2015 Stability Law. 12

13 The following table provides details of the main indicators relating to the AWP segment Number of AWPs in operation as of December 31 39,281 30,158 28,576 Average number of AWPs in operation for the year 33,741 29,674 32,784 AWP total bet (in millions) 2,460 2,215 2,203 AWP PREU (as a percentage of bet) 17.5% 13.0% 12.7% (1) The figure does not include bets generated by the Retail segment in the Isola del tesoro, Billions, GNetwork, Gamecity, NewMatic and Jolly relating to other concessionaires, amounting to Euro million. Betting and online 2016 vs 2015 Total bets for the year ended December 31, 2016 represented an increase of more than 100% with respect to the previous year, mainly due to the introduction of the Intralot platform and related broadening of the offering following the merger with Intralot. Bet amounted to Euro million in 2016 as compared to Euro 71.8 million in the previous year. It should be noted, as explained in paragraph 4 above, that all figures relating to the consolidated companies of the Intralot Group solely refer to the period from July December Specifically, bet in the physical Betting segment increased from Euro 60.1 million in 2015 to Euro million in 2016 and bet in the online Betting segment increased from Euro 11.6 million to Euro 98.5 million. Total Betting and online revenues amounted to Euro 37.8 million for the year ended December 31, 2016, an increase of Euro 29.6 million (more than 100%) with respect to Euro 8.3 million for the year ended December 31, vs 2014 Total bet in 2015 was 31% higher than in 2014, with bet up to Euro 71.8 million in 2015 from Euro 54.9 million in the previous year. Betting and online revenues amounted to Euro 8.3 million for the year ended December 31, 2015, an increase of Euro 1.6 million (+24.3%) with respect to the equivalent total of Euro 6.6 million for the year ended December 31, The increase was mainly due to the higher number of active points of sale in 2015 with respect to 2014 (during which the 81 licenses issued under the new betting tender were rolled out). The following table provides details of the key indicators relating to the Betting and online segment for the years under review Number of licenses/concessions (1) Number of active points of sale as of December 31 (shops and corner) (2) Average number of active points of sale (shops and corner) Total physical bet (in millions) Average bet per point of sale (in millions) Total online bet (1) Does not include the 58 licenses related to horse racing bet (2) 2016 data includes companies within Intralot Group included in the scope of consolidation of Gamenet Group for the period from July to December 13

14 Retail and Street Operations 2016 vs 2015 Bet in the Retail and Street Operations segment amounted to Euro million for the year ended December 31, 2016, an increase of 90% with respect to Euro 233 million in As also indicated under paragraph 6, it should be noted that, after reclassifing bet generated in company owned gaming halls (through machines connected to the Gamenet Concessionaire) in 2016 the Retail and Street Operations segment generated about Euro 759 million worth of bet. Revenues from Retail and Street Operations amounted to Euro 28.2 million for the year ended December 31, 2016, an increase of Euro 11.0 million (+64.7%) with respect to Euro 17.1 million for the year ended December 31, 2015 (excluding the impact of the 2015 Stability Law). The increase is mainly related to the subsidiaries Billions and Gnetwork, which were acquired in March and August 2015 respectively and operated for a full year in 2016, and the acquisition of Jolly Videogiochi S.r.l., NewMatic S.r.l. and Gamecity S.r.l. (the last of which acquired through Gamenet Entertainment) vs 2014 Bet amounted to Euro 233 million. Revenues from Retail and Street Operations amounted to Euro 16.2 million for the year ended December 31, 2015, an increase of Euro 7.9 million (+95.8%) with respect to Euro 8.3 million for the year ended December 31, Excluding the impact of the 2015 Stability Law (equal to Euro 8.9 million), year on year growth was equal to Euro 8.8 million (+106.8%) and due mainly to: the acquisition of 51% of Billions Italia Srl, aimed at strengthening the Group s position in the retail segment; and the acquisition of 100% of Gnetwork Srl, which represented the Group s first step in developing the street operations business. Other revenues 2016 vs 2015 Other income amounted to Euro 3.5 million for the year ended December 31, 2016, an increase of Euro 1.0 million with respect to Euro 2.5 million for the year ended December 31, Other income for the main part comprised: income from customer charge-out penalties (Euro 1.1 million in the year ended December 31, 2016 and Euro 1.5 million in the year ended December 31, 2015); and other income amounting to Euro 2.3 million (Euro 1.0 million for the year ended December 31, 2015). The increase in other income was mainly due to the release of provisions for risks and charges made in previous years, based on up to date information regarding the matters in question vs 2014 Other income amounted to Euro 2.5 million for the year ended December 31, 2015, broadly in line with the equivalent total of Euro 2.3 million for the year ended December 31, Other income for the main part comprised: income from customer charge-out penalties (Euro 1.5 million in the year ended December 31, 2015 and Euro 0.9 million in the year ended December 31, 2014); and other income amounting to Euro 1.0 million (Euro 1.2 million for the year ended December 31, 2014). Cost of services 2016 vs 2015 Cost of services amounted to Euro million for the year ended December 31, 2016, an increase of Euro 51.3 million (+13.0%) with respect to Euro million for the year ended December 31,

15 Cost of services related mainly to compensation paid to the distribution network, which amounted to Euro million for the year ended December 31, 2016, an increase of Euro 35.5 million (+10.3%) with respect to Euro million for the year ended December 31, Cost of services also included concession fees (Euro 18.4 million), the cost of VLT licenses (Euro 11.7 million) and hall rental charges (Euro 4.7 million) as well as costs relating to technical assistance, network management and data transmission, totaling Euro 6.0 million vs 2014 Cost of services amounted to Euro million for the year ended December 31, 2015, a decrease of Euro 31.9 million (-7.5%) with respect to Euro million for the year ended December 31, Cost of services related mainly to compensation paid to the distribution network, which amounted to Euro million for the year ended December 31, 2015, a decrease of Euro 35.5 million (-9.3%) with respect to Euro million for the year ended December 31, Cost of services also included concession fees (Euro 16.2 million), the cost of VLT licenses (Euro 9.7 million) and hall rental charges (Euro 2.6 million) as well as costs relating to technical assistance, network management and data transmission, totaling Euro 4.0 million. Personnel expenses 2016 vs 2015 Personnel expenses amounted to Euro 24.7 million for the year ended December 31, 2016, an increase of Euro 7.9 million (+47.0%) with respect to Euro 16.8 million for the previous year. The increase mainly reflected the increase in the average workforce during 2016 resulting from the acquisition of the Italian business of the Intralot Group, the acquisitions in 2015 of Billions Italia Srl and Gnetwork Srl, which were therefore part of the Group throughout 2016, and other new acquisitions in vs 2014 Personnel expenses amounted to Euro 16.8 million for the year ended December 31, 2015, an increase of Euro 3.2 million (+23.5%) with respect to Euro 13.6 million for the year ended December 31, The increase related for the main part to the aforementioned acquisitions in 2015 of Billions Italia Srl and Gnetwork Srl. Other operating costs 2016 vs 2015 Other operating costs amounted to Euro 3.9 million for the year ended December 31, 2016 and in large part related to the purchase of consumables for gaming halls amounting to Euro 1.7 million. Such costs decreased by Euro 0.5 million, from Euro 4.4 million for the year ended December 31, vs 2014 Other operating costs amounted to Euro 4.4 million for the year ended December 31, 2015, a decrease of Euro 0.8 million with respect to the equivalent total of Euro 5.2 million for the year ended December 31,

16 Depreciation, amortization and impairments 2016 vs 2015 Depreciation, amortization and impairments amounted to Euro 32.5 million for the year ended December 31, 2016, an increase of Euro 9.8 million (+43.2%) with respect to the equivalent total of Euro 22.7 million for the year ended December 31, The increase mainly related to Gamenet S.p.A. s accelerated amortization of the residual value of the transaction costs related to the bond loan stipulated in 2013 (following reimbursement of the loan in August 2016 ahead of its scheduled maturity date in August 2018, as noted under significant events) and factors related to the acquisition of the Italian business of the Intralot Group vs 2014 Depreciation, amortization and impairments amounted to Euro 22.7 million for the year ended December 31, 2015, an increase of Euro 1.2 million (+5.6%) with respect to the equivalent total of Euro 21.5 million for the year ended December 31, The increase related for the main part to the acquisition and inclusion in the scope of contribution of Billions Italia and Gnetwork. Accruals and impairments 2016 vs 2015 Accruals and impairments amounted to Euro 3.2 million for the year ended December 31, 2016, an increase of Euro 0.7 million (+28.0%) with respect to Euro 2.5 million for the previous year; the item related mainly to the impairment of receivables vs 2014 Accruals and impairments amounted to Euro 2.5 million for the year ended December 31, 2015, a decrease of Euro 1.1 million (-29.6%) with respect to Euro 3.6 million for the previous year; the item related mainly to the impairment of receivables. Net finance income/expenses 2016 vs 2015 Net finance expenses amounted to Euro 25.5 million for the year ended December 31, 2016, an increase of Euro 5.8 million (+29.4%) with respect to Euro 19.7 million for the previous year. In 2016, the item comprised finance income amounting to Euro 0.2 million (a decrease of Euro 0.2 million with respect to the Euro 0.4 million recorded in 2015) and finance expenses amounting to Euro 25.7 million (an increase of Euro 5.7 million with respect to the Euro 20.1 million recorded in 2015). The increase was mainly due to finance expenses of Euro 3.6 million incurred by Gamenet S.p.A.in relation to the early repayment of the Euro 200 million bond loan stipulated in vs 2014 Net finance expenses amounted to Euro 19.7 million for the year ended December 31, 2015, an increase of Euro 1.5 million (+8.3%) with respect to Euro 18.1 million for the previous year. In 2015, the item comprised finance income amounting to Euro 0.4 million (a decrease of Euro 0.3 million with respect to the Euro 0.7 million recorded in 2014) and finance expenses amounting to Euro 20.1 million (an increase of Euro 1.2 million with respect to the Euro 18.9 million recorded in 2014). The item relates mainly to the interest on loans and the bonds issued on August 1,

17 Share of profit(loss) of equity accounted investments 2016 vs 2015 Share of profit/(loss) of equity accounted investments (Verve S.p.A.) amounted to zero for the year ended December 31, 2016, a decrease of Euro 0.1 million with respect to a loss of Euro 0.1 million recorded for the previous year vs 2014 Share of loss of equity accounted investments amounted to Euro 0.1 million for the year ended December 31, 2015, compared to nil for the previous year Impairment of financial assets 2016 vs 2015 Impairment of financial assets amounted to Euro 0.1 million for the year ended December 31, 2016 compared to nil for the previous year vs 2014 Impairment of financial assets amounted to Euro 0.8 million for the year ended December 31, 2014, relating to impairment of the investment in CRIGA S.c.ar.l. Impairment of financial assets was nil for the year ended December 31, Profit before tax 2016 vs 2015 Profit before tax amounted to Euro 5.9 million for the year ended December 31, 2016, a decrease of Euro 10.2 million with respect to Euro 16.1 million for the previous year. The decrease was mainly due the redemption costs from the early settlement of the 2013 bond (Euro 3.6 million), the accelerated amortization of the transaction costs related to such bond (Euro 3.5 million) and the combined impact of the increase in the PREU tax-rate and the gradual reduction in AWP payouts, Euro 0.8 million relating to the profit before tax of the Intralot group entities, Euro 1.9 million relating to the year or year reduction of Billions Italia related to the start up phase of two new large gaming halls vs 2014 Profit before tax amounted to Euro 16.1 million for the year ended December 31, 2015, in line with the previous year. Income tax expense 2016 vs 2015 Income tax expense amounted to Euro 8.9 million for the year ended December 31, 2016, an increase with respect to Euro 8.3 million for the year ended December 31, vs 2014 Income tax expense amounted to Euro 8.3 million for the year ended December 31, 2015, a decrease with respect to Euro 9.3 million for the year ended December 31, Net profit (loss) for the year 17

18 2016 vs 2015 Net loss for the year ended December 31, 2016 amounted to Euro 3.0 million, an increase of Euro 10.8 million with respect to the net profit of Euro 7.8 million recorded for the year ended December 31, vs 2014 Net profit for the year ended December 31, 2015 was Euro 7.8 million, an increase of Euro 1.1 million with respect to the net profit of Euro 6.7 million for the year ended December 31,

19 5 Review of Gamenet Group results EBITDA As of and for the year ended December 31 (in thousands of Euro) Net profit (loss) for the year (3,018) 7,815 6,724 Income tax expense 8,946 8,270 9,337 Finance income (186) (423) (704) Finance expenses 25,743 20,060 18,865 Share of (profit)/loss of equity accounted investments Impairment of financial assets Depreciation, amortization and impairments 32,536 22,670 21,492 Non-monetary costs (reclassification to profit or loss of multiannual prepayments) 5,265 2,229 1,875 Acquisition related transaction costs Expenses on corporate restructuring and redundancy ,771 VLT fault reporting Anomaly flat rate tax EBITDA 70,206 61,606 60,986 As a result of the IFRS transition, the definition of EBITDA has been changed as follows: EBITDA is defined as net profit (or loss) for the year adjusted for: (i) Income tax expense; (ii) Finance expenses; (iii) Finance income; (iv) Share of profit/(loss) of equity accounted investments (v) Impairment of financial assets; (vi) Depreciation, amortization and impairments; (v) Reclassification to profit or loss of multiannual prepayments; (v) Non-recurring income and expenses. 19

20 6 Review of Gamenet Group results by operating segment The following table shows information relating to income statement items by operating segment for the periods indicated. (in Euro thousands, except percentages) VLT AWP Betting and Online Retail and Street Operations Unallocated/Elimination Total 12/14 12/15 12/16 12/14 12/15 12/16 12/14 12/15 12/16 12/14 12/15 12/16 12/14 12/15 12/16 12/14 12/15 12/16 BET(*) 3,008,298 3,017,203 3,156,089 2,202,916 2,214,711 2,460,281 54,906 71, , , ,792-5,266,120 5,536,697 6,412,802 of which related to Retail and Street Operations 227, , ,993 25,991 40,510 80,054 Bet 3,008,298 3,017,203 3,156,089 2,202,916 2,214,711 2,460, ,211,214 5,231,914 5,616,369 Payout (2,654,090) (2,656,058) (2,772,824) (1,638,255) (1,638,548) (1,762,518) (4,292,345) (4,294,606) (4,535,342) GGR 354, , , , , , , ,308 1,081,027 Taxes (PREU, IU, etc.) (150,415) (150,861) (173,586) (279,770) (287,912) (430,736) (430,185) (438,773) (604,321) NGR 203, , , , , , , , ,706 Non-bet based revenues 4,014 4,788 3,730 2, ,479 4,898 3,990 Stability Law 2015 (8,922) (37,771) (911) - (47,604) - Revenues 207, , , , , ,287 6,636 8,252 37,842 8,276 16,208 28,191 (7,761) (7,746) (9,234) 502, , ,495 Other income , ,429 2,313 2,512 3,510 Total revenues and income 207, , , , , ,077 6,740 8,379 38,122 8,484 17,075 28,936 (6,867) (7,463) (7,805) 504, , ,005 Third parties distribution costs (113,772) (117,041) (125,468) (259,665) (228,053) (237,851) (2,743) (3,750) (20,500) (1,172) (1,062) (986) 7,632 7,542 7,455 (369,721) (342,364) (377,350) Betting related winnings Taxes-concession fee-other (9,032) (9,052) (9,532) (6,609) (6,644) (7,910) (949) (879) (1,985) (16,574) (16,569) (19,411) First Level margin 85,013 80,664 78,675 22,180 16,522 22,316 3,047 3,749 15,637 7,311 16,013 27, (334) 118, , ,244 Other distribution and platform costs (14,986) (10,974) (11,862) (543) (1,240) (1,450) (15,529) (12,213) (13,261) Other direct costs (3,396) (3,735) (3,126) (2,882) (2,483) (3,549) (767) (546) (1,892) (5,917) (6,201) (9,060) (850) (428) (801) (13,812) (13,393) (18,428) Contribution margin 66,631 65,955 63,687 19,299 14,039 18,767 1,737 1,964 12,295 1,394 9,813 18,890 (69) (343) (1,084) 88,993 91, ,555 Contribution margin/bet 2.2% 2.2% 2.0% 0.9% 0.6% 0.8% 3.2% 2.7% 3.5% n.a 4.2% 4.3% n.a n.a n.a 1.7% 1.7% 1.8% Contribution margin/total revenues and income 32.1% 31.9% 29.8% 6.7% 5.6% 7.0% 25.8% 23.4% 32.3% 16.4% 57.5% 65.3% 1.0% 4.6% 13.9% 17.6% 19.2% 20.8% Non-monetary adjustments ,804 2,000 3, ,879 2,671 2,229 4,942 Contribution margin adjusted 67,427 65,955 63,687 21,103 16,039 21,830 1,737 1,964 12,295 1,394 9,813 18,890 2 (114) ,664 93, ,497 Indirect costs (32,448) (32,975) (48,477) Depreciation, amortization and impairments (21,492) (22,670) (32,536) Operating profit 35,053 35,783 31,542 Finance income Finance expenses (18,865) (20,060) (25,743) Costs related to valuation of investments (49) (61) - Impairment of financial assets (782) - (57) Profit before tax 16,061 16,085 5,928 Income tax (9,337) (8,270) (8,947) Profit for the year 6,724 7,815 (3,019) 20

21 In the following table, bet relating to owned gaming halls linked to the Gamenet concessionaire are reclassified from AWP/VLT to the Retail and Street Operations segment; accordingly, AWP/VLT relates to the pure business of the concessionaire. (in thousands, except percentages) Bet 31/12/ /12/ /12/2016 VLT 2,781,207 2,779,951 2,919,095 AWP 2,176,925 2,174,201 2,380,226 Betting and Online 54,906 71, ,640 Retail and Street Operations 253, , ,840 Unallocated/Elimination Total 5,266,120 5,536,697 6,412,802 VLT 2016 vs 2015 The VLT segment recorded an increase in bet, from Euro 3,017 million for the year ended December 31, 2015 to Euro 3,156 million in 2016, mainly due to the increase (+8.4%) in the average number of operating VLTs. Revenues are discussed above in the relevant section of this report. Distribution costs increased from Euro million in 2015 to Euro million in Distribution costs were broadly in line with the previous year, accounting for around 4% of collections. The contribution margin in 2016 was Euro 63.7 million, a decrease of Euro 2.3 million (-3.5%) with respect to Euro 66.0 million in the year ended December 31, The decrease was mainly due to the increase of PREU rate (+0.5%) vs 2014 Bet increased slightly, from Euro 3,008 million for the year ended December 31, 2014 to Euro 3,017 million in 2015, mainly due to the increase in the average number of operating VLTs. Distribution costs increased from Euro million in 2014 to Euro million in Distribution costs as a percentage of bet are substantially flat versus prior year, at about 4% of the bet. The contribution margin in 2015 was Euro 66.0 million, a decrease of Euro 0.6 million (-0.9%) with respect to Euro 66.6 million in the year ended December 31, AWP 2016 vs 2015 The AWP segment recorded an increase in bet, from Euro 2,215 million for the year ended December 31, 2015 to Euro 2,460 million in Revenues are discussed above in the relevant section of this report. Distribution costs increased from Euro million in 2015 to Euro million in Distribution costs expressed as a percentage of bets decreased by 0.6% with respect to the previous year. The contribution margin was Euro 18.8 million in 2016, an increase of Euro 4.8 million (+34.3%) with respect to Euro 14.0 million in 2015, mainly due to the acquisition of the Italian operations of the Intralot group and to absence of the 2015 Stability Law. 21

22 2015 vs 2014 The AWP segment recorded a slight increase in bet, from Euro 2,203 million for the year ended December 31, 2014 to Euro 2,215 million in 2015, mainly due to an 11.1% increase in the unit bet, which offset the decrease in the number of machines in operation (both phenomena linked to introduction of the 2015 Stability Law and common across the market). Distribution costs decreased from Euro million in 2014 to Euro million in Distribution costs as a percentage of total bet decreased slightly with respect to the previous year (+0.2%). The contribution margin was Euro 14.0 million in 2015, a decrease of Euro 4.8 million (-24.9%) with respect to the previous year (Euro 19.3 million in 2014). Such decrease was due to the combined effect of the increase in unit distribution costs (a phenomenon common across the market), the absence of nonrecurring revenues and to the impact of the 2015 Stability Law. Betting and online 2016 vs 2015 The Betting and online segment recorded an increase of more than 100% in bet, up from Euro 71.8 million in 2015 to Euro million in Total revenues and other income in the Betting and online segment amounted to Euro 38.1 million for the year ended December 31, 2016, an increase of Euro 29.7 million (more than 100%) with respect to Euro 8.4 million for the year ended December 31, The contribution margin in 2016 was Euro 12.3 million, a significant increase with respect to the Euro 2 million generated in 2015, mainly due to the merger with Intralot 2015 vs 2014 Total revenues and other income in the Betting and online segment amounted to Euro 8.4 million for the year ended December 31, 2015, an increase of Euro 1.6 million (+24.3%) with respect to Euro 6.7 million for the year ended December 31, The contribution margin in 2015 was Euro 2 million, a slight increase with respect to 2014 (notwithstanding the increased collections) due to the increase in payout (a phenomenon common across the market). Retail and Street Operations 2016 vs 2015 Bet (made by other concessionaires) in the Retail and Street Operations segment in 2016 amounted to Euro million, an increase of more than 90% with respect to the equivalent figure for collections in 2015, which totaled Euro 233 million. Total bet in the segment (Gamenet Group and other concessionaires) amounted to Euro million, an increase of Euro million (+49%) with respect to the equivalent total in Revenues and other income amounted to Euro 28.9 million for the year ended December 31, 2016, an increase of Euro 11.9 million with respect to the previous year. The contribution margin was Euro 18.9 million in 2016 and Euro 9.8 million in The significant increase was due to the following factors: the full-year effect on total VLT and AWP collections of the acquisition of the subsidiaries Billions Italia and Gnetwork Srl in March and August 2015 respectively; the acquisition (in the street operations business) of 70% of Jolly Videogiochi S.r.l. and 51% of NewMatic S.r.l. in June 2016, as part of the Group s vertical integration strategy; 22

23 the acquisition through Gamenet Entertainment of 100% of Gamecity S.r.l. in August The company manages the Slot Show hall in Lido di Camaiore and was acquired with a view to strengthening the Group s position in the Retail sector; optimization of Gamenet Entertainment s owned halls portfolio vs 2014 Bet (made by other concessionaires) in 2015 amounted to Euro 233 million. Total collections in the segment (Gamenet Group and other concessionaires) amounted to Euro million, an increase Euro million (+102%) with respect to the equivalent total in Revenues and other income in the Retail and Street Operations segment amounted to Euro 17.1 million for the year ended December 31, 2015, an increase of Euro 9.5 million (+102%) with respect to the equivalent total of Euro 8.6 million for the year ended December 31, The contribution margin was Euro 9.8 million in 2015 as compared with Euro 1.4 million in The significant increase was due to the following factors: the acquisition of 51% of Billions Italia Srl,, in March 2015, aimed at strengthening the Group s position in the Retail sector; the acquisition of 100% of Gnetwork Srl in August 2015, which represented the Group s first step in Street Operations business in line with its vertical integration strategy; optimization of Gamenet Entertainment s owned halls portfolio. 23

24 7 Gamenet Group financial position Net financial debt (in thousands of Euro) At December 31 At January Cash at banks 49,767 50,110 32,614 6,455 Financial assets (*) 13,389 10,655 8,075 5,261 Bonds Bonds (195,531) (195,744) (194,274) (192,916) Accrued interest - Bonds (5,000) (6,163) (6,163) (6,163) Bank borrowings (6,859) - (9,205) (6,000) Other borrowings (14,615) (6,961) (2,117) (2,609) Total debt (222,005) (208,868) (211,759) (207,688) Net financial debt (158,849) (148,103) (171,070) (195,972) (*) Financial assets includes both current and non-current financial assets as well as certain non-current trade receivables for which the Group has granted significantly 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 calculatred 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 158,849 thousand as of December 31, 2016, Euro 148,103 thousand as of December 31, 2015, Euro 171,070 thousand as of December 31, 2014 and Euro 195,172 thousand as of January 1, For the main part it related to the bonds issued on August 1, 2013 by Gamenet S.p.A. and on August 15, 2016 by Gamenet Group S.p.A. with nominal value of Euro 200,000 thousand; the bonds, recorded at amortized cost, amount to Euro 195,531 thousand as of December 31, 2016, Euro 195,744 thousand as of December 31, 2015, Euro 194,274 thousand as of December 31, 2014 and Euro 192,916 thousand as of January 1, As of December 31, 2016, Bonds relates to the high yield bonds, with a nominal value of Euro 200,000 thousand, issued by the parent Gamenet Group on August 15, 2016; the bonds bear interest at 6% and will mature in It should be noted that such bonds were issued as part of a refinancing operation that included reimbursement of the bonds of similar nominal value previously issued by Gamenet S.p.A., which bore interest at a fixed rate of 7.25% and were originally due to mature in August Bank borrowings mainly comprise Gamenet S.p.A. s use of the revolving credit line. It should be noted that as part of the aforementioned refinancing operation, on July 19, 2016, the Group entered into a revolving credit facility agreement (up to nominal maximum of Euro 30,000 thousand) with Unicredit Bank AG Milan Branch in the role of the agent bank and security agent and Banca IMI S.p.A. and Unicredit S.p.A., among others, as financing banks. Euro 5,028 thousand of the credit line had been used as of December 31, Other borrowings mainly comprises liabilities relating to the put option, earnout payments and business combination commitments in the context of the Group s vertical integration strategy. Specifically, the earnout payable and acquisition related commitments totaled Euro 9.0 million as of December 31, 2016 and the put option liability amounted to Euro 2.0 million. The item also includes the present value, amounting to Euro 2,998 thousand as of December 31, 2016, of shareholders loans granted by Intralot Global Holdings B.V. as guarantee for a tax credit due to Intralot Italia S.p.A. 24

25 8 Risk from operating activities In accordance with recent Market Abuse Regulation ( MAR ), effective as of July 3, 2016, the Company adopted procedures on Privileged Information and Internal Dealing at the meeting of the Board of Directors on October 21, Significant events Relating to Gamenet S.p.A. On May 4, 2016, the ordinary shareholders' meeting approved distribution of available distributable reserves amounting to Euro 16,600,000 (of which Euro 834,644 from profit (loss) for the year, Euro 4,743,200 from retained earnings and Euro 11,022,156 from the share premium reserve); the relevant amounts were disbursed to shareholders on the same day. Please refer to the explanatory notes to the consolidated financial statements for further details. On June 27, following the Memorandum of Understanding signed on March 21, 2016, regarding the merger of the Italian operations of the Intralot Group with Gamenet, the ordinary shareholders' meeting of Gamenet Group S.p.A. approved the non-divisable paid in capital increase from Euro 23,920,000 to Euro 30,000,000. Intralot Global Holdings B.V. subscribed to a portion of the aforementioned increase through a contribution in kind of 35,000,000 shares in Intralot Holding & Services S.p.A. (the entire share capital) and 20,000 shares in Intralot Gaming Machines S.p.A. (2% of the total share capital). At the same ordinary shareholders' meeting, Gamenet Group S.p.A. approved the transfer to Gamenet S.p.A. of the investments in Intralot Holding & Services S.p.A. and Intralot Gaming Machines S.p.A. Euro 5,980,000 of the estimated total value of Euro 83,500,000 transferred was used to increase share capital and the remaining Euro 77,520,000 recognized in the share premium reserve. During August 2016, the bonds issued in 2013 with maturity date in 2018 were redeemed and cancelled. The operation was financed by the parent, Gamenet Group S.p.A., through the issue of new nonconvertible and non-subordinate, senior secured five-year bonds at a more advantageous annual rate of 6.00%, with maturity in August The securities were issued as Global Notes deposited in the central securities depository managed by Euroclear/Clearstream and issued on the Luxembourg Stock Exchange s Euro MTF Market. At the same time, an intra-group financing arrangement was agreed for a similar amount and duration at an annual rate of 6.5%, between Gamenet S.p.A. and Gamenet Group S.p.A., which, as noted above, enabled redemption of the bonds issued by Gamenet S.p.A. in In July 2016, a revolving credit facility loan agreement was entered into, with Banca IMI S.p.A. and Unicredit S.p.A (Mandated Lead Arrangers), Unicredit Bank AG Milan Branch as the agent bank and The Law Debenture Trust Corporation plc. as the security agent, for a revolving credit line up to a maximum of Euro 30,000,000, granted in favor of Gamenet S.p.A. and Gamenet Group S.p.A. The revolving credit facility bears interest of Euribor plus a spread of between 3.00% and 3.50%, depending on the ratio between net financial debt and EBITDA. Liquidity from the loan will be used by the Company and other Group companies to finance working capital requirements. As the loan is in the form of a revolving credit line, amounts reimbursed can be re-drawn within the timeframe of the loan, up to one month prior to maturity. In June 2016, the Company entered into an agreement with an important UK based technology supplier for the provision of a new VLT platform (the Company s third) as well as management services and the acquisition by the concessionaire of 400 VLTs. In June 2016, Gamenet acquired 70% of the share capital of Jolly Videogiochi S.r.l. 25

26 In the same month, in line with its vertical integration strategy, the Company acquired 51% of the share capital of New Matic S.r.l. In August 2016, Gamenet. S.p.A. acquired 60% of the share capital of Agesoft S.r.l. Agesoft S.r.l. is a newly formed company to which two software houses specialized in the development of software for amusement and entertainment devices have been transferred. In August 2016, the Company financed the acquisition, by the concessionaire and subsidiary company Intralot Gaming Machines S.p.A., of 382 authorizations issued by AAMS to install comma 6B devices and then (following ADM authorization) acquired the related rights. Relating to Gamenet Entertainment S.r.l. During 2016, the company opened a new hall located in Rome and reactivated the hall in Chianciano Terme (Siena). Also during 2016, the company closed two halls in Villanterio (Pavia) and Salorno (Bolzano) as they were no longer considered functional in terms of the company s growth strategy. In line with the above, the following table provides an overview of the company s gaming halls through the end of 2016: Year Operational at the beginning of the year Acquired Closed Sold Opened/reopened Deactivated Operational at the end of the period (15) (3) (8) (12) (5) (2) 2 61 On August 4, 2016 Gamenet Entertainment acquired 100% of the company, Gamecity, which manages the Slot Show hall in Lido di Camaiore (Lucca). Efforts initiated during 2015 to enhance and improve the network continued throughout 2016; such initiatives were based on the following drivers: a. Enhancement of the relationship and loyalty of partners in halls; b. Rationalization of the distribution network(tir); c. Product analysis and optimization; d. Care of end-users through improvements in comfort and level of services offered; e. Introduction of improvements in hall performance, through the restructuring of gaming areas. The company manages the restructuring of certain high-performing halls jointly with an important firm of architects, leader in the gaming hall business, however the restructuring of other halls in the network is managed by internal Gamenet Entertainment resources, resulting in significant benefits in terms of cost savings. Relating to Intralot Italia S.p.A. During 2016, Gamenet Group S.p.A. entered into a preliminary agreement with the Italian Football Federation (FIGC) regarding Intralot branded sponsorship of the Italian national football team at the 2018 World Cup. 26

27 10 Outlook The stabilization of the Italian economy after several years of economic crisis represents a positive backdrop against which to take forward our management strategy. 11 Related party transactions In accordance with Article 2428 of the Italian Civil Code, details of receivables and payables and income and expenditure with the Parent Gamenet Group S.p.A are disclosed in the information on related party transactions in the Notes to the Consolidated Financial Statements. 12 Human Resources During the year under review, there were no fatalities or serious accidents in the workplace that entailed serious injuries to employees. Nor were any charges reported in respect of occupational illness, regarding employees or ex-employees, or mobbing for which the company has been found to be liable. 13 Environment During the year under review, no sanctions or penalties were imposed on the company for environmental offences or damages and there are no pending lawsuits in this respect. 14 Research and development In compliance with Article 2428, Para.3 n.1 of the Italian Civil Code, we hereby inform Shareholders that the Company incurred no costs for research and development during the year under review. On behalf of the Board of Directors Ing. Guglielmo Angelozzi, Chief Executive Officer 27

28 Consolidated Financial Statements for the years ended December 31, 2016, 2015 and

29 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended December 31 (in thousands of Euro) Note Revenues , , ,314 Other income 8.2 3,510 2,512 2,313 Total revenues and income 541, , ,627 Cost of services 8.3 (445,090) (393,782) (425,651) Personnel expenses 8.4 (24,742) (16,789) (13,647) Other operating costs 8.5 (3,944) (4,414) (5,190) Depreciation, amortization and impairments 8.6 (32,536) (22,670) (21,492) Accruals and impairments 8.7 (3,151) (2,529) (3,594) Finance income Finance expenses 8.9 (25,743) (20,060) (18,865) Share of profit/(loss) of equity accounted investments (61) (49) Impairment of financial assets (57) - (782) Profit before tax 5,928 16,085 16,061 Income tax expense 8.10 (8,947) (8,270) (9,337) Net profit (loss) for the year (3,019) 7,815 6,724 Net profit (loss) for the year attributable to minority interests (888) Net profit (loss) for the year attributable to the owners of the parent (2,131) 6,944 6,724 Basic EPS 8.11 (0.13) Diluted EPS 8.11 (0.13) Year ended December 31 (in thousands of Euro) Note Net profit (loss) for the year (3,019) 7,815 6,724 Actuarial gains and losses on employee benefit liabilities 9.12 (2) 38 (160) Fiscal effect (9) 44 Other items that will not be classified to profit or loss (2) 29 (116) Total comprehensive income (3,021) 7,844 6,608 Total comprehensive income attributable to minority interests (888) Total comprehensive income attributable to the owners of the parent (2,133) 6,973 6,608 2

30 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As of December 31, As of January 1, (in thousands of Euro) Note Intangible assets ,244 88,474 97, ,945 Goodwill ,317 20,909 8,904 7,559 Property, plant and equipment ,521 27,246 27,300 32,737 Investment property Non-current financial assets 9.5 4,341 3,208 6,198 4,577 Equity accounted investments Non-current trade receivables ,176 10,724 7,231 9,114 Deferred tax assets 9.7 8,853 11,984 15,466 20,267 Other non-current assets 9.8 7,814 5,265 4,796 5,714 Total non-current assets 254, , , ,761 Inventories Current trade receivables ,649 37,836 35,374 35,824 Current financial assets , Tax receivables ,271 12,672 16,517 19,339 Other current assets ,920 34,215 31,130 35,192 Cash and cash equivalents ,767 50,110 32,614 6,455 Total current assets 168, , ,060 96,814 Total assets 422, , , ,575 Share capital ,000 2,520 2,520 2,520 Other reserves ,006 24,155 23,629 23,629 Retained earnings 9.12 (28,177) (25,209) (34,159) (40,767) Total shareholders' equity attributable to the owners of the parent ,829 1,466 (8,010) (14,618) Equity attributable to minority interests ,056 3, Total shareholders' equity ,885 4,472 (8,010) (14,618) Employee benefit liabilities ,004 2,917 1,901 1,394 Non-current financial liabilities , , , ,451 Provisions for risks and charges ,548 1,523 1,541 2,530 Other non-current liabilities ,164 18,483 20,622 23,942 Total non-current liabilities 232, , , ,317 Current financial liabilities ,150 10,409 16,938 13,237 Current trade payables ,990 13,473 9,857 15,033 Other current liabilities ,023 56,214 46,853 50,606 Total current liabilities 124,163 80,096 73,648 78,876 Total equity and liabilities 422, , , ,575 3

31 CONSOLIDATED STATEMENT OF CASH FLOWS As of and for the year ended (in thousands of Euro) Note Profit before tax 5,928 16,085 16,061 Adjustments for: Depreciation, Amortization and Impairment of intangible assets and property, plant and 8.6 equipment 32,536 22,670 21,492 Accruals and write-downs for impairment losses 8.7 3,151 2,529 3,594 Other accruals 1, Share of profit/loss of equity accounted investments Impairment on financial assets Net financial expenses ,557 19,637 18,161 (Gains)/losses on asset disposals "Prepayment" amortization 5,265 2,229 1,875 Other adjustments for non-cash items (1,023) (1,763) (1,770) Cash flow from operating activities before changes in net working capital 72,807 62,811 61,267 Changes in net working capital Decrease/(increase) in inventories - (37) (1) Decrease/(increase) in trade receivables 9.9 (15,441) (10,404) (1,512) Decrease/(increase) in trade payables 9.16 (1,624) 1,996 (3,818) Advances to suppliers 9.8 (8,186) (3,390) (1,645) Other changes in net working capital (1,106) 6,186 (3,842) Cash flow from changes in net working capital (26,357) (5,649) (10,818) Income taxes paid (3,755) (1,834) - Accruals to employee benefits and provisions for risks and charges (645) (314) (1,317) Cash flow from operating activities 42,050 55,014 49,132 Cash flow from investing activities Investments: (22,650) (4,946) (6,979) -intangible assets 9.1 (7,654) (2,735) (3,555) -property, plant and equipment 9.3 (14,996) (2,211) (3,424) Disposals of assets Deferred purchase consideration for acquisition of subsidiaries/business units (3,858) (1,336) (166) Disposal of business units Acquisition net of cash and cash equivalents 7 19,264 (6,477) (800) Cash flow from investing activities (6,952) (12,223) (7,381) Cash flow from financing activities Change in other financial liabilities 9.14 (70) (70) (68) Shareholders loans , Increase (decrease) in short-term payables to bank ,028 (9,205) 3,205 Repayment of bond 9.14 (203,625) - - Proceeds from bond issuance , Net financial expenses on raising of loans 8.9 (4,788) - - Changes in current and non-current financial assets (2,109) Net financial expenses 8.9 (18,128) (16,281) (16,620) Dividends paid 9.12 (16,902) - - Incorporation of Gamenet Group Capital increase paid in cash 9.12 (900) - - Cash flow from financing activities (35,441) (25,295) (15,592) Net Cash flow (343) 17,496 26,159 Cash and cash equivalents at the beginning of the period ,110 32,614 6,455 Cash and cash equivalents at the end of the period ,767 50,110 32,614 4

32 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Legal Reserve Share Premium Reserve Other Reserves Total Other Reserves Retained Earnings/ (Losses) Total Shareholders Equity Attributable to Owners of the Parent Equity Attributable to Minority Interests Total Shareholders Equity (in thousands of Euro) As of January 1, , ,125-23,629 (40,767) (14,618) - (14,618) Net profit for the year ,724 6,724-6,724 Actuarial gains and losses on employee benefit liabilities (116) (116) - (116) Total comprehensive income ,608 6,608-6,608 As of December 31, , ,125-23,629 (34,159) (8,010) - (8,010) Net profit for the year ,944 6, ,815 Actuarial gains and losses on employee benefit liabilities Total comprehensive income ,973 6, ,844 Transactions with shareholders: - Acquisition of Gnetwork and Billions ,977 2,503 2,135 4,638 As of December 31, , , ,155 (25,209) 1,466 3,006 4,472 Net loss for the year (2,131) (2,131) (888) (3,019) Actuarial gains and losses on employee benefit liabilities (2) (2) - (2) Total comprehensive income (2,133) (2,133) (888) (3,021) Transactions with shareholders: - Dividend distribution - (11,022) (4,743) (15,765) (835) (16,600) (302) (16,902) Acquisition of treasury shares (900) (900) (900) - (900) Incorporation of Gamenet Group Intralot contribution 27,380 (504) 271,417 (214,793) 56,120 83,500-83,500 Acquisitions of Jolly, NewMatic and Agesoft (1,992) (1,992) (1,992) 240 (1,752) Shareholder contribution (*) As of December 31, , ,520 (221,514) 62,006 (28,177) 63,829 2,056 65,886 (*) Shareholders contribution includes the effects of measuring a financial liability with the shareholder Intralot B.V. at fair value. 5

33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION 1.1 Introduction Gamenet Group S.p.A. (hereafter Gamenet Group, the Company or the Parent and together with its subsidiaries and associates 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 ) (see Note 1.2 The Contribution ). During the period between incorporation of the Company and the Acquisition, Gamenet Group did not conduct any operational activities and therefore incurred only insignificant costs relating solely to day to day administration. 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 Global Holdings 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 ranging from AWP (Amusement With Prizes) and VLT (Video Lottery Terminals), to management of its nationwide network of variously branded company owned points of sales, betting and online as well as service provision to business partners. 1.2 The Contribution On May 25, 2016 TCP and Intralot B.V. entered into a framework agreement (the Framework Agreement ) setting forth the terms and conditions of the acquisition of Intralot. Specifically, the Framework Agreement provided for the following operations that then took place during 2016: an increase in the share capital and share premium reserve of Gamenet Group to reflect i) the contribution in kind by TCP and Stefano Francolini of their shareholdings in Gamenet (total value of Euro 229,920 thousand) and ii) a capital contribution, paid in cash, of Euro 80 thousand by TCP and Mr. Stefano Francolini, in proportion to their respective original shareholdings in Gamenet (the Gamenet Contribution ); and an increase in the share capital and share premium reserve of Gamenet Group to reflect i) the contribution in kind by Intralot B.V. of its shareholdings in Intralot (100%) and in Intralot Gaming Machines S.p.A. (2%) 1, (total value of Euro 83,500 thousand); and ii) a capital contribution, paid in cash, of Euro 20 thousand by Intralot B.V. (the Intralot Contribution ). The aforementioned Framework Agreement also provided: with regard to the Intralot Contribution, for: (i) the waiver of all receivables and payables due to/by Intralot and its subsidiaries by/to Intralot S.A. and its subsidiaries (the Waiver ); (ii) a net cash contribution in Intralot by Intralot B.V. of Euro 13.6 million; and (iii) payment of a cash contribution of Euro 3.5 million to Gamenet Group by Intralot B.V., as guarantee of a tax credit due to Intralot Italia S.p.A.; and with regard to the Gamenet Contribution, for: (i) a dividend distribution of Euro 16.6 million to TCP and Stefano Francolini; and (ii) the acquisition by Gamenet of 45,000 of its own treasury shares for a total amount of Euro 0.9 million. The Gamenet Contribution and the Intralot Contribution (together, the Contributions ) took place on June 27, Following the Acquisition, on July 1, 2016, the Company transferred its entire holdings in Intralot to Gamenet. As a result of the aforementioned operations, the fully paid share capital of Gamenet Group S.p.A. amounts to Euro 30,000,000, divided into 24,000,000 Class A shares and 6,000,000 Class B shares. The Class A shares are held by TCP and Mr. Stefano Francolini, who respectively hold 79.1% and 0.9% of the total, while the Class B shares, representing the remaining 20% are held by Intralot B.V. For further details regarding the accounting treatment of the Acquisition 1 The remaining 98% of share capital was already held by Intralot. 6

34 and the nature of Class A and Class B shares, see Note 2.1 Basis of preparation and Note 9.12 Shareholders Equity respectively. 1.3 Basis of presentation The consolidated financial statements for the years ended December 31, 2016, 2015 and 2014 (hereafter, the Consolidated Financial Statements ) have been prepared also for the purpose of being used in the context of a potential extraordinary transaction. As noted above, the Company was incorporated on June 21, 2016 for the sole purpose of effecting the acquisition (see 1.1 Introduction); accordingly, in line with the applicable accounting standards, financial information reported in the consolidated financial statements for the period from January 1, 2014 to the Acquisition date relates solely to Gamenet, while information for the period from the Acquisition date to December 31, 2016 also relates the Company and its subsidiaries. For further details regarding the accounting treatment of the Acquisition and the presentation of financial information in the Consolidated Financial Statements, see Note 2.1 Basis of preparation. * * * The Consolidated Financial Statements were approved by the Company s board of directors on March 31, 2017 and audited by PricewaterhouseCoopers S.p.A., the Company s independent auditors. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The most significant accounting policies and measurement criteria used in the preparation of the Consolidated Financial Statements are described below. Accounting policies and measurement criteria have been applied consistently during each of the years reported and are consistent with those in place as of December 31, Basis of preparation In line with the options foreseen by Legislative Decree No. 38 of February 28, 2005 as subsequently modified by Law Decree 91 of June 24, 2014, which regulates the exercise of options foreseen by Article 5 of Regulation No. 1606/2002 of the European Parliament and of the Council on the application of international accounting standards, the Company has voluntarily adopted to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the European Union (hereafter, EU-IFRS ). In accordance with Paragraph B18 of Appendix B of IFRS 3, Business Combinations, a new entity formed to effect a business combination is not necessarily the acquirer. Specifically, if a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the business combination shall be identified as the acquirer. Accordingly, as noted above, information contained in the Consolidated Financial Statements for the period prior to the Acquisition date relates solely to Gamenet S.p.A. and its subsidiaries, as Gamenet was identified as the acquirer. It is noted, however, that up to and including the year ended December 31, 2015, Gamenet prepared its consolidated financial statements in accordance with the provisions and format set forth in Legislative Decree No. 127 of April 9, 1991, as interpreted by the Italian GAAP setter, the Organismo Italiano di Contabilità (hereafter, Italian GAAP ) and it has therefore been necessary to convert the consolidated financial statements prepared in accordance with Italian GAAP to EU-IFRS in accordance with the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards ( IFRS 1 ); to this end and for the reasons described above, the date of transition to EU-IFRS is deemed to be January 1, 2014 (hereafter, the Transition Date ). Disclosure required by IFRS 1 in relation to the transition process is reported in Note 12 - First-time Adoption of EU-IFRS. The designation EU-IFRS includes all International Financial Reporting Standards, all International Accounting Standards ( IAS ) and all interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ), formerly the Standing Interpretations Committee ( SIC ), adopted as of the reporting date, by the European Union in accordance with the procedures provided for in Regulation No. 1606/2002 of the European Parliament and of the Council of July 19, EU-IFRS have been applied consistently to all periods presented. The Consolidated Financial Statements have been prepared: on the basis of existing EU-IFRS. Potential future developments and updates in interpretations will be reflected in future years, in accordance with guidance provided on a case by case basis by the relevant accounting standards; 7

35 on a going concern basis, as management has confirmed the absence of financial, operational or other indicators that may suggest an inability on the part of the Group to meet its obligations in the foreseeable future and, in particular, during the next 12 months; on a historical cost basis, except in relation to the measurement of financial assets and liabilities that under IFRS must be recognized at fair value. 2.2 Format and content of the financial statements The Consolidated Financial Statements are presented in Euro, the main currency in which Group companies operate. Unless otherwise specified, all amounts in this document are expressed in thousands of Euro (Euro 000). The format of the consolidated financial statements and related classification criteria adopted by the Group (among the options available under IAS 1 Presentation of financial statements) are as follows: the consolidated statement of financial position, which classifies assets and liabilities based on whether they are current/non-current; the consolidated statement of comprehensive income, which classifies costs and revenues according to their nature and sets out the profit or loss for the year, together with other amounts that, in accordance with EU-IFRS, are recognized directly in equity separately from those relating to operations with the Company s shareholders; the consolidated statement of cash flows, which is prepared using the indirect method. The formats used are those considered to provide the best representation of the Group s results and financial position. 2.3 Basis and principles of consolidation The Consolidated Financial Statements include the financial statements of the Company and its subsidiaries as approved by the respective boards of directors and prepared based on the accounting records of the individual companies, adjusted as necessary to align them with EU-IFRS. The following table provides, for each of the subsidiaries and associates for the years ended December 31, 2016, 2015 and 2014, a summary of the company name, location of registered office, percentage share capital held directly or indirectly by the Company and consolidation method used. Registered office Share capital Percentage share of capital held Consolidation method Parent Company: Gamenet Group S.p.A. (*) Rome 30,000, X Year ended December 31, Subsidiaries: Gamenet S.p.A. (**) Rome 8,500, % Line-by-line X X X Gamenet Scommesse S.p.A. Rome 120, % Line-by-line X X X Gamenet Entertainment S.r.l. Rome 1,250, % Line-by-line X X X Topplay S.r.l. Rome 20, % Line-by-line X X X Gamenet Renting S.r.l. Rome 20, % Line-by-line X X X Verve S.p.A. Campione d Italia 180,000 51% Equity X X X Billions Italia S.r.l. Rome 200,000 51% Line-by-line X X Gnetwork S.r.l. Rome 50, % Line-by-line X X Intralot Holding & Services X Rome 35,000, % Line-by-line S.p.A. Intralot Italia S.p.A. Rome 430, % Line-by-line X Intralot Gaming Machines X Rome 1,000, % Line-by-line S.p.A. Veneta Servizi S.r.l. Rome 27, % Line-by-line X Jolly Videogiochi S.r.l. Rome 15,000 70% Line-by-line X New Matic S.r.l. Rome 100,000 51% Line-by-line X Agesoft S.r.l. Rome 100,000 60% Line-by-line X Gamecity S.r.l. Lucca 50, % Line-by-line X (*) Gamenet Group S.p.A., was incorporated on June 21, 2016, for the purpose of the Acquisition, and became the Parent Company of the Gamenet Group. (**) Gamenet S.p.A. is listed as a subsidiary, although it was the parent company of the group during both 2014 and For further details, see Note 1.2 The Contribution and Note 2.1 Basis of presentation. The main changes in the scope of consolidation during the three-year period are briefly described below (for details of the accounting effects, see Note 7 Business combinations): 8

36 2014 On January 16, 2014, Gamenet Renting S.r.l. was incorporated for the purpose of leasing entertainment machines to the Group s business partners. Also during 2014, Gamenet Entertainment S.r.l. acquired a business unit comprising two gaming halls located in the Provinces of Bergamo and Rome respectively) In March 2015, Gamenet acquired 51% of the share capital of Billions Italia S.r.l. In July 2015, Gamenet acquired two operational business units involved in the gaming machine business. In August 2015, Gamenet acquired 100% of the share capital of Gnetwork S.r.l On June 15, 2016, Gamenet acquired 70% of the share capital of Jolly Videogiochi S.r.l., a company operating in the AWP business. On June 30, 2016, Gamenet acquired 51% of the share capital of New Matic S.r.l., a company operating in the AWP business. On August 4, 2016, Gamenet acquired 60% of the share capital of Agesoft S.r.l., a software development company specialized in gaming applications. On August 4, 2016, Gamenet Entertainment S.r.l. acquired 100% of the share capital of Gamecity S.r.l., a company specialized in leasing entertainment machines. This section describes the criteria followed to define the basis of consolidation and the related consolidation principles adopted. Subsidiaries An investor controls an investee when: (i) it is exposed, or has rights, to variable returns from its involvement with the investee; and ii) it has the ability to affect those returns through its control over the investee. The existence of control is verified each time that facts or circumstances indicate a change in one of the aforementioned control criteria. Subsidiaries are consolidated using the line-by-line method, from the date that control is obtained until the date that such control ceases when it is transferred to third parties. The financial statements of all the subsidiaries have the same reporting date as the Parent Company. The principles adopted for line-by-line consolidation are as follows: the assets, liabilities, revenues and expenses of the subsidiaries are consolidated on a line-by-line basis, attributing to the minority interests, where applicable, their share of equity and profit or loss for the year which are shown separately in equity and in the consolidated statement of comprehensive income; gains and losses including any tax effects resulting from transactions between fully consolidated Group companies, which have not yet been realized with third parties at the end of the reporting period, are eliminated, other than losses that result from transaction involving a reduction in value of the asset transferred. Receivables and payables, costs and revenues and finance income and expenses between companies included in the scope of consolidation are also eliminated; if the Parent increases its shareholding in a subsidiary subsequent to assuming control, any difference between the acquisition cost and the corresponding share of equity acquired is recognized in equity attributable to owners of the parent. In the same way, if the Parent reduces its shareholding in a subsidiary without a loss of control of the subsidiary, the effects are recognized in equity. If, on the other hand, as a result of the sale of shares in a subsidiary the Parent loses control, the following are recognized in profit or loss: (i) any gains/losses, calculated as the difference between the consideration received and the corresponding share of net equity sold; (ii) the effects of remeasuring any remaining investment to its fair value; (iii) all amounts previously recognized in other comprehensive income in relation to the subsidiary over which control was lost. If, however, it is not foreseen that such amounts would be subsequently reclassified to the income statement, they are reclassified to Retained earnings. The new book value of any remaining investment is the fair value at the date of loss of control and this becomes the reference value for future measurement of the investment in accordance with relevant accounting standards. Business combinations 9

37 Business combinations in which control is acquired are recorded as set out in IFRS 3, applying the acquisition method of accounting. Identifiable assets acquired and liabilities and contingent liabilities assumed are recognized at their fair value at the acquisition date (the Acquisition Date ), except for deferred tax assets and liabilities, assets and liabilities relating to employee benefits and assets held for sale, which are recognized on the basis of the relevant accounting principles. If positive, the difference between the acquisition cost and the fair value of the assets and liabilities acquired is recognized in intangible assets as goodwill; if negative, after reviewing the fair value measurements of the assets and liabilities acquired, it is recognized directly in the consolidated statement of comprehensive income as a gain. In the event that the values of the acquired assets and liabilities are initially determined on a provisional basis, they must be confirmed within a maximum period of twelve months from the acquisition date, based solely on information relating to facts and circumstances existing at the Acquisition Date. In the period when such values are finally determined, the provisional values are adjusted retrospectively. Transaction costs are recorded in the consolidated statement of comprehensive income when incurred. In addition to the fair value at the Acquisition Date of the assets transferred, the liabilities assumed and any capital instruments issued for the purposes of the acquisition, the acquisition cost also includes contingent consideration, or that share of the cost, the amount and timing of which are contingent on future events. Contingent consideration is measured at fair value at the Acquisition Date; subsequent changes in fair value are recognized in the consolidated statement of comprehensive income if the contingent consideration is a financial asset or liability while, if the contingent consideration is classified as equity, the original amount is not remeasured and is recorded directly in equity when settled. If the business combination is achieved in stages, the acquisition cost is determined by adding the fair value of the previously held equity interest and the consideration for the additional investment. Any difference between the fair value of the previously held equity interest and its acquisition-date fair value is recognized in profit or loss. On assuming control, any amounts previously recognized in other components of comprehensive income are reclassified to the income statement, or recognized under another heading in equity in the event they are not reclassified to the income statement. * * * Business combinations in which all the combining entities or businesses are ultimately controlled by the same party or parties, both before and after the transaction, are known as business combinations under common control. Such combinations are not governed by IFRS 3 nor by any other EU-IFRS. In the absence of an applicable accounting standard, an accounting policy meeting the requirements of IAS 8 regarding the provision of relevant and reliable information must be applied. Moreover, the accounting policy chosen to represent combinations under common control must reflect the economic substance of the arrangement independently of its legal form. Economic substance, therefore, is the key driver in choosing the most appropriate method to account for such combinations. Economic substance must be considered in terms of the generation of added value and significant variations in cash flows relating to the net assets transferred. It is also important to consider existing interpretations and guidance and reference is made to the Preliminary Guidance on IFRS of the Association of Italian Auditors in relation to how to account for business combination of entities under common control in separate and consolidated financial statements. The net assets transferred must, therefore, be recognized at the same values as their carrying amounts in the financial statements of the acquired companies or, if available, at the values reported in the consolidated financial statements of the common controlling company. In this regard, in such cases, the Company has chosen to refer to carrying amounts in the financial statements of the acquired companies. Associates Associates are those companies over which the Group exercises significant influence, which is presumed to exist when the Group holds between 20% and 50% of the voting rights. Associates are accounted for using the equity method and are initially recorded at cost. The equity method is described as follows: the carrying amount of such investments is aligned to the adjusted equity, where necessary, to reflect the application of EU IFRS and includes recognition of the higher values attributed to the assets and liabilities and goodwill, if any, identified at the date of acquisition, following a process similar to that previously described for business combinations; the Group s share of the investee s profit or loss is recorded starting from the date that significant control commences until the date that control ceases. If, as a result of losses, the investee shows negative equity, the carrying amount of the investment is reduced to zero and any additional losses are provided for and a liability is 10

38 recognized only to the extent that the Group has legal or constructive obligations, or is otherwise required to settle the losses. Changes unrelated to profit or loss in the equity of investees valued using the equity method are recognized directly in the consolidated statement of comprehensive income; unrealized gains and losses, generated on transactions between the Company/its subsidiaries and the investee valued using the equity method are eliminated to the extent of the Group s investment in the investee, except for losses, in the case in which they represent impairment of the underlying asset, and dividends, which are eliminated in full. When indicators of impairment exist, recoverability is considered by comparing the book value of investments with their related recoverable value calculated in accordance with the criteria indicated at Impairment of Goodwill and tangible, intangible and investment property assets. If the reasons for the impairment cease to exist, the value of the investments is reinstated up to the amount that would have been recognized had no impairment occurred, with the effect being reflected in the income statement. The partial disposal of investments that result in loss of control or loss of significant influence over the investee are reflected in the consolidated statement of comprehensive income by: any gains/losses, calculated as the difference between the consideration received and the corresponding share of net equity sold the effect of realigning the remaining investment to its fair value; all amounts previously recognized in other comprehensive income in relation to the investment to be reclassified to the income statement. The fair value of any remaining investment, as at the date of loss of control or loss of significant influence, becomes the new book value and therefore the reference for subsequent measurement in accordance with applicable criteria. If an investment, or share of investment, accounted for using the equity method is classified as available for sale, such investment or share of investment is no longer measured using the equity method. Treatment of put options on the shares of subsidiaries The Group has issued put options to minorities that give such minorities the right to sell their shares to the Group at a future date. The treatment of put options granted to minorities is not fully governed by EU IFRS. In particular, while the issuance of a put option to minorities gives rise to a liability, the corresponding entry is not defined. In this regard, in accordance with Paragraph 23 of IAS 32, a contract that contains an obligation for an entity to purchase its own equity instruments for cash or another financial asset gives rise to a financial liability. Such financial liability is recognized initially at the present value of the redemption amount and, in accordance with Paragraph AG8 of IAS 39, subsequent adjustments to the financial liability are recognized in profit or loss. In order to determine the corresponding entry to reflect the aforementioned financial liability, it is first necessary to consider whether, as part of the conditions regarding exercise of the puttable financial instrument, the risks and benefits deriving from ownership of the minority interest are transferred to the controlling company or remain with the owners of the minority interest, as this will determine whether the minority interests subject to the put option are required to be reported. If the risks and benefits are not transferred to the controlling company by the puttable option, the minority interests subject to the put option require reporting: if, on the other hand, such risks and benefits are transferred, the minority interests need not be recognized in the consolidated financial statements. Given the above: if the minority interests do not need to be recognized in the financial statements as the related risks and benefits have transferred to the controlling company, the liability relating to the put option will be reflected: (i) against goodwill, if the put option was granted to the seller in the context of a business combination; or (ii) against equity attributable to the minorities, in the case in which the contract was entered into outside such context; on the other hand. if the risks and benefits have not transferred, the corresponding entry will be to equity attributable to the owners of the parent. 2.4 Accounting policies and measurement criteria 11

39 The following paragraphs briefly describe the key accounting policies and measurement criteria adopted in preparing the consolidated financial statements. CURRENT AND NON-CURRENT ASSETS AND LIABILITIES The Group classifies an asset as current when: it expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; it holds the asset primarily for the purpose of trading; it expects to realize the asset within twelve months after the reporting period; or the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current The Group classifies a liability as current when: it expects to settle the liability in its normal operating cycle; it holds the liability primarily for the purpose of trading; the liability is due to be settled within twelve months after the reporting period; or it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period All other liabilities are classified as non-current. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at acquisition or production cost, net of accumulated depreciation and impairment. Acquisition or production cost includes costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating as well as any expected costs of dismantling and removing the asset and restoring it to its original condition if a contractual obligation exists. Finance expenses directly attributable to the acquisition, construction or production of property, plant and equipment requiring more than one year to constrict or produce are capitalized and depreciated over the estimated useful lives of the assets to which they relate. Expenses incurred for ordinary and/or cyclical maintenance and repairs are charged directly to the consolidated statement of comprehensive income in the year incurred. The capitalization of costs inherent to the expansion, modernization or improvement of facilities owned or used by third parties is recorded solely to the extent that they meet the conditions for being classified separately as an asset or part of an asset. Improvements to leased assets are depreciated over the duration of the relevant lease contract or over the specific estimated useful life of the asset, if less. Depreciation is calculated on a straight-line basis over the estimated useful life of the individual assets. When an asset being depreciated is composed of separately identifiable elements with useful lives that differ significantly from the other elements that comprise the asset, depreciation is calculated separately for each element, in accordance with the component approach method. 12

40 The estimated useful life by class of property, plant and equipment is as follows: Buildings Plant Hardware Leasehold improvement Other assets Estimated useful life 33 years 5-8 years 3-7 years Lower of estimated useful life of the asset and duration of the relevant lease contract 4-8 years Land is not depreciated, even when associated with buildings. The estimated useful life of property, plant and equipment is reviewed and adjusted as required at least annually at the balance sheet date. Property, plant and equipment is derecognized when it is sold or otherwise disposed of or when the expected future economic benefits no longer exist. Any gains or losses (calculated as the difference between the net sale proceeds and the net book value of the asset sold) are recognized in the consolidated statement of comprehensive income at the time the asset is derecognized. LEASED ASSETS Determination of whether a contract is, or contains, a lease is based on the substance of the agreement and requires consideration of whether fulfilment of the contract relates to the use of one or more specific assets or whether the agreement transfers the right to use such assets. Confirmation that a contract is, or contains, a lease must be determined at the beginning of the contract. Assets held under finance leases, in which substantially all the risks and rewards of ownership are transferred to the Group, are initially recognized as assets of the Group at fair value or, if lower, at the present value of the minimum lease payments, including purchase options. The corresponding liability due to the lessor is recognized in the consolidated statement of financial position under financial liabilities. Assets held under finance leases are depreciated in the same way as assets that are owned. (For further details see the note below on Financial liabilities, trade payables and other payables ). After their initial measurement, assets held under finance leases are depreciated in line with the rates described above, except in cases in which the duration of the relevant lease contract is less than the estimated useful life of the asset and there is no reasonable certainty that ownership of the leased asset will be transferred on termination of the contract; in such cases, depreciation will be based on the duration of the relevant lease contract. Leases where the lessor retains substantially all the risks and rewards of ownership of the assets are classified as operating leases. Operating lease rentals are charged to the consolidated income statement on a straight-line basis over the lease term. INTANGIBLE ASSETS Intangible assets include identifiable assets without physical substance that are controlled by the Group and expected to produce future economic benefits, as well as goodwill arising on business combinations. The requirement that such assets be identifiable is normally satisfied when an intangible asset is: based on a legal or contractual right; or separable, in the sense that it may be separately sold, transferred, leased or exchanged. Control over an intangible asset consists of the right to make use of the future economic benefits deriving from the asset and the ability to limit such access to others. Intangible assets are initially recognized at acquisition or production cost, including costs directly attributable to making the asset ready for use. All other subsequent costs are charged directly to the consolidated statement of comprehensive income in the year incurred. Research costs are recognized in the consolidated statement of comprehensive income as they are incurred. The most significant intangible assets held by the Group are as follows: 13

41 (a) Goodwill Goodwill is recognized as an intangible asset with an indefinite useful life. It is initially measured at cost, as previously described, and subsequently tested for impairment at least annually to identify if goodwill is impaired (see the following paragraph Impairment of Goodwill and Tangible, Intangible and Investment Property Assets ). Impairment losses recognized for goodwill may not be reversed in subsequent periods. (b) Intangible assets with a finite useful life Intangible assets with a finite useful life are recognized at cost, net of accumulated amortization and impairment losses, if any. Amortization starts when the asset is available for use and is charged systematically over the residual estimated useful life; for details regarding amounts to be amortized and the recoverability of the recognized values of such assets, see the paragraphs on Property, plant and equipment and Impairment of goodwill and tangible, intangible and investment property assets respectively. The estimated useful life for the various classes of intangible assets is as follows: Concessions Patent rights Other intangible assets Estimated useful life Duration of concession 3-5 years or on a straight-line basis 2-5 years INVESTMENT PROPERTY Properties held to earn rentals or for capital appreciation are recognized under Investment property ; as with property, plant and equipment, such properties are stated at acquisition or production cost including any ancillary costs, net of accumulated depreciation and impairment. IMPAIRMENT OF GOODWILL AND TANGIBLE, INTANGIBLE AND INVESTMENT PROPERTY ASSETS (a) Goodwill As noted above, goodwill is tested for impairment annually or more frequently, whenever events or changes in circumstances indicate that goodwill may be impaired, in accordance with IAS 36 (Impairment of assets). Impairment tests are normally performed at each year end and therefore the reference date for such tests is the financial reporting date. Impairment tests are carried out for each cash-generating unit ( CGU ) to which goodwill has been allocated. An impairment loss on goodwill is recognized when the CGU s carrying amount exceeds its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs of disposal and its value in use, being the present value of estimated future cash flows; in calculating the value in use, the estimated future cash flows are discounted to present value using a pre-tax discount rate, that reflects current market assessments of the time value of money and the risks specific to the asset. If the impairment loss is higher than the carrying amount of goodwill allocated to the CGU, the excess is applied to the other assets of the CGU in proportion to their carrying amount. The carrying amount of an asset should not be reduced below the highest of: the fair value of the assets less costs of disposal; the value in use; zero. Impairment losses recognized for goodwill may not be reversed in subsequent periods even if the conditions that gave rise to such impairment loss cease to exist. (b) Tangible, intangible and investment property assets with a finite useful life At each balance sheet date, the Group assesses whether there are any indications of impairment of tangible, intangible and/or investment property assets with a finite useful life. Both internal and external sources of information are used for this purpose. Internal sources include obsolescence or physical damage, significant changes in the use of the asset and the economic performance of the asset compared to estimated performance. External sources include the market value of the asset, changes in technology, markets or laws, trends in market interest rates and the cost of capital used to evaluate investments. 14

42 When indicators of impairment exist, the recoverable amount is estimated and the carrying amount of the asset reduced accordingly, with the impairment loss being charged to the consolidated statement of comprehensive income. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. In calculating the value in use, the estimated future cash flows are discounted to present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For assets that do not generate cash inflows that are largely independent of those from other assets or groups of assets, the Group estimates the recoverable amount of the CGU to which the asset belongs. If the carrying amount of an asset or the CGU to which it belongs exceeds the recoverable amount, an impairment loss is recognized in the consolidated statement of comprehensive income. Such impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to other assets of the unit pro rata on the basis of their carrying amounts; the carrying amounts of other assets of the unit may not be reduced below their recoverable amounts. When the conditions that gave rise to an impairment loss no longer exist, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, up to the carrying amount that would have been recorded had no impairment loss been recognized, with the increase being reflected in the consolidated statement of comprehensive income. EQUITY INVESTMENTS Equity investments (other than investments in subsidiaries and associates) are recognized in the consolidated statement of financial position as Available-for-sale financial assets and measured at fair value; changes in the fair value of such investments are recorded as a separate component of equity, through recognition in in other comprehensive income (Reserve for changes in fair value of available for sale financial assets), which is then reversed to the consolidated income statement on derecognition or definitive reduction in value of the investments. Other unlisted investments classified as available-for-sale financial assets whose fair value cannot be measured reliably are measured at cost adjusted by any impairment losses, which are recognized in the consolidated income statement, as required by IAS 39 (Financial Instruments: Recognition and Measurement). Such impairment losses may not be reversed. SECURITIES OTHER THAN EQUITY INVESTMENTS Securities other than equity investments included within Non-current financial assets are held-to-maturity investments. Held-to-maturity investments are initially measured at acquisition cost (the transaction price) including ancillary costs and subsequently measured at amortized cost using the effective interest method. Amortized cost is equal to the initial cost of the financial instrument, net of principal repayments, adjusted for amortization of the discount/premium (calculated using the effective rate of interest method) and any impairment losses recognized. Impairments of securities other than equity investments held-to-maturity are reversed if the conditions that gave rise to such impairment loss cease to exist. LOANS, RECEIVABLES AND FINANCIAL ASSETS HELD TO MATURITY Receivables and financial assets held to maturity are initially measured at fair value and subsequently at amortized cost using the effective interest method. When there is objective evidence of loss of value, impairment losses on such assets are recognized, measured as the difference between the carrying amount of the assets and the present value of estimated future cash flows using the effective interest method. IMPAIRMENT OF FINANCIAL ASSETS At each balance sheet date, the Group assesses all financial assets other than those measured at fair value through profit or loss, to determine whether a financial asset or group of financial assets may be impaired. Impairment is recognized, if and only if such evidence exists and is the result of one or more events subsequent to initial recognition that have an impact on the asset s estimated future cash flows. Objective evidence includes events such as: significant financial difficulties of the counterparty or debtor legal disputes with the debtor over the receivables 15

43 breach of contract, such as default or non-payment of capital or interest evidence that the debtor may be involved in an insolvency procedure or other financial restructuring procedure a significant reduction in estimated future cash flows Losses relating to future events are not recognized. If there is objective evidence that an impairment loss on financial assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The amount of the loss is recognized in the consolidated income statement within Depreciation, amortization and impairments. If, in a subsequent period, the conditions that gave rise to an impairment loss no longer exist, the carrying amount of the financial asset is increased up to the amount that would have resulted from application of the amortized cost method. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and available bank deposits as well as short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of change in value and have original maturity, or remaining maturity at the date of purchase, not exceeding 3 months. Cash and cash equivalents are recognized at fair value with related changes recorded in the consolidated income statement. PROVISIONS FOR EMPLOYEE SEVERANCE INDEMNITY The employee severance indemnity due to employees in accordance with Article 2120 of the Italian Civil Code ( TFR ) is considered a defined benefit plan. Under such plans, the amount of the benefit is only quantifiable following termination of the employment relationship and is dependent upon factors such as age, length of service and level of remuneration; for this reason, the costs charged to the income statement for a given year are determined by actuarial calculation. The liability recognized for defined benefit plans corresponds to the present value of the obligation at the reporting date. The obligations under defined benefit plans are determined each year by an independent actuary, using the projected unit credit method. The present value of defined benefit plans is determined by discounting future cash flows at an interest rate equal to high-quality corporate bonds issued in Euro which reflect the period of the relevant defined benefit plan. The actuarial gains and losses deriving from adjustments in the total liability and the effect of changes in the actuarial assumptions are recognized in the statement of comprehensive income. With effect from January 1, 2007, the 2007 Finance Law, and related decrees implementing the law, introduced significant changes to the TFR regulations, including the option for each employee to choose the destination of the accruing indemnity. Specifically, employees may now allocate new TFR flows to alternative external pension plans or elect for them to be retained by the employer. If an external pension plan is chosen, the company is only obliged to make defined contributions to such plan and, accordingly, from the aforementioned date, the related new TFR flows are deemed to be payments to a defined contribution plan not subject to actuarial valuation. PROVISIONS FOR RISKS AND CHARGES Provisions for risks and charges are recorded to cover costs and liabilities whose existence is certain or probable but which at the end of the reporting period are uncertain as to amount or as to the date on which they will arise. Provisions are recognized only when: there is a current obligation (legal or constructive) for a future outflow of resources deriving from a past event; it is likely that the outflow of resources required to satisfy the obligation is significant; and the amount of the obligation can be estimated reliably. Provisions are based on best estimates at the reporting date of the present value of the expenditure required to extinguish the obligation or transfer it to third parties. If the time value of money is material and the payment date of the obligations can be reasonably estimated, provisions are calculated as the present value of the expected cash flows, taking into account the risks associated with the obligation. Increases in the amount of the provision due to changes in the time value of money are recognized as Finance expenses in the income statement. 16

44 Provisions are adjusted periodically to reflect changes in estimated costs, timing and discount rates. Changes to estimates are recognized in the income statement in the same account as the original provision. FINANCIAL LIABILITIES, TRADE PAYABLES AND OTHER PAYABLES Financial liabilities (other than derivative financial instruments), trade payables and other payables are initially recognized at fair value, net of directly attributable transaction costs, and subsequently measured at amortized cost, with any differences being recognized over the life of the liability as required by the effective interest method. If there is a change in the estimate of expected cash flows, the liabilities are remeasured to recognize the present value of the new expected cash flows calculated using the effective interest rate as initially determined. DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES A financial asset (or part of a financial asset or part of a group of similar financial assets) is derecognized when: rights to the cash flows from the asset have expired; the Group has retained the rights to the cash flows from the asset, but has assumed an obligation to pay the cash flows from the asset to third parties, wholly and without delay; the Group has transferred its rights to receive the cash flows from the asset and has: (a) transferred substantially all risks and rewards of ownership of the financial asset; or (b) has neither transferred substantially all risks and rewards nor retained substantially all risks and rewards, but has transferred control of the asset. A financial liability is derecognized when the obligation underlying the liability is extinguished, annulled or fulfilled. DERIVATIVE FINANCIAL INSTRUMENTS A derivative is a financial instrument or other contract with all three of the following characteristics: its value changes in response to the change in a variable (sometimes called the underlying ) such as a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable; it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and it is settled at a future date. The Group makes use of derivative instruments to mitigate its exposure to interest rate risk. In accordance with IAS 39, derivatives are accounted for as hedge accounting only if all the following conditions are met: at the inception of the hedge there is formal designation and documentation of the hedging relationship; the hedge is expected to be highly effective; the effectiveness of the hedge can be reliably measured; and the hedge is determined to have been highly effective throughout the financial reporting periods for which the hedge was designated. In accordance with IAS 39, all derivative financial instruments are measured at fair value. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments is determined in accordance with IFRS 13 Fair value measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place in the principal market for the asset or liability (i.e. the market with the highest number of transactions involving sale of such assets or transfer of such liabilities). In the absence of a principal market, it is assumed that the transaction takes place in the most advantageous market for the asset or liability to which the Group has access (i.e. the market most likely to maximize the price at which the asset can be sold or minimize the cost at which the liability can be transferred). 17

45 The fair value of an asset or liability is determined, using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. Market participants are independent, informed buyers and sellers, able and willing but not obliged to enter into transactions. In determining fair value, the Group considers the characteristics of specific assets and liabilities and in measuring the fair value of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Fair value measurement of assets and liabilities is based on the use of appropriate valuation techniques applied to available data, maximizing the use of relevant observable inputs. IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value: Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g. for derivatives, exchange rates published by the Bank of Italy, interest rates and yield curves, implied volatilities, credit spreads based on CDS data etc.). Level 3 inputs are unobservable inputs for the asset or liability (management assumptions regarding financial flows, risk-adjusted spreads etc.). TREASURY SHARES Treasury shares are recognized at cost as a reduction in equity. The effects of any subsequent sales are recognized in equity. REVENUES AND COSTS Revenues from sale of goods and delivery of services are recognized when the Group has transferred substantially all the risks and rewards of ownership of the goods or receipt of the service. Revenues are recognized net of discounts, rebates and returns. Revenues are recognized initially at the fair value of the consideration receivable, net of pay-out, related taxes and, where applicable, discounts, rebates and returns. Specifically: AWP revenues are recognized net of the flat-rate PREU tax and winnings paid but gross of amounts to be paid to operators and managers as well as the ADM concession fee; VLT revenues are recognized net of winnings, amounts relating to jackpots and the PREU tax, but gross of amounts to be paid to operators as well as the ADM concession fee; revenues from online gaming are recognized net of winnings and the PREU tax but gross of costs related to the platform and the concession fee. The collection of fixed-odds bets (i.e. bets where the Group is exposed to the risk related to payout of winnings) creates a financial liability which, in accordance with IAS 32 and 39, is measured at fair value. Subsequent changes in the liability are recognized within revenues; accordingly, fixed-odds betting revenues are recognized net of the PREU tax, winnings and reimbursement of wagers. Revenues from national totalizer betting games are recognized based on the percentage commissions set by the convention for betting operations. Customer loyalty programme points are recognized separately from the transactions to which they relate. The share of revenue corresponding to the fair value of the points assigned is recognized under Other liabilities ; such liability is then reversed to profit or loss during the period when the points are used by the customer or when the related right expires. Costs are recognized when they relate to goods or services sold or used in normal business activities; they are recognized either based on systematic allocation or when such goods and services have no further use. Non-deductible value added tax (IVA) is calculated in accordance with the so-called pro-rata coefficient and recognized as a cost. FINANCE INCOME AND EXPENSES 18

46 Finance income and expenses are recognized during the period to which they relate. INCOME TAX EXPENSE Income taxes are based on an estimate of the tax expense for the year, based on current fiscal legislation, and are recognized in the consolidated income statement under Income tax expense, except in those cases where the tax effects of transactions are recognized directly in equity and the related amounts are charged or credited directly to equity. The consolidated statement of comprehensive income reports income taxes relating to each line item reported under Other items that will not be classified to profit or loss. Provision for taxes due on the transfer of nondistributed profits of subsidiaries is made only when there exists a real intention to transfer such profits. Deferred tax assets and liabilities are calculated using the balance sheet liability method and are recognized on temporary differences between the carrying amount of an asset or a liability in the consolidated financial statements and its tax base, except for non-deductible goodwill and for those differences related to investments in subsidiaries when the reversal is under the control of the Group and it is probable that they will not reverse in the reasonably foreseeable future. Deferred tax assets, including those relating to unused tax losses carried forward, are recognized to the extent to which it is probable that future taxable profit will be available against which they can be utilized. Tax assets and liabilities are offset, separately for current and deferred taxes, when the income taxes are levied by the same tax authority, there is a legally enforceable right of offset and it is expected that the balance will be settled net. Deferred tax assets and liabilities are computed based on tax rates that are expected to apply in the period in which the asset is recovered or settled to the extent that such rates have been approved at the date of the consolidated financial statements. Other taxes not related to income, such as indirect taxes and levies are reported under Other operating costs in the consolidated income statement. During the three-year period , Gamenet and the subsidiaries that had adopted the national fiscal consolidation calculated IRES on a tax base equal to the sum of the taxable income/losses of the individual companies. EARNINGS PER SHARE (a) Basic earnings per share Basic earnings per share is calculated by dividing the result for the year attributable to the owners of the parent by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares. (b) Diluted earnings per share Diluted earnings per share is calculated by dividing the result for the year attributable to the owners of the parent by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares. For the purposes of the calculation of diluted earnings per share, the weighted average number of shares outstanding is adjusted assuming that rights having potential dilutive effects are exercised by all the grantees of such rights, and the result attributable to the owners of the parent is adjusted to take into account the effects, if any, net of tax, of the exercise of those rights. USE OF ACCOUNTING ESTIMATES The preparation of financial statements in conformity with relevant accounting standards and methods in certain cases requires management to make estimates and assumptions based on subjective judgments, past experience and hypotheses considered reasonable and realistic, given the information known at the time. Such estimates have an effect on the amounts reported in the financial statements, including the consolidated statement of financial position, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the related notes to the consolidated financial statements. Actual results may then differ, even significantly, from those reported in the consolidated financial statements due to changes in the factors considered in determining the estimates, given the uncertainties which characterize the assumptions on which estimates are based. Many reported account balances are based on estimates and while not all constitute large amounts, total such balances are materially significant. Key accounting estimates involving a high degree of subjectivity and judgement on the part of management, where a change in the conditions underlying the assumptions could have a significant effect on the Group s financial results, are detailed below. Deferred tax assets 19

47 Deferred tax assets are recognized on deductible temporary differences between the carrying amount of an asset or liability in the consolidated financial statements and its tax base and on unused tax losses carried forward, to the extent it is probable that future taxable profit will be available against which such deferred tax assets can be utilized. Judgement is required on the part of management, involving estimates regarding the timing and level of future taxable profits, to determine the level of deferred tax assets that should be recognized. Allowance for doubtful receivables The recoverability of receivables is estimated taking into account the risk of non-collection, aging and past experience in the collection of similar receivables. Impairment of assets Goodwill and other tangible, intangible and investment property assets with a finite useful life are tested for impairment when there are indicators of impairment are identified that suggest the full asset value may not be recovered through use. The recoverable amount is estimated and the carrying amount of the asset is reduced accordingly. Identification of the existence of such indicators of impairment requires management to exercise judgement based on experience and information available both within the Group and in the broader marketplace. If impairment indicators are identified, management employs what it considers to be the most appropriate measurement techniques to estimate such impairment. Both the correct identification of the indicators of impairment and the related estimates of the extent of such impairment depend upon factors that may change over time, thereby influencing measurements and management estimates. Depreciation and amortization The cost of property, plant and equipment and intangible assets is depreciated/amortized on a straight-line basis over the estimated useful life of each asset. The economic useful life of these assets is determined at the time of purchase, based on historical experience for similar assets, market conditions and expected future events which may affect them, such as technological changes. An asset s actual useful life may, therefore, be different from its estimated useful life. In accordance with paragraph 10 of IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), in the absence of an IFRS that specifically applies to a transaction, management uses its judgement to develop and apply accounting policies in the consolidated financial statements that result in information that represents faithfully the Group s financial position, financial performance and cash flows, reflects the economic substance of transactions and is neutral, prudent and complete in all material respects. 2.5 Recently issued accounting standards Accounting standards, amendments and interpretations not yet endorsed by the EU As at the reporting date, the following standards and amendments had not yet been endorsed by the EU: Amendments to IAS 7 Disclosure initiative These amendments to IAS 7 Statement of Cash Flows, issued by the IASB on January 29, 2016, introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments are part of the IASB s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. The amendments are effective for accounting periods beginning on or after January 1, Early adoption is permitted. Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses These amendments to IAS 12 Income Taxes, issued by the IASB on January 19, 2016, relate to the recognition of deferred tax assets for unrealized losses and clarify how to account for deferred tax assets related to debt instruments measured at fair value. The amendments are effective for accounting periods beginning on or after January 1, Early adoption is permitted. Amendments to IFRS 2 Classification and This amendment, issued by the IASB on June 20, 2016, clarifies the measurement basis for cash-settled, share-based payments and the accounting 20

48 Measurement of Share-based Payment Transactions for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee s tax obligation associated with a share-based payment and pay that amount to the tax authority. The amendments are effective for accounting periods beginning on or after January 1, Early adoption is permitted. Clarifications to IFRS 15 Revenue from Contracts with Customers The document, issued by the IASB on April 12, 2016, contains clarifications regarding implementation guidance on IFRS 15 Revenue from Contracts with Customers (hereafter, IFRS 15 ). The changes are effective for accounting periods beginning on or after January 1, IFRS 16 Leases On January 13, 2016, the IASB issued IFRS 16 Leases (hereafter, IFRS 16 ) to replace IAS 17 and related interpretations. IFRS 16 eliminates the distinction between an operating lease and a finance lease in the financial statements of lessees; rather, it requires that a right-of-use asset and a lease liability reflecting future lease payments are recognized for all lease contracts with duration greater than 12 months. The required distinction between operating leases and finance leases remains in the financial statements of lessors. IFRS 16 also increases disclosure requirements for both lessees and lessors. IFRS 16 is effective for accounting periods beginning on or after January 1, 2019 with earlier application permitted if IFRS 15 is also applied. Amendments to IAS 40 Transfers of Investment Property These amendments, issued by the IASB on December 8, 2016, clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence. The amendments are effective for accounting periods beginning on or after January 1, Annual improvements IFRIC 22 Foreign currency transactions and advance consideration The amendments impact 3 standards as follows: IFRS 1, First-time adoption of IFRS, effective January 1, 2018; IFRS 12, Disclosure of interests in other entities. The amendments should be applied retrospectively for accounting periods beginning on or after January 1, 2017; IAS 28, Investments in associates and joint ventures, effective January 1, This IFRIC, issued by the IASB on December 8, 2016, addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice. The amendments are effective for accounting periods beginning on or after January 1, Accounting standards, amendments and interpretations for which early adoption is permitted, not yet adopted by the Group 21

49 As at the reporting date, the following standards and amendments had been endorsed by the EU, but not yet adopted by the Group: IFRS 15 Revenue from contracts with customers On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (hereafter, IFRS 15 ), which specifies how and when to recognize revenue from contracts with customers, including construction contracts. Specifically, IFRS requires that revenues be recognized based on the following 5 steps: 1) Identification of the contract with a customer; 2) Identification of the performance obligations in the contract; 3) Determination of the transaction price; 4) Allocation of the transaction price to the performance obligations in the contract based on the relative stand-alone selling price of each good or service; and 5) Recognition of revenue when the related performance obligation is satisfied. IFRS 15 also extends disclosure requirements with regard to the nature, amount, timing and degree of uncertainty of revenues from contracts with customers and related cash flows. The new standard, which was adopted by Commission Regulation (EU) 2016/1905 of 22 September 2016, is effective for accounting periods beginning after January 1, Early adoption is permitted. IFRS 9 Financial instruments On July 24, 2014, the IASB completed its project to replace IAS 39 by issuing the final version of IFRS 9 "Financial Instruments" (hereafter IFRS 9). IFRS 9: changes the classification and measurement approach for financial assets; introduces a new impairment model for financial assets, which considers the expected credit losses; and incorporates new hedge accounting requirements. IFRS 9, which was adopted by Commission Regulation (EU) 2016/2067 of 22 November 2016, is effective for accounting periods beginning on or after January 1, Management is currently assessing the potential impacts that application of these standards, amendments and interpretations would have on the consolidated financial statements. 3. MANAGEMENT OF FINANCIAL RISKS The Group is exposed to the following risks: market risk (interest rate risk), credit risk and liquidity risk. The Group is not involved in transactions that expose it to liquidity risk. The Group s objective is to maintain a balanced approach to managing its financial exposure by matching assets and liabilities and achieving operational flexibility through the use of liquidity generated by current operating activities and bank loans. The Group s ability to generate liquidity from operations together with its borrowing capacity enable it to satisfy its operational requirements to fund working capital, invest and meet its financial obligations. Treasury and financial risk management are centralized within the Group. Specifically, the central finance function is responsible for evaluating and approving forecast financial requirements, monitoring trends and taking corrective action as necessary. The following paragraphs provide qualitative and quantitative information relating to the Group s exposure to the aforementioned financial risks. 22

50 3.1 Market risk Interest rate risk While the effect of interest rate changes on the variable component of financial payables and liquidity may result in higher/lower finance income/charges, it is noted that the Group has limited exposure to interest rate risk as the main part of its financial debt, represented by the bond loan, is at fixed rate. Interest rate risk sensitivity analysis Regarding interest rate risk, a sensitivity analysis was performed to determine the effects on consolidated income and equity of hypothetical positive and negative 100 bps variations to current effective interest rates. The analysis performed related mainly to the following: cash and cash equivalents short-term and medium/long-term debt. Regarding cash and cash equivalents, reference was made to the average balance and the average interest rate thereon for the year, while for short-term and medium- and long-term debt the effect was calculated at the reporting date. This analysis did not include financial payables contracted at fixed rates. The results of the analysis are shown in the following table: (in thousands of Euro) Impact on income, net of tax Impact on equity net of tax Sensitivity analysis -100 bps +100 bps -100 bps +100 bps Year ended December 31, (38) 38 (38) Year ended December 31, (58) 58 (58) Year ended December 31, (57) 57 (57) Note: a positive sign indicates higher income and an increase in equity; a negative sign indicates lower income and a reduction in equity. 3.2 Credit risk Credit risk represents the Group s exposure to the risk of potential losses resulting from the non-fulfillment of obligations by counterparts. The collection by points of sale of receipts from betting and/or legal gaming may generate credit risk for the Group, whose revenues are generated by the concessions granted by the Customs and Monopolies Agency (ADM), as the failure of, or losses incurred by, one or more members of the distribution network or the interruption of relations with any of them for whatever reason can have a negative impact on the Group s results, business activities, financial conditions and future prospects. Furthermore, the Group mitigates the risk associated with receivables also by obtaining bank and/or insurance guarantees. Trade receivables are recognized net of provisions, calculated on the basis of the risk of non-fulfillment of obligations by counterparts, in turn based on information available regarding the counterparty s solvency and historical data. Provisions are made against individually significant receivables for which an objective risk of partial or total noncollection is identified. The following table provides an aging analysis of (current and non-current) trade receivables, net of the allowance for doubtful receivables as of December 31, 2016, 2015 and (In thousands of Euro) As of December 31, 2016 Not yet overdue Overdue 0-30 days Overdue days Overdue days Overdue by more than 150 days Trade receivables 104,962 43,389 9,119 1,324 1,748 49,382 Allowance for doubtful receivables (32,135) (530) (31,605) Net 72,825 43,389 9,119 1,324 1,218 17,777 (In thousands of Euro) As of December 31, 2015 Not yet overdue Overdue 0-30 days Overdue days Overdue days Overdue by more than 150 days 23

51 Trade receivables 79,647 28,949 6,044 2, ,815 Allowance for doubtful receivables (31,087) (817) (30,270) Net 48,560 28,949 6,044 2,022-11,545 (In thousands of Euro) As of December 31, 2014 Not yet overdue Overdue 0-30 days Overdue days Overdue days Overdue by more than 150 days Trade receivables 71,746 24,818 8,199 1, ,338 Allowance for doubtful receivables (29,141) (388) (28,753) Net 42,605 24,818 8,199 1,003-8,585 (In thousands of Euro) As of January 1, 2014 Not yet overdue Overdue 0-30 days Overdue days Overdue days Overdue by more than 150 days Trade receivables 73,668 26,082 8,835 1, ,655 Allowance for doubtful receivables (28,730) (74) (28,656) Net 44,938 26,082 8,835 1,023-8, Liquidity risk Liquidity risk is the risk that, owing to an inability to access new funds or sell assets, the Group is unable to meet its payment obligations, leading to a negative impact on results if it is then obliged to incur additional costs to meet its obligations or deal with insolvency. The Group manages this risk by seeking to establish a financial structure that, consistent with its business objectives and defined limits, ensures sufficient liquidity, while minimising the related opportunity cost, and maintains an appropriate balance in terms of duration and composition of debt. The Group s exposure to liquidity risk relates mainly to obligations arising in relation to the refinancing operation undertaken in August 2016 through the issue of bonds and use of a revolving loan facility. The following table provides an analysis of cash disbursements by due date based on contractual repayment obligations relating to the bond loan, leasing contracts, trade payables and other liabilities, as of December 31, 2016, 2015 and 2014 and as of January 1, (in thousands of Euro) Carrying amount as of December 31, 2016 Within 1 year Between 1 and 5 years Over 5 years Bond 200,533 12, , ,834 Other current and non-current financial liabilities 21,472 15,148 6,324-21,472 Trade payables 25,990 25, ,990 Other current and non-current liabilities 98,187 78,023 20,164-98,187 Total (in thousands of Euro) Carrying amount as of December 31, 2015 Within 1 year Between 1 and 5 years Over 5 years Bond 201,907 14, , ,103 Other current and non-current financial liabilities 6,961 4,246 2,715-6,961 Trade payables 13,473 13, ,473 Other current and non-current liabilities 74,697 56,214 18,483-74,697 - Total (in thousands of Euro) Carrying amount as of December 31, 2014 Within 1 year Between 1 and 5 years Over 5 years Bond 200,437 14, , ,805 Other current and non-current financial liabilities 11,322 10, ,322 Trade payables 9,857 9, ,857 Other current and non-current liabilities 67,475 46,853 20,622-67,475 - (in thousands of Euro) Carrying amount as of January 1, 2014 Within 1 year Between 1 and 5 years Over 5 years Bond 199,079 14, , ,507 Other current and non-current financial liabilities 8,609 7,074 1,535-8,609 Trade payables 15,033 15, ,033 Other current and non-current liabilities 74,548 50,606 23,942-74,548 - Total Total 24

52 The figures in the tables above represent future principal capital and interest cash flows (non-discounted) based on contractual maturity dates. The company expects to face those contractual obligations through the liquidation of financial assets and through cash flows from operating activities. 4. CAPITAL MANAGEMENT The Group s capital management is aimed at guaranteeing solid credit ratings and adequate capital indicators to support its investment plans, while meeting contractual obligations with lenders. The Group ensures it has sufficient capital to finance its business development needs and meet operating requirements; to guarantee a balanced financial structure and minimize the total cost of capital, finances are sourced through a mix of risk capital and debt to the benefit of all stakeholders. Regarding certain financial liabilities, the Group is subject to certain restrictions (for further details see Note 9.14 Current and non-current financial liabilities ). Returns on capital are monitored by reviewing market trends and business performance, net of other commitments, including borrowing costs. In order to ensure the Group s going concern status, to develop the business and to provide an adequate return on capital, Management monitors the Group s debt to equity ratio, on an ongoing basis, also in comparison with business trend and expected future cash flows in the medium/long term. 5. FINANCIAL ASSETS AND LIABILITIES BY CATEGORY The following tables show financial assets and liabilities as of December 31, 2016, 2015 and 2014 and as of January 1, 2014, as required by IFRS 7, in accordance with the categories established by IAS 39: (in thousands of Euro) As of December 31, 2016 Financial assets and financial liabilities measured at Fair value through Profit and Loss Loans and receivables Financial assets available for sale Financial liabilities at amortized cost Current and non-current financial assets - 4, ,856 Trade receivables - 72, ,825 Tax receivables - 13, ,271 Other current and non-current assets - 53, ,734 Cash and cash equivalents - 49, ,767 Total - 194, ,453 Current and non-current financial liabilities , ,005 Trade payables ,990 25,990 Tax payables Other current and non-current liabilities ,187 98,187 Total , ,182 Total (in thousands of Euro) As of December 31, 2015 Financial assets and financial liabilities measured at Fair value through Profit and Loss Loans and receivables Financial assets available for sale Financial liabilities at amortized cost Current and non-current financial assets - 5, ,788 Trade receivables - 48, ,560 Tax receivables - 12, ,672 Other current and non-current assets - 39, ,480 Cash and cash equivalents - 50, ,110 Total - 156, ,610 Current and non-current financial liabilities , ,868 Trade payables ,473 13,473 Tax payables Other current and non-current liabilities ,697 74,697 Total , ,038 Total (in thousands of Euro) As of December 31, 2014 Financial assets and financial liabilities measured at Fair value through Profit and Loss Loans and receivables Financial assets available for sale Financial liabilities at amortized cost Total 25

53 Current and non-current financial assets - 6, ,618 Trade receivables - 42, ,605 Tax receivables - 16, ,517 Other current and non-current assets - 35, ,926 Cash and cash equivalents - 32, ,614 Total - 134, ,280 Current and non-current financial liabilities , ,759 Trade payables ,857 9,857 Tax payables Other current and non-current liabilities ,475 67,475 Total , ,091 (in thousands of Euro) As of January 1, 2014 Financial assets and financial liabilities measured at Fair value through Profit and Loss Loans and receivables Financial assets available for sale Financial liabilities at amortized cost Current and non-current financial assets - 4, ,577 Trade receivables - 44, ,938 Tax receivables - 19, ,339 Other current and non-current assets - 40, ,906 Cash and cash equivalents - 6, ,455 Total - 116, ,215 Current and non-current financial liabilities , ,688 Trade payables ,033 15,033 Tax payables Other current and non-current liabilities ,548 74,548 Total , ,269 As of December 31, 2016, the market value of the Bond liability was Euro million, compared with a nominal value of Euro 200 million and with a book value of Euro million. Other financial assets and liabilities are short-term or valued at market rates and, consequently, their fair value is deemed to be substantially in line with their carrying amount. 5.1 Determination of fair value The following table lists the assets and liabilities measured at fair value as of December 31, 2016, 2015 and 2014, analyzed by the level of input used to determine the fair value: Total (in thousands of Euro) As of December 31 As of January 1 Financial assets/liabilities measured at fair value Derivatives (level 2) Total Fair value is measured based on level 2 inputs. The Group makes use of internal measurement models, widely used in financial matters. There were no transfers between the various levels of the fair value hierarchy during the periods under examination. 6. OPERATING SEGMENTS The following disclosure regarding operating segments is provided in accordance with IFRS 8 "Operating segments (hereafter IFRS 8 ), which requires that such disclosure reflects the manner in which management manages the business and makes operational decisions. Accordingly, the operating segments and related disclosures are based on internal reporting used by management to make decisions about resources to be allocated to the various operating segments and assess performance. IFRS 8 defines an operating segment as a component of an entity that: i) engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); ii) whose operating results are regularly reviewed by the entity s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and iii) for which discrete financial information is available. The Group organizes and manages its business activities in terms of the following operating segments: (i) video lottery terminal ( VLT ); (ii) amusement with prize ( AWP ); (iii) Betting and online ; and, (iv) direct management of owned gaming halls ( Gaming halls and street operations ). 26

54 Operating segments are monitored based on: i) revenues and other income; ii) first level margin; and iii) contribution margin. First level margin is defined as revenues and other income net of distribution and platform costs, concession fees and other costs. Contribution margin is defined as first level margin, net of other distribution and platform costs and other direct costs. Management believes that the aforementioned indicators provide a good indication of the performance of the four operating segments. The following table provides details of Group operating segments for the years ended December 31, 2016, 2015 and 2014: 27

55 (in Euro thousands) VLT AWP Betting and Online Retail and Street Operations Unallocated/Elimination Total Revenues 207, , , , , ,287 6,636 8,252 37,842 8,276 16,208 28,191 (7,761) (7,746) (9,234) 502, , ,495 Other income , ,429 2,313 2,512 3,510 Total revenues and income 207, , , , , ,077 6,740 8,379 38,122 8,484 17,075 28,936 (6,867) (7,463) (7,805) 504, , ,005 Third parties distribution costs (113,772) (117,041) (125,468) (259,665) (228,053) (237,851) (3,286) (4,990) (20,500) (1,172) (1,062) (986) 7,632 7,542 7,455 (370,264) (343,604) (377,350) Concession fee-other costs (9,032) (9,052) (9,532) (6,609) (6,644) (7,910) (406) 360 (1,985) (16,030) (15,329) (19,411) First Level margin 85,013 80,664 78,675 22,180 16,522 22,316 3,047 3,749 15,637 7,311 16,013 27, (334) 118, , ,244 Other distribution and platform costs (14,986) (10,974) (11,862) (543) (1,240) (1,450) (15,529) (12,213) (13,261) Other direct costs (3,396) (3,735) (3,126) (2,882) (2,483) (3,549) (767) (546) (1,892) (5,917) (6,201) (9,060) (850) (428) (801) (13,812) (13,393) (18,428) Contribution margin 66,631 65,955 63,687 19,299 14,039 18,767 1,737 1,964 12,295 1,394 9,813 18,890 (69) (343) (1,084) 88,993 91, ,555 Indirect costs (32,448) (32,976) (48,477) Depreciation, amortization and impairments (21,492) (22,670) (32,536) Finance income Finance expenses (18,865) (20,060) (25,743) Costs related to valuation of investments (49) (61) - Impairment of financial assets (782) - (57) Profit before tax 16,061 16,085 5,928 Income tax (9,337) (8,270) (8,947) Profit/(loss) for the year 6,724 7,815 (3,019) 28

56 Given the range of services and products sold by the Group, there are no significant concentrations of revenues with individual customers. The Group currently operates solely in Italy. Finally, in terms of the balance sheet, management does not monitor assets by segment. 7. BUSINESS COMBINATIONS The business combinations that took place during the three-year period had the effect of extending the scope of the Group consolidation. All of the acquisitions (described below) were made in the context of the Group s vertical integration strategy. 7.1 Acquisition of Intralot On June 27, 2016, the Group acquired 100% of the share capital of Intralot. The acquisition involved Intralot B.V. transferring its investment in Intralot to Gamenet Group as a contribution in exchange for which Gamenet Group issued new shares valued at Euro 83,500 thousand. For further information regarding the operation and related accounting, see the detailed explanations in Notes 1.2 The Contribution and 2.1 Basis of preparation respectively. The acquisition of Intralot resulted in an increase in revenues of Euro 68,592 thousand and a decrease in the net profit (loss) attributable to the owners of the parent of Euro 3,658 thousand for the period between the acquisition date and December 31, If the acquisition had taken place on January 1, 2016, the companies acquired would have accounted for an increase in revenues of Euro 138,503 thousand and a decrease in profit (loss) attributable to the the owners of the parent of Euro 5,508 thousand for the year ended December 31, The amounts in question have been calculated based on the accounting records of the companies acquired, adjusted as necessary to reflect any differences with respect to Group accounting policies. The assets acquired and liabilities assumed were recognized at fair value, together with goodwill amounting to approximately Euro 27,426 thousand, calculated as shown in the table below: (in thousands of Euro) Book Value Purchase price allocation Fair Value Intangible assets 10,547 23,300 33,847 Property, plant and equipment 7,745 7,745 Deferred tax assets 6, ,412 Other non-current assets 4,607 4,607 Total non-current assets 29,641 23,970 53,611 Other current assets 19,309 19,309 Cash and cash equivalents 21,112 21,112 Total current assets 40,421-40,421 Total assets 70,062 23,970 94,032 Employee benefit liabilities 1,675 1,675 Provisions for risks and charges 542 2,300 2,842 Deferred tax liabilities 47 6,785 6,832 Total non-current liabilities 2,264 9,085 11,349 Trade payables 6,409 6,409 Other current liabilities 20,200 20,200 Total current liabilities 26,609-26,609 Total liabilities 28,873 9,085 37,958 Net identifiable assets acquired 41,189 14,885 56,074 (+) Goodwill 27,426 Net acquired assets (consideration paid) 83,500 Fair value adjustments to the book values of assets acquired and liabilities assumed related mainly to Intangible assets and included Euro 6,600 thousand allocated to the Amended Trademark Agreement and Euro 16,700 thousand allocated to Software for in-house use ; both figures are stated gross of the related tax effects, which are included under Deferred tax liabilities. A Provision for risks and charges amounting to Euro 2,300 thousand (gross of the related tax effects, which are included under Deferred tax assets) was also recognised in respect of potential risks (tax and personnel related risks) identified during the acquisition. As of December 31, 2016, there has been no change in the amount recognised for the liability in June The amount attributed to the Amended Trademark Agreement reflects the fair value estimated based on the Relief-from-Royalty method of the license agreement between Intralot SA Integrated Lottery Systems (licensor) and Services e Intralot Italia S.p.A. (licensee) for the right to use the Intralot trademark as well as other minor trademarks. 29

57 The amount attributed to Software for in-house use reflects the fair value estimated based on the Relief-from- Royalty method of in-house developed software used to accept and process bets, manage the related risks, manage administrative processes with agencies and communicate with Sogei using specific communication protocols. The fair values of assets acquired and liabilities assumed, as well as the residual value allocated to goodwill, are considered to be provisional as of the reporting date. As permitted by IFRS 3, the provisional amounts of assets acquired and liabilities assumed may be adjusted retrospectively during the twelve month measurement period following the acquisition date to reflect their fair value at the acquisition date, leading to remeasurement of the resulting goodwill. As the acquisition of the Intralot Group was effected through an increase in reserved share capital paid by contribution in kind, the cash flow impact of the acquisition was limited to net liquidity acquired. Costs relating to the transaction, amounting to Euro 713 thousand, were fully recognized in the income statement in the year to which they related. 7.2 Acquisition of Gamecity and Agesoft On August 4, 2016, Gamenet Entertainment S.r.l. acquired 100% of the share capital of Gamecity S.r.l. ( Gamecity ), a company specialized in the hire of entertainment devices, and on the same day acquired 60% of the share capital of Agesoft S.r.l. ( Agesoft ), a software development company specialized in the gaming applications business. The total consideration for the operation amounted to Euro 4,100 thousand. It is further noted that the acquisition price was subject to adjustment based on certain stipulations agreed with the seller and accordingly, the total acquisition cost recognized included an estimate of the fair value of such deferred consideration. Costs relating to the transaction, amounting to Euro 160 thousand, were fully recognized in the income statement in the year to which they related. The aforementioned acquisition resulted in increases in revenues and net profit (loss) attributable to the owners of the parent of Euro 1,284 thousand and Euro 482 thousand respectively for the period between the acquisition date and December 31, If the acquisition had taken place on January 1, 2016, the companies acquired would have accounted for increases in revenues and profit (loss) attributable to the owners of the parent of Euro 1,698 thousand and Euro 595 thousand respectively for the year ended December 31, The amounts in question have been calculated based on the accounting records of the companies acquired, adjusted as necessary to reflect any differences with respect to Group accounting policies. The fair values of assets acquired and liabilities assumed were determined in accordance with the provisions of IFRS 3 and the excess of the consideration paid with respect to the fair value of the net assets acquired, amounting to Euro 3,804 thousand, was recognized as goodwill. Net cash flows relating to the Gamecity acquisition are shown in the following table: (In thousands of Euro) Consideration paid at acquisition date (1,143) Cash and cash equivalents at acquisition date 307 Net cash flow from acquisition (1,136) 7.3 Acquisition of NewMatic On June 30, 2016, Gamenet acquired 51% of the share capital of New Matic S.r.l. ( NewMatic ), a company operating in the AWP business. The total consideration for the operation amounted to Euro 2,593 thousand. It is further noted that the acquisition price was subject to adjustment based on certain stipulations agreed with the seller and accordingly, the total acquisition cost recognized included an estimate of the fair value of such deferred consideration. Costs relating to the transaction, amounting to Euro 51 thousand, were fully recognized in the income statement in the year to which they related. The acquisition of NewMatic resulted in an increase in revenues of Euro 1,747 thousand and a decrease in the net profit (loss) attributable to the owners of the parent of Euro 625 thousand for the period between the acquisition date and December 31, If the acquisition had taken place on January 1, 2016, NewMatic would have accounted for 30

58 an increase in revenues of Euro 2,869 thousand and a decrease in profit (loss) attributable to the owners of the parent of Euro 943 thousand for the year ended December 31, The amounts in question have been calculated based on NewMatic s accounting records, adjusted as necessary to reflect any differences with respect to Group accounting policies. The assets acquired and liabilities assumed were recognized at fair value, together with goodwill amounting to approximately Euro 2,929 thousand, calculated as shown in the table below: (In thousands of Euro) Book Value Purchase price allocation Fair Value Net identifiable liabilities acquired (659) - (659) (-) Non-controlling interests (49%) (323) (+) Goodwill 2,929 Net acquired assets (consideration paid) 2,593 Net cash flows relating to the NewMatic acquisition are shown in the following table: (In thousands of Euro) Consideration paid at acquisition date (696) Cash and cash equivalents at acquisition date 1,449 Net cash flow from acquisition Acquisition of Jolly On June 15, 2016, Gamenet acquired 70% of the share capital of Jolly Videogiochi S.r.l. ( Jolly ), a company operating in the AWP business. The total consideration for the operation amounted to Euro 5,450 thousand. It is further noted that the acquisition price was subject to adjustment based on certain stipulations agreed with the seller and accordingly, the total acquisition cost recognized included an estimate of the fair value of such deferred consideration. Costs relating to the transaction, amounting to Euro 42 thousand, were fully recognized in the income statement in the year to which they related. The acquisition of Jolly resulted in increases in revenues and net profit (loss) attributable to the owners of the parent of Euro 2,308 thousand and Euro 378 thousand respectively for the period between the acquisition date and December 31, If the acquisition had taken place on January 1, 2016, Jolly would have accounted for increases in revenues and profit (loss) attributable to the owners of the parent of Euro 3,718 thousand and Euro 307 thousand respectively for the year ended December 31, The amounts in question have been calculated based on Jolly s accounting records, adjusted as necessary to reflect any differences with respect to Group accounting policies. The assets acquired and liabilities assumed were recognized at fair value, together with goodwill amounting to approximately Euro 4,061 thousand, calculated as shown in the table below: (In thousands of Euro) Book Value Purchase price allocation Fair Value Net identifiable assets acquired 1,984-1,984 (-) Non-controlling interests (30%) 595 (+) Goodwill 4,061 Net acquired assets (consideration paid) 5,450 Net cash flows relating to the Jolly acquisition are shown in the following table: (In thousands of Euro) Consideration paid at acquisition date (3,072) Cash and cash equivalents at acquisition date 1,607 Net cash flow from acquisition (1,465) 7.5 Acquisition of Billions On March 12, 2015, Gamenet acquired 51% of the share capital of Billions Italia S.r.l. ( Billions ), a company operating in the gaming halls business. The total consideration for the operation amounted to Euro 9,351 thousand. It is also noted that the acquisition price was subject to adjustment based on certain stipulations agreed with the seller and accordingly, the total acquisition cost recognized included an estimate of the fair value of such deferred consideration. 31

59 Costs relating to the transaction, amounting to Euro 18 thousand, were fully recognized in the income statement in the year to which they related. The acquisition of Billions resulted in increases in revenues and net profit (loss) attributable to the owners of the parent of Euro 5,834 thousand and Euro 656 thousand respectively for the period between the acquisition date and December 31, The assets acquired and liabilities assumed were recognized at fair value, together with goodwill amounting to approximately Euro 6,959 thousand, calculated as shown in the table below: (In thousands of Euro) Book Value Purchase price allocation Fair Value Net identifiable assets acquired 2,370 1,985 4,355 (-) Non-controlling interests (49%) 2,134 (+) Goodwill 6,959 Net acquired assets 9,180 Fair value adjustments to the book values of assets acquired and liabilities assumed related mainly to Intangible assets and included Euro 2,800 thousand allocated to the Billions trademark (gross of the related tax effects, which are included under Deferred tax liabilities) and the zeroing of the previously existing goodwill. The fair value of the Billions trademark was estimated using the Relief-from-Royalty method. Net cash flows relating to the Billions acquisition are shown in the following table: (In thousands of Euro) Consideration paid at acquisition date (5,400) Cash and cash equivalents at acquisition date 7 Net cash flow from acquisition (5,393) 7.6 Acquisition of Gnetwork On August 3, 2015, Gamenet acquired 100% of the share capital of Gnetwork S.r.l. ( Gnetwork ), a company operating in the AWP business. The total consideration for the operation amounted to Euro 3,097 thousand. It is further noted that the acquisition price was subject to adjustment based on certain stipulations agreed with the seller and accordingly, the total acquisition cost recognized included an estimate of the fair value of such deferred consideration. Costs relating to the transaction, amounting to Euro 123 thousand, were fully recognized in the income statement in the year to which they related. The acquisition of Gnetwork led to increases in revenues and net profit (loss) attributable to the owners of the parent of Euro 3,099 thousand and Euro 626 thousand respectively for the period between the acquisition date and December 31, If the acquisition had taken place on January 1, 2015, Gnetwork would have accounted for increases in revenues and profit (loss) attributable to the owners of the parent of Euro 3,517 thousand and Euro 800 thousand respectively for the year ended December 31, The amounts in question have been calculated based on Gnetwork s accounting records, adjusted as necessary to reflect any differences with respect to Group accounting policies. The assets acquired and liabilities assumed were recognized at fair value, together with goodwill amounting to approximately Euro 2,754 thousand, calculated as shown in the table below: (In thousands of Euro) Book Value Purchase price allocation Fair Value Net identifiable assets acquired (+) Goodwill 2,754 Net acquired assets 3,096 Finally, it is noted that the acquisition of Gnetwork involved no cash outlay as the contribution liability was fully compensated by the transfer to the minority shareholder (by Gamenet) of 26,282 Gamenet Class A shares. 7.7 Acquisition of businesses In July 2015, Gamenet acquired two businesses with operating devices already linked to the concessionaire, located in gaming halls owned through the subsidiary Gamenet Entertainment S.r.l. On August 5, 2015, Gamenet Entertainment S.r.l. acquired a business comprising a gaming hall located in Prato. No earn out mechanisms were provided for. 32

60 The fair value of the assets acquired and contingent liabilities assumed was measured in accordance with IFRS 3 and goodwill recognized to reflect the difference between the acquisition price and the fair value of the assets. (In thousands of Euro) Consideration paid 4,200 Net acquired assets 1,908 Goodwill 2,292 Cash flows relating to the consideration paid for businesses acquired in 2015 amounted to Euro 2,205 thousand. On May 15, 2014, Gamenet Entertainment S.r.l. acquired a business comprising a gaming hall located in the Province of Bergamo and another located in Rome. No earn out mechanisms were provided for. The acquisition was wholly financed by the Group from its own resources. The fair value of the assets acquired and contingent liabilities assumed was measured in accordance with IFRS 3 and goodwill recognized to reflect the difference between the acquisition price and the fair value of the assets. (In thousands of Euro) Consideration paid 1,550 Net acquired assets 205 Goodwill 1,345 Cash flows relating to the consideration paid for businesses acquired in 2014 amounted to Euro 800 thousand. 33

61 8. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 8.1 Revenues The following table provides a breakdown of Revenues : Year ended December 31, (in thousands of Euro) VLT 213, , ,807 AWP 267, , ,355 Betting and Online 37,842 8,252 6,636 Retail and Street Operations 28,191 16,208 8,276 Not allocated/eliminations (9,234) (7,746) (7,761) Total 537, , , Other income Other income amounted to Euro 3,510 thousand, Euro 2,512 thousand and Euro 2,313 thousand for the years ended December 31, 2016, 2015 and 2014 respectively and related for the main part to compensation and reimbursement for damages, gains on the disposal of property plant and equipment and other transactions income. 8.3 Cost of services The following table provides a breakdown of Cost of services : Year ended December 31, (in thousands of Euro) Distribution network compensation 381, , ,268 Concession Fee 18,033 16,189 16,048 Fee on VLT platform licenses 11,683 9,661 13,522 Leases and rentals 7,816 6,734 5,629 Technical assistance and network management 5,939 4,440 3,869 Utility costs, postal and logistics costs, security services 5,096 2,891 2,376 Tax, administrative and legal consultancy costs 2,849 2,497 2,450 Data transmission 2,157 2,237 2,426 Board of Directors remunerations and costs 1,829 1,071 1,155 Marketing and advertising 1, ,394 Bank and insurance expenses Costs for equity investments acquisition Costs of providers and live betting Other 3,872 1,341 2,683 Total 445, , , Personnel expenses The following table provides a breakdown of Personnel expenses : Year ended December 31, (in thousands of Euro) Remuneration 17,359 12,462 9,802 Social security contributions 4,897 3,179 2,690 Other personnel costs 2,486 1,148 1,155 Total 24,742 16,789 13,647 The following table shows Group employee numbers by category: Number as of Number as of Number as of Average number December 31, 2014 December 31, 2015 December 31, Executives ,0 22,5 Middle managers ,6 60,3 White collar ,7 370,6 Blue collar ,9 70,0 Total ,2 523,4 8.5 Other operating costs The following table provides a breakdown of Other operating costs : 34

62 Year ended December 31, (in thousands of Euro) Purchase of goods and other purchases 1, Fines, penalties and losses on receivables 1, Taxes and sundry duties Entertainment expenses Expenses on corporate restructuring and redundancy ,771 VLT fault reporting Other expenses 298 1,614 1,015 Total 3,944 4,414 5, Depreciation, amortization and impairments The following table provides a breakdown of Depreciation, amortization and impairments : Year ended December 31, (in thousands of Euro) Amortization of intangible assets 19,274 15,360 14,178 Depreciation of property, plant and equipment 12,094 7,280 7,195 Depreciation of investment property Impairments of property, plant and equipment and intangibles assets 1, Total 32,536 22,670 21, Accruals and impairments The following table provides a breakdown of Accruals and impairments : Year ended December 31, (in thousands of Euro) Allowance for doubtful receivables 2,857 2,461 3,451 Provision for write-downs of AAMS' guarantee deposits Provision for technological renewals (149) Provision for risks and charges (429) (18) 144 Total 3,151 2,529 3,594 Provisions are stated net of releases. 8.8 Share of profit of equity accounted investments The following table provides a breakdown of Share of profit of equity accounted investments : Year ended December 31, (in thousands of Euro) Loss related to equity method valuation (Verve) Total Finance income and expenses (net) The following table provides a breakdown of Finance income and expenses (net); Year ended December 31, (in thousands of Euro) Interest income related to distribution network Interest income on bank current accounts FV measurement of derivative financial instruments Other interest income Total Interest expense on bonds (14,054) (14,702) (14,702) Amortized cost on bond (4,574) (1,471) (1,358) Commission on sureties (2,050) (1,421) (1,509) Expenses related to early redemption of bond (3,625) - - Other interest expense (1,440) (2,466) (1,296) Total (25,743) (20,060) (18,865) Financial income and expenses, net (25,557) (19,637) (18,161) 8.10 Income tax expense The following table provides a breakdown of Income tax expense : Year ended December 31, (in thousands of Euro) Current taxes 5,236 5,746 4,492 35

63 Deferred taxes 3,711 2,524 4,845 Total 8,947 8,270 9,337 The following table shows the reconciliation between the theoretical tax charge and the reported tax expense for the period: 8.11 Earnings per share (in thousands of Euro) 2016 % Profit before tax 5,928 Theoretical income tax charge (IRES) (1,630) Italian Regional tax on productive activity (current & deferred) (2,176) Permanent differences (3,651) Other adjustment (1,490) Income tax expense (8,947) The following table shows the calculation of the basic and diluted earnings per share. Year ended December 31, Net profit (loss) for the year attributable to the owners of the parent (in thousands of Euro) (2,131) 6,944 6,724 Weighted average number of shares (in thousands) 16,238 2,520 2,520 Earnings per share (in Euro) (0,13) 2,76 2,67 Diluted earnings per share is equal to basic earnings per share as no financial instruments having potential dilutive effects had been issued. 36

64 9. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 9.1 Intangible assets The following table provides a breakdown of intangible assets and movements during the periods under review: Intangible assets Patents and rights Concessions, licenses, trademarks and similar rights Assets under development and payments on account Total (in thousands of Euro) Balance as of January 1, ,575 1, ,945 Additions ,895 3,309 Disposals for the year net of accumulated amortization - (30) (250) (280) Amortization for the year (371) (13,757) (50) (14,178) Impairments Reclassifications (655) - Balance as of December 31, ,036 93,050 3,710 97,796 Additions 894-2,507 3,401 Business combinations - 3,078-3,078 Disposals for the year net of accumulated amortization - - (357) (357) Amortization for the year (1,070) (14,238) (52) (15,360) Impairments Reclassifications 4, (4,154) (84) Balance as of December 31, ,912 81,908 1,654 88,474 Additions 3,824 6, ,516 Business combinations 1,321 31,128 1,712 34,161 Disposals for the year net of accumulated amortization 33 2 (276) (241) Amortization for the year (1,968) (17,204) (102) (19,274) Impairments (81) (5) (312) (398) Reclassifications (540) 6 Balance as of December 31, , ,543 2, ,244 The increase in Patents and rights was mainly due to costs incurred in relation to implementation of the new SAP ERP system and software purchases linked to alignment of the systems used to manage the concession. Concessions, licenses, trademarks and similar rights includes VLT licenses that the Group has acquired over time. For details regarding movements due to business combinations, see Note 7 above 9.2 Goodwill The following table provides a breakdown of goodwill and movements during the periods under review: (In thousands of Euro) Goodwill Total As of January 1, ,559 Acquisition of Grumello - Show Games 1,290 Acquisition of Grumello - Iromani 55 Impairment - As of December 31, ,904 Acquisition of Billions 6,959 Acquisition of Gnetwork 2,754 Acquisition of - Isola del tesoro 955 Acquisition of - Romagna Giochi 1,112 Acquisition of - Riviera Giochi 225 Impairment - As of December 31, ,909 Acquisition of Gamecity 3,217 Acquisition of Agesoft 587 Acquisition of NewMatic 2,929 Acquisition of Jolly 4,061 Acquisition of Intralot 27,426 Acquisition of Grumello BM 188 Impairment - As of December 31, ,317 For further details regarding acquisitions carried out during the three-year period , see Note 7 Business combinations. 37

65 The group of cash-generating units (CGUs) to which the goodwill is allocated, representing the level at which it is monitored by the management of the Company, corresponds with the operating segments of the Group and described in detail in Note 6 - Operating segments. Specifically, as of December 31, 2016, goodwill was allocated as follows: (In millions of Euro) Goodwill by groups of CGU Amount AWP 11.0 VLT 1.4 Betting and Online 15.1 Retail and Street Operations 31.8 As of December 31, In accordance with the applicable accounting standards, impairment tests are performed at reporting date to identify any evidence of impairment of goodwill. Impairment tests compare the book value of goodwill with the value in use of the group of CGU to which it relates (for a description of the methodology followed for the impairment test, please refer to the previous note Accounting policies and measurement criteria). The Company s Board of Directors determined value in use to be the present value (calculated using the DCF method) of the cash flows expected to be derived from each cash-generating unit during the three-year period subsequent to the reporting date. Forecast data for each group of CGU was estimated based on past and expected future growth in turnover, EBITDA, cash flows and economic performance. The terminal value of each group of CGU was calculated based on an estimate of the each group of CGU s future cash flows (using the perpetuity growth model) and the latest available forecast data, assuming an interest rate of 1.2% and a weighted average cost of capital (WACC) of 8%, which represents the weighted average of the cost of own capital and the after-tax cost of borrowing. Based on the impairment test performed, the estimated recoverable amounts of each group of CGUs exceeded their related book values at the reporting date. Sensitivity analyses were also conducted to check the effects of change in certain significant parameters on the impairment test results. In particular, reasonable individual changes in the major variables involved (an increase or decrease in WACC of 1%, in growth rate of 1% and in cash flow of 10%) the recoverable amount of each group of CGU is not less than the carrying amount, all other factors remaining the same. 9.3 Property, plant and equipment The following table provides a breakdown of property, plant and equipment and movements during the periods under review: Plant and machinery Industrial and commercial equipment Other assets Leasehold improvements Assets under construction and payments on account Total (in thousands of Euro) Balance as of January 1, ,609 23,154 2,300 3,198 1,476 32,737 Additions ,312 Business combinations - Disposals for the year net of accumulated depreciation (232) (130) (55) (45) (462) Depreciation for the year (624) (4,977) (714) (880) (7,195) Impairments (92) (92) Reclassifications (1,776) - Balance as of December 31, ,015 19,590 1,894 2, ,300 Additions 40 1, ,889 Business combinations 611 1, ,131 4,809 Disposals for the year net of accumulated depreciation (296) (140) (107) (10) (553) Depreciation for the year (715) (4,483) (582) (1,500) (7,280) Impairments (2) - (1) (3) Reclassifications (243) 84 Balance as of December 31, ,886 18,071 1,827 4, ,246 Additions 366 9,359 2,186 5,299 2,628 19,838 Business combinations 141 7,530 3, ,331 Disposals for the year net of accumulated depreciation (7) (46) (51) 38

66 Depreciation for the year (983) (8,149) (1,245) (1,717) - (12,094) Impairments - (743) (743) Reclassifications (904) (6) Balance as of December 31, ,457 26,891 6,451 7,594 2,128 45,521 Plant and machinery relates mainly to investments made in prior years to update the telephone switchboard hardware. Additions reflect costs incurred to purchase ICT security equipment. Additions to Industrial and commercial equipment relate mainly to the purchase of new electronic game cards for Series 6A gaming machines and the purchase of new cabinets and change machines in line with the Group s strategy to increase its horizontal integration in the AWP and VLT market. Other assets relates to the purchase of VLT terminals, new storage systems, cash desks and other IT assets for VLT halls. Such purchases relate both to system hardware upgrades, initiated in previous years, and to hardware investments required by concession-related obligations regarding gaming platform data base management. Assets under construction and payments on account relates mainly to down payments for the purchase of new gaming devices. 9.4 Investment property Investment property relates to a property located in Rome. Movements relate solely to annual depreciation as reported: (In thousands of Euro) Investment property Total As of January 1, Acquisitions - Depreciation (27) As of December 31, Acquisitions - Depreciation (27) As of December 31, Acquisitions - Depreciation (27) As of December 31, Current and non-current financial assets The following table provides a breakdown of current and non-current financial assets: As of December 31, As of January 1, (in thousands of Euro) Bonds 3,156 3,005 3,005 3,005 Guarantee deposits Restricted cash 652 1,966 1, Certificates of deposit Other investments , Total 4,856 5,788 6,618 4,577 Bonds relates to the guarantee bonds underwritten by Gamenet and traded on regulated markets to back guarantees issued by Unicredit in favor of the ADM based on certain concession-related obligations. Certain bonds purchased in 2013 were reimbursed on maturity in December 2016 and new bonds with nominal value of Euro 2,732 thousand, traded outside regulated markets, were purchased. Guarantee deposits relates to guarantees regarding the Group s secondary HQ and utility contracts. Restricted cash relates to amounts held as collateral for guarantees issued in favor of the Group in relation to the issue of a guarantee in favor of the lessor of the Group s registered offices. 9.6 Equity accounted investments 39

67 The following table shows movements in Equity accounted investments for the years ended December 31, 2016, 2015 and 2014: As of December 31 (in thousands of Euro) As of January Capital increase Profit/(loss) of equity accounted investments - (61) (49) As of December The balance relates solely to the equity method consolidation of the associate Verve S.p.A. 9.7 Deferred tax assets and deferred tax liabilities The following table provides a breakdown of Deferred tax assets and Deferred tax liabilities : As of December 31 As of January 1 (in thousands of Euro) Deferred tax assets 17,363 14,656 17,509 22,298 Deferred tax liabilities (8,510) (2,672) (2,043) (2,031) Total 8,853 11,984 15,466 20,267 The following tables provide a breakdown of movements in Deferred tax assets and Deferred tax liabilities : As of January Charges/releases to the income statement Charges/releases to the statement of comprehensive income Reclassifications As of December 31, 2014 (in thousands of Euro) Deferred tax assets Provisions for risks and charges 775 (256) Allowance for doubtful receivables 7, ,022 Property, plant and equipment 928 (61) Tax losses 10,541 (4,978) - - 5,563 Intangible assets 496 (327) Other provisions Discounting of non-current receivables Employee benefit liabilities Other 1, ,931 Total deferred tax assets 22,298 (4,809) ,509 Deferred tax liabilities Financial liabilities (application of the amortized cost method) (1,948) (1,574) Employee benefit liabilities (34) (20) - Other (49) (420) - - (469) Total deferred tax liabilities (2,031) (36) 44 (20) (2,043) Total deferred tax assets, net 20,267 (4,845) 44-15,466 (in thousands of Euro) As of Januar y Change in scope of consolidati on Purchas e Price Allocatio n Charges/releas es to the income statement Charges/releas es to the statement of comprehensive income Reclassificatio ns As of Decemb er 31, 2015 Deferred tax assets Provisions for risks and charges (100) Allowance for doubtful receivables 8, (546) - - 7,476 Property, plant and equipment (207) Tax losses 5, (2,670) - - 2,893 Intangible assets (53) Other provisions Discounting of non-current receivables Employee benefit liabilities (9) - 35 Other 1, ,055 Total deferred tax assets 17, (2,844) (9) - 14,656 Deferred tax liabilities 40

68 Financial liabilities (application of the amortized cost method) (1,574) (1,021) Other (469) (134) - (271) - - (874) Billions trademark - - (815) (777) Total deferred tax liabilities (2,043) (134) (815) (2,672) Total deferred tax assets, net 15,466 (134) (815) (2,524) (9) - 11,984 (in thousands of Euro) As of December 31, 2015 Change in scope of consolidation Purchase Price Allocation Charges/ releases to the income statement Charges/ releases to the statement of comprehensive income Reclassifications As of December 31, 2016 Deferred tax assets Provisions for risks and charges ,099 Allowance for doubtful receivables 7, (89) - - 7,387 Property, plant and equipment Tax losses 2,893 6,674 - (6,168) - - 3,399 Intangible assets Other provisions (233) Discounting of non-current receivables Employee benefit liabilities Other 2, , ,245 Total deferred tax assets 14,656 6, (4,705) ,363 Deferred tax liabilities Financial liabilities (application of the amortized cost method) (1,021) - - 1, Other (874) (47) - (417) - - (1,338) Intralot trademark software and right to use - - (6,785) (6,446) Billions trademark (777) (726) Total deferred tax liabilities (2,672) (47) (6,785) (8,510) Total deferred tax assets, net Deferred tax assets 11,984 6,695 (6,115) (3,711) - - 8,853 The temporary differences reported above will reverse during 2017 and later years, except for the tax losses, which may be carried forward indefinitely, 9.8 Other current and non-current assets The following table provides a breakdown of Other current and non-current assets : As of December 31, As of January 1, (in thousands of Euro) ADM guarantee deposits 33,561 26,079 25,919 30,324 NOE (nulla osta d esercizio) & Entry fees 6,205 3,284 2,123 2,353 Other receivables 4,876 2,376 1, Other receivables from Cogetech 3, Other accruals and prepayments 2,233 1,835 1,890 2,142 Other tax receivables 1,176 1,088 1,175 1,428 Commissions on guarantees Receivables from other concessionaires 562 1, Receivables from tax authorities 403 2,204 2,204 2,942 Gaming halls receivables Total 53,734 39,480 35,926 40,906 ADM guarantee deposits represents 0.5% of amounts waged using devices connected to the online network. Such deposits are reimbursed to the Concessionaire by the Administration when certain service levels set by the Administration are achieved. 9.9 Current and non-current trade receivables The following table provides a breakdown of Current and non-current trade receivables : As of December 31, As of January 1, (in thousands of Euro) PREU receivables 57,788 51,611 45,978 44,720 Concessionaires remuneration 14,655 11,768 9,816 8,646 Other receivables from distribution network 15,165 5,338 4,104 6,816 Receivables from operators 5, Receivables for Concession Fee 4,949 4,740 4,276 4,457 41

69 Receivables for penalties and interest on delayed payments 3,020 3,007 2,582 2,783 Receivables guaranteed by formal commitments 2,610 2,034 4,414 5,834 Receivables from customers 1, Allowance for doubtful receivables (32,136) (31,087) (29,141) (28,730) Total 72,825 48,560 42,605 44,938 PREU receivables and Concessionaires remuneration mainly comprise of receivables relating to collection activities (mainly PREU, concession fees and other amounts owing to the concessionaire) and other trade receivables. Other receivables from distribution network mainly relates to jackpot amounts not yet disbursed, tickets awaiting validation by halls, receivables relating to compensation for permits and receivables relating to contract termination penalties. The following table shows details of movements in the allowance for doubtful receivables: (in thousands of Euro) Allowance for doubtful receivables Total As of January 1, ,730 Provisions net of releases 3,451 Utilization (3,040) As of December 31, ,141 Provisions net of releases 2,461 Utilization (515) As of December 31, ,087 Provisions net of releases 2,857 Change in scope of consolidation 1,783 Utilization (3,591) As of December 31, ,136 No receivables are due in more than 5 years or are denominated in currencies other than the Euro Tax receivables This item represents tax receivables in relation to IRES and IREP taxes for the year, net of related payables Cash and cash equivalents The following table provides a breakdown of Cash and cash equivalents : As of December 31, As of January 1, (in thousands of Euro) Bank deposits 42,561 47,908 32,032 5,841 Cash on hand 7,206 2, Total 49,767 50,110 32,614 6, Shareholders' Equity As noted above, the Company was incorporated on June 21, 2016 to effect the Acquisition (see Note 1 General Information for a detailed explanation) and therefore, in accordance with the applicable accounting standards, financial information included in these financial statements for the period from January 1, 2014 to the date of the Acquisition relates solely to the group controlled by Gamenet S.p.A., which was identified as the acquirer. Furthermore, with regard to 2016, equity balances have been reclassified in accordance with those of Gamenet Group, the consolidating entity resulting from the aforementioned Acquisition. Share capital The fully-subscribed and fully-paid in share capital of Gamenet Group amounted to Euro 30,000,000 as of December 31, 2016 and was comprised of 30,000,000 ordinary shares (split between 23,920,000 Class A shares and 5,980,000 Class B shares) with nominal value of Euro 1 each. Class A and Class B shares entitle the relevant shareholders to similar equity rights, but different administrative rights. So long as both Class A and Class B shares exist: 42

70 other than in the case of share capital increases approved to permit the listing of the Company s shares on one or more regulated markets, in which case only Class A shares would be issued: (a) all increases in share capital must involve the issue of both Class A and Class B shares, in proportion to the Class A and Class B shares in existence when the share capital increase is authorized, and such Class A and Class B shares must be offered to individual shareholders in accordance with their respective subscription rights and in proportion to the respective levels of Class A and Class B shares held; (b) Class A and Class B shares must be offered at the same price; and (c) any unsubscribed shares may be pre-empted by law and converted, if required, to the other Class of share held by the shareholder exercising the preemptive right; at the General Meeting of Shareholders, two members of the Company s Board of Directors, which shall comprise between five and nine members, shall be nominated by shareholders holding at least 51% of total Class B shares issued and the remaining Board members shall be nominated by shareholders holding at least 51% of total Class A shares issued; Board of Directors discussions regarding (i) investments in joint ventures, acquisitions and the disposal of assets for individual amounts in excess of Euro 5,000,000, unless explicitly provided for in the most recent Board approved business plan; and (ii) related party transactions, must be approved by a majority of Board members including at least one Board member nominated by shareholders holding Class B shares; and one statutory auditor and one alternate statutory auditor shall be nominated by shareholders holding at least 51% of total Class B shares issued, and two statutory auditors and one alternate statutory auditor shall be nominated by shareholders holding at least 51% of total Class A shares issued. The fully-subscribed and fully-paid in share capital of the parent Gamenet S.p.A. as of December 31, 2015 and 2014, amounted to Euro 2,520,000 and was comprised of 2,520,000 ordinary shares with nominal value of Euro 1 each. Reserves and retained earnings Movements in reserves and retained earnings are reported in the relevant statements of these consolidated financial statements. Equity attributable to minority interests Equity attributable to minority interests represents the interest of third parties in the companies controlled by the Group. Related movements in such minority interests are reported in the relevant statements of these consolidated financial statements Employee benefit liabilities The following table provides a breakdown of Employee benefit liabilities : (in thousands of Euro) Employee benefit liabilities Total As of January 1, ,394 Service cost 491 Interest cost 41 Advances and benefits paid (201) Actuarial gains/(losses) 160 Change in scope of consolidation 16 As of December 31, ,901 Service cost 542 Interest cost 27 Advances and benefits paid (144) Actuarial gains/(losses) (38) Change in scope of consolidation 629 As of December 31, ,917 Service cost 1,024 Interest cost 57 Advances and benefits paid (396) Actuarial gains/(losses) 2 Change in scope of consolidation 2,399 As of December 31, ,004 The increases for the main part relate to the inclusion of the new companies within the scope of consolidation and the decreases relate to payments made to employees whose contracts terminated during the years under review. The severance indemnity due to employees is accounted for (discounted) in accordance with IAS

71 The following table details the main financial and demographic assumptions adopted in the actuarial calculations: Financial assumptions 31/12/ /12/ /12/2014 Discount rate 1.31% 2.03% 1.49% Inflation rate 1.50% 0.60% 2.00% Annual TFR increase 2.63% 1.95% 3.00% Executives 2.50% Executives 2.50% Executives 2.50% Annual salary increase Middle managers 1.00% Middle managers 1.00% Middle managers 1.00% White collar 1.00% White collar 1.00% White collar 1.00% Blue collar 1.00% Blue collar 1.00% Blue collar 1.00% Demographic assumptions Mortality rate RG48 mortality tables published by the State General Accounting Office Disability INPS (social security) tables by age and gender Retirement 100% on reaching AGO requirements Annual turnover and frequency of advance payments Frequency of advance payments 0.50% Turnover rate 10.00% The following table shows the results of sensitivity analyses performed for each actuarial assumption, highlighting the effects (in absolute terms) that would occur upon reasonable possible changes in actuarial assumptions: (in thousands of Euro) Change in assumption Amount Turnover rate +1,00% 5,957 Turnover rate -1,00% 6,058 Inflation rate +0,25% 6,103 Inflation rate -0,25% 5,908 Discount rate +0,25% 5,884 Discount rate -0,25% 6,129 The average financial duration of the obligation as of December 31, 2016 was 13 years. The following table provides a summary overview of expected plan disbursements: Expected disbursements Years Thousands of Euro Current and non-current financial liabilities The following table provides a breakdown of Current and non-current financial liabilities : As of December 31, As of January 1, (in thousands of Euro) Bonds 195, , , ,916 Accrued interest - bonds 5,000 6,163 6,163 6,163 Alba leasing mortgage Bank borrowings 6,859-9,205 6,000 Shareholders' loans 2,998 Put option liability 2,029 Derivative financial instruments Payables for earn-out on acquisitions 2,787 2, Payables for business units acquisitions 603 2,493 1,834 2,000 Payables for acquisitions 6,173 1, Total 222, , , ,688 Current and non-current financial liabilities includes: bonds (nominal value of Euro 200,000 thousand) entered into on August 1, 2013 and August 15, 2016 (described in detail below), which are recognized at amortized cost of Euro 195,531 thousand, Euro 195,744 thousand, Euro 194,274 thousand and Euro 192,916 thousand as of December 31, 2016, 2015 and 2014 and as of January 1, 2014 respectively. Transaction costs incurred for the main part included professional fees related to the bond issue; 44

72 short-term bank borrowings in the form of a revolving credit line, which was utilized in the amounts of Euro 6,859 thousand, Euro 9,205 thousand and Euro 6,000 thousand as of December 31, 2016 and 2014 and as of January 1, 2014 respectively. Specifically, in July 2016 the Group entered into a revolving credit facility agreement ( RCF ) with a nominal maximum amount of Euro 30,000 thousand. The first drawdown of the RCF was an amount of Euro 5 million on August 4, 2016, which was then renewed on November 4, 2016 with maturity in May 2017; the facility carries interest at a variable rate of Euribor plus 3.5%; Alba leasing mortgage, relating to the ten-year mortgage with maturity in April 2017 for the acquisition of a property; derivative financial instruments, representing the negative fair value of an interest rate swap contract in place as of December 31, 2014 and January 1, 2014, which was terminated during The derivative financial instrument was entered into by Gamenet in 2010 in connection with a loan (since repaid) amounting to Euro 80 million; the put option liability, amounting to Euro 2,029 thousand as of December 31, 2016, based on the best estimate of the disbursement required to acquire the residual share capital of Jolly; the payable relating to the earn out agreed in the context of investments acquisition (Euro 1,890 thousand as of December 31, 2016 and 2015) and the deferred payment due in respect of business combinations; payables due for the acquisition of business units, which relate to amounts still to be paid as per contract in relation to the acquisition of gaming hall business units by Gamenet Entertainment S.r.l. and Gamenet S.p.A.; the remaining payables outstanding in relation to the acquisitions of NewMatic, Jolly, Agesoft and Gnetwork. There were no non-current financial liabilities due after five years. The following table provides a summary of key information relating to financial liabilities: (in thousands of Euro) As of December 31 As of January 1 Of which Of which Of which 2016 Of which current Current and non-current financial liabilities current current current Senior Secured Notes due 2018 (*) , , ,000 - Senior Secured Notes due , Intesa SanPaolo credit line ,205 9,205 6,000 6,000 Unicredit credit line 6,859 6, Accrued interest 5,000 5,000 6,163 6,163 6,163 6,163 6,163 6,163 Transaction costs (4,469) - (4,256) - (5,726) - (7,084) - Finance leases Payables for acquisitions of subsidiaries, business 9,563 8,266 units and earn-out 6,866 4,175 1,834 1,376 2,000 1,000 Derivative financial instruments Put option 2, Due to shareholders 2, Total 222,005 20, ,868 10, ,759 16, ,688 13,237 * Reimbursed in advance during 2016 Current and non-current financial liabilities Original amount Year Expiry Interest rate Senior Secured Notes due 2018 (*) 200, % Senior Secured Notes due , % Intesa SanPaolo credit line 10, Euribor + spread% Revolving credit lines 30, Euribor + spread% * Reimbursed in advance during 2016 Bond (Senior Secured Notes) On August 15, 2016, Gamenet Group issued a bond, listed on the Euro MTF market organized and managed by the Luxembourg Stock Exchange, for a total principal of Euro 200,000 thousand, bearing interest of 6% and with maturity on August 15, 2021 (the Bond ); the Bond was used for the advance reimbursement of the bond issued by Gamenet on August 1, 2013 for the same amount, which had an original maturity date of August 1, 2018 and bore interest of 7.25%. The Bond contract provides that the Company has the possibility to reimburse the Bond, or a portion thereof, in advance. The main conditions relating to advance (partial or total) reimbursement are as follows: i) if reimbursed prior to February 15, 2018, the Group is required to repay a total of 106% of the amount disbursed (in any event, not greater than 40% of the nominal value of the Bond) plus unpaid interest due; ii) if reimbursed between February 15, 2018 and February 14, 2019, the Group is required to repay a total of 103% of the amount disbursed plus unpaid interest due; iii) if reimbursed between February 15, 2019 and February 14, 2020, the Group is required to repay a total of 101.5% of the amount disbursed plus unpaid interest due; and iv) if reimbursed in advance but after February 15, 2020, the Group is required to repay the nominal value of the Bond plus unpaid interest due. 45

73 Terms and conditions of the Bond contract impose, in line with similar operations in the market, a series of covenants and restrictions on the Group s certain operations, unless they are in compliance with specific financial parameters (i.e. incurrence based covenants) or specific dispositions provided by the contract. In particular, there is a limit to total financial indebtedness that the Group may assume triggered by Fixed Charge Coverage Ratio 2, calculated as the ratio between consolidated EBITDA and consolidated net financial expenses, being equal or greater than 2.0. However, other specific types of financial indebtedness strictly provided by the contract may still be used (i.e. Indentures). Indentures further limit the possibility of the holding company to distribute cash dividend payments to shareholders. In particular, the cash dividend payment is subject to the fact that the Fixed Charge Coverage Ratio of Gamenet Group S.p.A., as previously defined, is equal or greater than 2.0 and that there is Default or Event of Default going on (as defined in Indentures). In the event of a change in control, the Group would be required to repurchase the entire Bond outstanding at a price equal to 101% of its nominal value plus unpaid interest due at the reacquisition date. The Revolving Credit Facility As part of the aforementioned refinancing operation, on July 19, 2016, the Group entered into a revolving credit facility for a sum amounting to Euro 30,000 thousand with Unicredit Bank AG Milan Branch in the role of agent and security agent and Banca IMI S.p.A. and Unicredit S.p.A, among others, as lead arrangers (the Revolving Credit Facility ). The Revolving Credit Facility has a maturity of four years and six months and interest on the credit facility is set at Euribor plus a spread; the contract provides that the spread may be reduced over time in line with variations in the ratio between net financial debt and EBITDA, as shown in the following table: Net financial debt/ebitda (*) Annual spread 1,75: ,25:1 e 1,75: ,25: * As defined contractually Gamenet Group is also required to respect certain financial covenants, such as maintaining consolidated EBITDA levels above the minimum level defined in the loan contract; non-compliance with such covenants (events of default) may result in the outstanding loan becoming immediately due and payable. Specifically, at September 30, 2016 and at the end of each subsequent quarter up to September 2018, consolidated EBITDA must not fall below Euro 55 million, while for the 12-month period ending December 31, 2018 and at the end of each subsequent quarter thereafter until the deadline of the Revolving Credit Facility contract, consolidated EBITDA must not fall below Euro 60 million. It is noted that, as at the date of approving these consolidated financial statements, the covenants had been fully complied with. In line with normal market practice in such cases, the Bond and the Revolving Credit Facility impose a series of restrictions on operations that may be undertaken by the Group, unless certain incurrence based covenants or specific exceptions provided for in the contracts are complied with. Specifically, other than in certain exceptional cases, the Group may only take on or guarantee further borrowing if it complies with certain Fixed Charge Coverage Ratios (as previously defined) and may only distribute dividends if it complies with certain Consolidated Leverage Ratios (defined as the ratio between net financial debt and consolidated EBITDA). The Consolidated Leverage Ratio is calculated at each year end and the spread component of the interest rate modified accordingly, while the Fixed Charge Coverage Ratio is calculated whenever the Group intends to take on or guarantee further debt. The aforementioned covenants are not applicable with reference to December 31, It is noted that, as of December 31, 2016, the aforementioned restrictions and covenants had been fully complied with. * * * 2 Fixed Charge Coverage Ratio shall be computed on a consolidated basis, with regards to the previous 12 months ended before the date of the calculation. The scope of consolidation, contractually defined for the purpose of this calculation, might not coincide with the one defined in accordance with IFRS. 46

74 For the sake of completeness, it is noted that the Indentures provide that certain of the aforementioned restrictions and covenants no longer apply if the bonds achieve investment grade status, defined as a credit rating of BBB- or higher (S&P) and Baa3 or higher (Moody s). The related actual credit ratings at the date of preparing this document are: B (S&P) and B1 (Moody s) Provisions for risks and charges The following table provides a breakdown of Provisions for risks and charges : (in thousands of Euro) Provisions for risks and charges Total As of January 1, ,530 Provisions 950 Utilizations (984) Releases (955) As of December 31, ,541 Provisions 622 Utilizations (5) Releases (635) As of December 31, ,523 Provisions 659 Change in scope of consolidation 542 Purchase Price Allocation (Note 7.1) 2,300 Releases (440) Utilizations (36) As of December 31, ,548 As of December 31 As of January 1 (in thousands of Euro) Provision for technological renewals 1, Provision for legal disputes 3, ,774 Total 4,548 1,523 1,541 2,530 The Provision for technological renewals comprises periodic provisions made by concession-holding Group companies for technological and structural upgrading of the online network and other infrastructures used for gamingrelated collection activities. The Provision for legal disputes includes provisions in respect of total estimated costs relating to disputes, including labor-related disputes, with third parties Current trade payables The following table provides a breakdown of Current trade payables : As of December 31, As of January 1, (in thousands of Euro) Trade payables 13,002 8,422 5,355 9,482 Invoices to be received 12,988 5,051 4,502 5,551 Total 25,990 13,473 9,857 15, Other current and non-current liabilities The following table provides a breakdown of Other current and non-current liabilities : As of December 31, As of January 1, (in thousands of Euro) Payables to tax authorities for PREU 35,891 28,458 22,208 25,334 Other payables to tax authorities 10,291 8,203 7,715 9,238 Deferred income on VLT contribution 9,402 11,170 12,933 14,703 Provision for Jackpot and tickets to be validated 8,668 9,357 7,702 8,467 Payables to distribution network for guarantees 12,597 7,328 7,535 8,184 Payables to other concessionaires for bets/wagers collection 5,896 1,

75 Payables to employees 3,115 3,123 1,826 1,279 Payables to INPS 1,657 1,835 2, Public gaming taxes 1, Other payables 9,541 3,452 5,079 5,978 Total 98,187 74,697 67,475 74, RELATED PARTY TRANSACTIONS Details of related party transactions are provided below. The companies mentioned are considered to be related parties because they are directly or indirectly related to the shareholders of Gamenet Group. The following table shows Group receivables and payables due from/to related parties: (in thousands of Euro) As of December 31,2016 As of December 31,2015 As of December 31,2014 Nature of transactions Receivables Payables Receivables Payables Receivables Payables Shareholders Intralot Global Holdings B.V. Financial - 2, Total Shareholders - 2, Associates Verve S.p.A. Financial Total Associates Other related parties CRIGA Commercial/Taxes Dgplay S.r.l. Commercial/Financial 2,226 3,502 1,924 2, Billions Bologna Commercial/Financial Intralot S.A. Commercial/Financial Intralot Interactive Commercial/Financial Total Other related parties 2,510 3,982 2,208 2, Total Related Parties 2,537 6,988 2,733 2, The following table shows details of Group transactions with related parties: As of December (in thousands of Euro) 31,2016 As of December 31,2015 As of December 31,2014 Nature of transactions Revenues Costs Revenues Costs Revenues Costs Shareholders Intralot Global Holdings B.V. Financial Total Shareholders Associates Verve S.p.A. Commercial/Financial Total Associates Other related parties CRIGA Commercial/Taxes Dgplay S.r.l. Commercial/Financial Billions Bologna Commercial/Financial Romagna Giochi S.r.l. Commercial ,451 Italgiochi 2001 S.r.l. Commercial C.N.G. S.r.l. Commercial Extra Games S.r.l. Commercial M Group di Minopoli Pietro S.a.s. Commercial Intralot S.A. Commercial/Financial Intralot Global Holding Commercial/Financial Total Other related parties , ,632 Total Related Parties , ,632 Compensation paid to managers with strategic responsibilities during the year amounted to Euro 1,490 thousand. 11. OTHER INFORMATION 11.1 Commitments and risks Guarantees granted in favor of third parties It is noted that as of December 31, 2016, the Group had granted concession related guarantees amounting to Euro 60,236 thousand in favour of the ADM. Other commitments 48

76 The minimum future payments due as of December 31, 2016 in respect of irrevocable operating leases amounted to Euro 1,145 thousand. Contingent liabilities Other than as reported above, management is not aware of any disputes or legal actions that could reasonably have significant repercussions on the Group s operating results, financial position or cash flows Compensation paid/due to executives, statutory auditors and Directors of the Company with strategic responsibilities Compensation due to executives and statutory auditors for the years ended December 2016, 2015 and 2014 amounted to Euro 1,260 thousand, Euro 430 thousand, Euro 660 thousand respectively. Compensation due to Directors of the Company with strategic responsibilities totaled Euro 3,819 for the years ended December 2016, 2015 and 2014 respectively Fees due to independent auditors Fees due to independent auditors for the years ended December 2016, 2015 and 2014 amounted to Euro 378 thousand, Euro 250 thousand, Euro 256 thousand respectively Significant events occurring after the reporting period On January 31, 2017, Gamenet S.p.A. sold its 2% shareholding in Intralot Gaming Machines S.p.A to Intralot Holding & Services S.p.A, through a share purchase agreement signed on the same date. As a result of such transaction, Intralot Holding & Services S.p.A. now holds 100% of the share capital of Intralot Gaming Machines S.p.A. On March 2, 2017, Gamenet Entertainment S.r.l. signed a framework agreement for the purchase of 60% of the share capital of La Chanche S.r.l., which is active in the public gaming sector both directly, through its management of a gaming hall (with 15 AWPs and 33 VLTs) located in Eupilio (CO), and indirectly through its ownership of the entire share capital of Slot Planet, which manages a gaming hall (with 34 AWPs and 22 VLTs) located in Segrate (MI). At an extraordinary meeting on March 23, 2017, Gamenet S.p.A. s Board of Directors approved the merger by incorporation of the subsidiaries Intralot Holding & Services S.p.A. and Intralot Gaming Machine S.p.A. into Gamenet S.p.A. 49

77 12. FIRST- TIME ADOPTION OF EU-IFRS Criteria followed for the transition from Italian GAAP to EU-IFRS The following paragraphs describe the procedures followed to make the transition from Italian GAAP to EU-IFRS for the purposes of preparing the Consolidated Financial Statements (hereafter, the Transition Process ) General principles As described below, other than where prohibited and in the case of certain permitted exemptions, the Group has applied EU-IFRS retrospectively to all accounting periods closed prior to the Transition Date in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards (hereafter, IFRS 1 ). Specifically, the accounting standards referred to are those described in Note 2.4 above Accounting Policies and Measurement Criteria. The financial position as of January 1, 2014 presents the following differences with respect to the Group s Consolidated Financial Statements as of December 31, 2013, prepared under Italian GAAP: assets and liabilities for which recognition is required by EU- IFRS, including those not provided for under Italian GAAP, have been recognized and measured; assets and liabilities for which recognition is required by Italian GAAP but not by EU-IFRS, are not recognized; and certain items have been reclassified in accordance with EU-IFRS. At the Transition Date, the effect of adjusting opening asset and liability balances to the new standards is recognized in the Reserve for first-time adoption of EU-IFRS in the Consolidated Statement of Financial Position, considering the related tax effects (see also Note 2.4 above Accounting Policies and Measurement Criteria regarding recognition of deferred tax assets) Presentation of the financial statements For details regarding the presentation of the financial statements, see Note 2.2 Format and content of the financial statements Mandatory exceptions to the retrospective application of EU-IFRS As and to the extent applicable to Group activities, in accordance with IFRS 1, mandatory exceptions to the retrospective application of EU-IFRS have been respected during the Transition Process. Estimates at the date of transition to EU-IFRS are consistent with estimates made for the same date under Italian GAAP (after adjustments to reflect any difference in accounting policies) Permitted exceptions to the retrospective application of EU-IFRS As permitted by IFRS1, on first time recognition of employee benefits under EU-IFRS, the Group has elected to recognize cumulative actuarial gains and losses as of the Transition Date in the Reserve for first-time adoption of EU-IFRS. The Group has not made use of other exceptions permitted by IFRS 1 as: i) they relate to matters for which Italian GAAP is aligned with EU-IFRS; ii) the Group has opted for retrospective application; or iii) they are not applicable to the Group Accounting treatments chosen from those permitted by IFRS The Group has chosen to adopt the following accounting treatments from those permitted by EU-IFRS: Measurement of property, plant and equipment and intangible assets: subsequent to initial recognition at cost, IAS 16 Property, Plant and Equipment (hereafter, IAS 16 ) and IAS 38 Intangible Assets require that such assets be measured either at cost or at market value, with the carrying value being adjusted to the market value at the reporting date. The Group has chosen to measure such assets at cost. Measurement of investment property: subsequent to initial recognition at cost, IAS 40 Investment Property requires that such investments be measured at fair value or at cost in accordance with IAS 16. The Group has chosen to measure such assets at cost Significant Effects of the Transition 50

78 The following tables provide details of the reclassifications and adjustments involved in the transition to IFRS: EFFECTS OF THE TRANSITION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT THE TRANSITION DATE As of January 1, 2014 Italian GAAP Note Scope of consolidation Reclassifications Adjustments EU IFRS (in thousands of Euro) (a) Intangible assets 122,877 (b) (c) (k) (l) 1 (5,551) (8,382) 108,945 Goodwill 22,530 (d) - - (14,971) 7,559 Property, plant and equipment 30,252 (l) (m) 1 2,484-32,737 Investment property - (m) Non-current financial assets 9,097 (o) (20) (4,500) - 4,577 Investment in associates accounted for equity method 263 (h) - - (129) 134 Non-current trade receivables 6,785 (e) (n) - 2,962 (633) 9,114 Deferred tax assets 21,324 (b) (c) (e) (h) (i) - (2,123) (j) (q) 1,066 20,267 Other non-current assets 4,842 (12) 884-5,714 Total non-current assets 217,970 (30) (5,130) (23,049) 189,761 Inventories Current trade receivables 38,778 (n) 8 (2,962) - 35,824 Current financial assets Tax receivables 19, ,339 Other current assets 33,713 (k) 10 1,469-35,192 Cash and cash equivalents 6, ,455 Total current assets 98, (1,493) - 96,814 Total assets 316, (6,623) (23,049) 286,575 Share capital 2, ,520 Other reserves 28,129 (i) (o) - (4,500) (16,661) 6,968 Retained earnings/(loss) (24,186) (24,106) Total shareholders' equity attributable to the owners 6, (4,500) of the parent (16,661) (14,618) Equity attributable to minority interests Total shareholders' equity 6, (4,500) (16,661) (14,618) Employee benefits liabilities 1,516 (i) - - (122) 1,394 Non-current financial liabilities 200,159 (c) ( r) (s) - 1,376 (7,084) 194,451 Provisions for risks and charges 2,906 (s) - (376) - 2,530 Deferred tax liabilities 2,123 (q) - (2,123) - - Other non-current liabilities 23, ,942 Total non-current liabilities 230,646 - (1,123) (7,206) 222,317 Current financial liabilities 12,237 (r) - 1,000-13,327 Tax payables Current trade payables 15, ,033 Other current liabilities 51,799 (j) (r) (11) (2,000) ,606 Other current liabilities 79,066 (8) (1,000) ,876 Total liabilities 309,712 (8) (2,123) (6,388) 301,193 Total equity and liabilities 316, (6,623) (23,049) 286,575 51

79 EFFECTS OF THE TRANSITION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2015 As of December 31, 2015 Italian Scope of consolidation EU Note Reclassifications Adjustments (in thousands of Euro) GAAP (a) IFRS Intangible assets 97,419 (b) (c) (f) (k) (l) 9 (7,335) (1,619) 88,474 Goodwill 31,667 (d) (f) (g) - - (10,758) 20,909 Property, plant and equipment 23,806 (l) (m) 50 3,390-27,246 Investment property - (m) Non-current financial assets 9,867 (o) (p) (105) (6,554) - 3,208 Investment in associates accounted for equity (h) method (239) 24 Non-current trade receivables 4,404 (e) (n) - 9,235 (2,915) 10,724 (b) (c) (e) (f) (g) Deferred tax assets 12,979 (h) (i) (j) (q) - (986) (9) 11,984 Other non-current assets 3,583-1,682-5,265 Total non-current assets 183,988 (46) 93 (15,540) 168,495 Inventories Current trade receivables 46,994 (n) 77 (9,235) - 37,836 Current financial assets - (p) - 2,580-2,580 Tax receivables 12, ,672 Other current assets 32,702 (k) (89) 1,602-34,215 Cash and cash equivalents 50, ,110 Total current assets 142, (5,053) - 137,455 Total assets 326, (4,960) (15,540) 305,950 Share capital 2, ,520 Other reserves 28,445 (i) (o) - (3,974) (16,977) 7,494 Retained earnings/(loss) (12,984) 86-4,350 (8,548) Total shareholders' equity attributable to the owners of the parent 17, (3,974) (12,627) 1,466 Equity attributable to minority interests 6, (3,707) 3,006 Total shareholders' equity 24, (3,974) (16,334) 4,472 Employee benefits liabilities 2,757 (i) ,917 Non-current financial liabilities 200,024 (c) (f) (r) (2,365) 198,459 Provisions for risks and charges 1, ,523 Deferred tax liabilities 986 (q) - (986) - - Other non-current liabilities 18, ,483 Total non-current liabilities 223,773 8 (186) (2,213) 221,382 Current financial liabilities 6,234 (f) (r) - 3, ,409 Tax payables Current trade payables 13, ,473 Other current liabilities 58,291 (j) (r) (109) (4,383) 2,415 56,214 Other current liabilities 77,960 (71) (800) 3,007 80,096 Total liabilities 301,733 (63) (986) ,478 Total equity and liabilities 326, (4,960) (15,540) 305,950 52

80 EFFECTS OF THE TRANSITION ON THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2015 Income statement Scope of As of December 31, 2015 Italian Note consolidation EU Reclassifications Adjustments GAAP IFRS (in thousands of Euro) (a) Revenues 527,797 (j) (t) 94 (53,868) (568) 473,455 Other income 5,121 (s) (u) (v) (81) (2,528) - 2,512 Costs of services (443,504) (b) (f) (k) (t) (u) (w) (84) 49,989 (183) (393,782) Personnel expenses (16,591) (i) (111) - (87) (16,789) Other operating costs (7,380) (g) (t) (4) 2, (4,414) Depreciation, amortization and impairments (31,763) (b) (c) (f) (g) (k) (w) (16) 3,254 5,855 (22,670) Accruals and impairments (3,176) (v) (2,529) Finance income 2,285 (f) (s) (1,980) 423 Finance expenses (16,674) (c) (e) (i) - - (3,386) (20,060) Share of profit of equity accounted investments - (h) - - (61) (61) Impairment of financial assets (70) Profit before tax 16,045 (132) ,085 Income tax expense (8,696) (b) (c) (e) (f) (h) (j) (8,270) Net profit/(loss) for the year 7,349 (77) ,815 Net profit/(loss) for the year attributable to minority interests Net profit/(loss) for the year attributable to the owners 7,028 (77) - of the parent (7) 6,944 Statement of comprehensive income As at 31 December 2015 (in thousands of Euro) Italian GAAP Note Scope of consolidation Reclassifications Adjustments EU IFRS Net profit/(loss) for the year 7,349 (77) ,815 Other items that will not be classified to profit and loss Actuarial gains and losses on employee benefit liabilities Tax impact (9) (9) Other items that may be reclassified to profit and loss - Total comprehensive income 7,349 (77) ,844 Total comprehensive income attributable to minority interests Total minority interests attributable to the owners of the parent 7,028 (77) 22 6,973 53

81 The following table provides a reconciliation of consolidated shareholders equity attributable to owners of the parent under Italian GAAP and under EU-IFRS, as at the Transition Date and as of December 31, (in thousands) Shareholders' equity at Transition date Shareholders' equity as of December 31, 2015 Italian GAAP 6,463 24,694 (a) Scope of consolidation (b) Elimination of intangible assets that may not be capitalized (1,028) (284) (c) Financial liabilities measured at amortised cost (d) Business combinations prior to the Transition Date (14,971) (14,971) (e) Discounting trade receivables (457) (2,180) (f) Calculation and allocation of the cost of business combinations - (4,742) (g) Change in goodwill measurement - 7,576 (h) Application of equity method for valuation of investments in associates (94) (182) (i) Actuarial valuation of employee benefit plan 88 (117) (j) Jackpot Liability (551) (1,711) (o) Reclassification treasury shares (4,500) (3,974) EU- IFRS (14,618) 4,472 The following table provides a reconciliation of the net profit attributable to the owners of the parent for the year ended December 31, 2015 under Italian GAAP and under IFRS (in thousands of Euro) As of December 31, 2015 Italian GAAP net profit attributable to the owners of the parent 7,028 (a) Scope of consolidation (77) (b) Elimination of intangible assets that may not be capitalized 67 (c) Financial liabilities measured at amortised cost 120 (e) Discounting trade receivables (1,433) (f) Calculation and allocation of the cost of business combinations (2,696) (g) Change in goodwill measurement 4,544 (h) Application of equity method for valuation of investments in associates (52) (j) Jackpot Liability (467) EU-IFRS net profit attributable to owners of the parent 7,034 (i) Actuarial valuation of employee benefit plan (61) Total Comprehensive income 6,973 Explanatory notes (a) Basis of consolidation Italian GAAP permits that when the financial statements of a controlled entity are immaterial in terms of providing a true and fair representation of the financial position and results of the Group, they may be excluded from the consolidation ; at the Transition Date and during the year ended December 31, 2015, the subsidiaries Gamenet Formazione S.r.l. and Gamenet Renting S.r.l., were both considered to be immaterial and were accordingly excluded from the Group consolidation. EU-IFRS, however, does not permit the exclusion of subsidiaries from the consolidation and, therefore, with effect from the Transition Date, the aforementioned entities have been included in the consolidation. (b) Elimination of intangible assets that may not be capitalized This adjustment relates to the elimination of the carrying values (as calculated in accordance with Italian GAAP) of intangible assets that may not be capitalized under EU-IFRS. Specifically, the effects of the adjustment are as follows: at the Transition Date, elimination of Intangible assets amounting to Euro 1,524 thousand and recognition of Deferred tax assets amounting to Euro 496 thousand; as of December 31, 2015, elimination of Intangible assets amounting to Euro 400 thousand and recognition of Deferred tax assets amounting to Euro 116 thousand; and during the year ended December 31, 2015, recognition of increased Cost of services amounting to Euro 73 thousand, lower Depreciation, amortization and impairments amounting to Euro 193 thousand and higher Income tax expense amounting to Euro 53 thousand. (c)financial liabilities measured at amortized cost In accordance with the Italian GAAP in effect up to December 31, 2015, the financial liability relating to the Bond issued in 2013 with maturity in 2018 was recognized at its nominal value and the related transaction costs on issue 54

82 were recognized as intangible assets and amortized over the life of the bond. Under EU-IFRS, on the other hand, such financial liabilities are measured using the amortized cost method (see Note 2.4 for further details). As a result: at the Transition Date, the net carrying value of transaction costs included in intangible assets, amounting to Euro 6,858 thousand, has been expensed, the liability relating to the Bond, included in Non-current financial liabilities has been reduced by Euro 7,084 thousand to align it to amortized cost calculated using the effective interest method and Deferred tax assets amounting to Euro 126 thousand have been recognized; as of December 31, 2015, the net carrying value of transaction costs included in intangible assets, amounting to Euro 3,866 thousand, has been expensed, the liability relating to the Bond, included in Non-current financial liabilities has been reduced by Euro 4,255 thousand to align it to amortized cost calculated using the effective interest method and Deferred tax assets amounting to Euro 112 thousand have been recognized; and in the income statement for the year ended December 31, 2015, higher Finance expenses amounting to Euro 1,471 thousand, lower Depreciation, amortization and impairments amounting to Euro 1,496 thousand and lower Income tax expenses amounting to Euro 95 thousand. (d) Business combinations prior to the Transition Date The Group has adjusted the accounting for business combinations that took place prior to the Transition Date. As a result, the business combinations that took place between January 1, 2009 and the Transition Date are now accounted for in accordance with EU-IFRS. As described in greater detail above, in view of the fact that such business combinations took place between entities under common control, adjustments made during the Transition Process included the elimination of goodwill previously recognized under Italian GAAP. Such adjustment resulted, both at the Transition Date and as of December 31, 2015 in Goodwill being reduced by Euro 14,971 thousand. (e) Discounting trade receivables The Group grants significantly longer payment terms to certain operators with respect to those typically granted during the normal operational cycle and no interest is charged in relation to such longer payment terms. The related receivables therefore require to be discounted and, as a result: at the Transition Date, Non-current trade receivables have been reduced by Euro 633 thousand and Deferred tax assets of Euro 176 thousand recognized; as of December 31, 2015, Non-current trade receivables have been reduced by Euro 2,915 thousand and Deferred tax assets of Euro 735 thousand recognized; and in the income statement for the year ended December 31, 2015, Finance expenses have been increased by Euro 1,888 thousand and Income tax expense decreased by Euro 455 thousand. (f) Calculation and allocation of the cost of business combinations During the years ended December 31, 2015, 2014 and 2013, the Group acquired control of Billions S.r.l. and Gnetwork S.r.l., agreeing to pay the sellers a share of the respective considerations in variable form, based on the future earnings of the companies ( earn out ). On first time adoption of EU-IFRS, it has been necessary to: (i) determine the acquisition price of the equity investments, including an estimate of the earn out liabilities, recognition of which had been deferred to when actually earned under Italian GAAP; and (ii) allocate the cost to the net assets acquired as described in Note 7 Business combinations. As a result of the above: as of December 31, 2015: (i) Intangible assets have been increased by Euro 2,467 thousand; (ii) Goodwill has been reduced by Euro 4,160 thousand; (iii) Deferred tax assets has been decreased by Euro 747 thousand; (iv) Non-current financial liabilities has been increased by Euro 1,890 thousand; and (v) Current financial liabilities has been increased by Euro 592 thousand; in the income statement for the year ended December 31, 2015: (i) Costs for services has been increased by Euro 110 thousand; (ii) Depreciation, amortization and impairments has been increased by Euro 124 thousand; (iii) Finance income has been decreased by Euro 1,980 thousand; and (iv) Income tax expense has been decreased by Euro 68 thousand. (g) Change in goodwill measurement As explained in Note 2.4, under EU-IFRS, goodwill is not amortized, but rather is tested for impairment annually or more frequently. Accordingly, following adoption of EU-IFRS, the Group no longer amortizes goodwill and as a result: 55

83 as of December 31, 2015 Intangible assets has been increased by Euro 8,373 thousand and Deferred tax assets has been decreased by Euro 797 thousand; and in the income statement for the year ended December 31, 2015, Depreciation, amortization and impairments and Other operating costs have been reduced by Euro 4,290 thousand and Euro 582 thousand respectively and Income tax expense has been increased by Euro 328 thousand. (h) Application of equity method for valuation of investments in associates Italian GAAP permits that the equity method does not need to be used to measure investments in associates and joint ventures in consolidated financial statements if the effects of such non-use are immaterial in terms of providing a true and fair representation of the financial position and results of the Group. Such option is not, however, permitted under EU-IFRS and therefore, in preparing the consolidated financial statements, the Group has applied the equity method to measure its investment in Verve S.p.A., which qualifies as a joint venture. As a result of applying the equity method: at the Transition Date, Equity accounted investments amounting to Euro 134 thousand (representing Euro 263 thousand in respect of the historical cost of the investments, partially offset by Euro 129 thousand of impairment losses) have been recognized and Deferred tax assets has been increased by Euro 35 thousand; as of December 31, 2015, Equity accounted investments amounting to Euro 24 thousand (representing Euro 263 thousand in respect of the historical cost of the investments, partially offset by Euro 239 thousand of impairment losses) have been recognized and Deferred tax assets has been increased by Euro 57 thousand; and in the income statement for the year ended December 31, 2015, Share of profit/(loss) of equity accounted investments amounting to Euro 61 thousand has been recognized and Income tax expense has been decreased by Euro 9 thousand. (i) Actuarial valuation of Employee benefit plan Under Italian GAAP, the liability for the severance indemnity due to employees ( TFR ) is calculated in accordance with relevant legislation, specifically Article 2120 of the Italian Civil Code and labor contracts. Under EU-IFRS, TFR earned up to December 31, 2006 is considered a defined benefit plan and must therefore be measured based on statistical and demographic assumptions and actuarial calculations. Following the significant changes to the TFR regulations in 2006, TFR earned since January 1, 2007 is considered a defined contribution plan. Specifically, the application of EU-IFRS has determined: at the Transition Date, a decrease in Employee benefit liabilities of Euro 122 thousand and a decrease in Deferred tax assets of Euro 34 thousand; as of December 31, 2015, an increase in Employee benefit liabilities of Euro 152 thousand and an increase in Deferred tax assets of Euro 35 thousand; and in the income statement for the year ended December 31, 2015, an increase in Personnel expenses of Euro 87 thousand, an increase in Finance expense of Euro 27 thousand, a decrease in Income tax expense of Euro 24 thousand and the recording of Actuarial gains and losses of Euro 29 thousand, net of tax impacts of Euro 9 thousand. (j) Jackpot Liability The application of statistical models, as required by EU-IFRS for the measurement of such liability, has meant that: at the Transition Date, Other current liabilities have been increased by Euro 818 thousand and Deferred tax assets of Euro 267 thousand have been recognized; as of December 31, 2015, Other current liabilities have been increased by Euro 2,415 thousand and Deferred tax assets of Euro 704 thousand have been recognized; and in the income statement for the year ended December 31, 2015, Revenues have been reduced by Euro 568 thousand and Income tax expense has been decreased by Euro 101 thousand. Reclassifications The adoption of EU-IFRS has required certain reclassifications that have had no effect on either the consolidated result for the year or consolidated equity. The following points provide brief descriptions of the main reclassifications made to the consolidated statement of financial position at the Transition Date and as of December 31, 2015 and to the consolidated statement of comprehensive income for the year ended December 31,

84 Consolidated statement of financial position (k) The Group (i) makes payments to certain operators and (ii) assumes the costs associated with commissioning third party gaming machines, with a view to ensuring that the operators benefitting from such actions maintain ongoing business relations with Gamenet beyond the current year. Under Italian GAAP, costs associated with the above are recognized as Intangible assets and amortized over their estimated useful economic lives. Under IFRS, on the other hand, such costs are classified as advances, the economic benefits of which are recognized over the period during which the Group estimates it will benefit from the services of its business partners. As a result of the above: at the Transition Date, Intangible assets has been reduced by Euro 2,353 thousand and Other current assets and Other non-current assets increased by Euro 1,469 thousand and Euro 884 thousand respectively; as of December 31, 2015, Intangible assets has been reduced by Euro 3,284 thousand and Other current assets and Other non-current assets increased by Euro 1,602 thousand and Euro 1,682 thousand respectively; and in the income statement for the year ended December 31, 2015, Cost of services has been increased and Depreciation, amortization and impairments decreased by Euro 2,229 thousand. (l) Under Italian GAAP, improvements to leased property are classified as intangible assets whereas under IFRS they are classified as property, plant and equipment. Accordingly: at the Transition Date, Intangible assets has been reduced and Property, plant and equipment increased by Euro 3,198 thousand; as of December 31, 2015, Intangible assets has been reduced and Property, plant and equipment increased by Euro 4,051 thousand. (m) Properties held to earn rentals or for capital appreciation are classified in a dedicated financial statement line item Investment property. Accordingly: at the Transition Date, Property, plant and equipment has been reduced and Investment property increased by Euro 714 thousand; as of December 31, 2015, Property, plant and equipment has been reduced and Investment property increased by Euro 661 thousand. (n) The Group grants significantly longer payment terms to certain operators with respect to those typically granted during the normal operational cycle. The related receivables are therefore reclassified to Non-current trade receivables. Accordingly: at the Transition Date, Current trade receivables and Non-current trade receivables have been reduced and increased respectively by Euro 2,962 thousand; as of December 31, 2015, Current trade receivables and Non-current trade receivables have been reduced and increased respectively by Euro 9,235 thousand. (o) Italian GAAP in force up to and including the year ended December 31, 2015 required that treasury shares be recognized as assets in the statement of financial position. Under IFRS, on the other hand, treasury shares are recognized as a reduction in equity. Accordingly: at the Transition Date, Non-current financial assets and Other reserves have both been reduced by Euro 4,500 thousand; as of December 31, 2015, Non-current financial assets and Other reserves have both been reduced by Euro 3,974 thousand. (p) As of December 31, 2015, the Group held a bond portfolio for the purpose of managing liquidity, which with the adoption of EU-IFRS, is required to be reclassified from Non-current financial assets to Current financial assets. Accordingly, in preparing the consolidated statement of financial position as of December 31, 2015, Non-current financial assets has been reduced and Current financial assets increased by Euro 2,580 thousand. (q) In accordance with EU-IFRS, deferred tax assets and liabilities are presented as the net balance of Deferred tax assets and Deferred tax liabilities if there exists a legal right of offset and they relate to the same taxation authority. Accordingly: 57

85 at the Transition Date, Deferred tax assets and Deferred tax liabilities have both been reduced by Euro 2,123 thousand; as of December 31, 2015, Deferred tax assets and Deferred tax liabilities have both been reduced by Euro 986 thousand. (r) Italian GAAP in force up to and including the year ended December 31, 2015 required that payables relating to the deferred portion of the acquisition price of subsidiaries be recognized in Other current liabilities. As such payables are of a financial nature, under EU-IFRS they must be classified in terms of their maturity dates as either Current financial liabilities or Non-current financial liabilities Accordingly: at the Transition Date, Other current liabilities has been reduced by Euro 2,000 thousand and Current financial liabilities and Non-current financial liabilities each increased by Euro 1,000 thousand; as of December 31, 2015, Other current liabilities has been reduced by Euro 4,383 thousand and Current financial liabilities and Non-current financial liabilities increased by Euro 3,583 thousand and Euro 800 thousand respectively (s) As required by Italian GAAP in force up to and including the year ended December 31, 2015, the negative fair value of trading derivatives existing at the Transition Date was recognized in Provisions for risks and charges. Under EU-IFRS, on the other hand, the negative fair value of such financial instruments is recognized among financial liabilities. For this reason, at the Transition Date, an amount of Euro 376 thousand, representing the negative fair value of an existing interest rate swap contract (hereafter, IRS ) has been reclassified from Provisions for risks and charges to Current financial liabilities. The IRS was extinguished prior to December 31, 2015 and therefore no similar reclassification is required to the consolidated statement of financial position as at that date. In the income statement for the year ended December 31, 2015, the effects on termination of the financial instrument, amounting to Euro 118 thousand, which were recognized in Other income, has been reclassified to Finance income. Consolidated statement of comprehensive income (t) When the Group accepts a bet, the unsettled wager meets the definition of a derivative financial instrument and should therefore be so accounted for in accordance with IFRS. Bets are, therefore, recognized and measured at fair value. Recognition of bets at fair value requires that winnings and the flat-rate tax, (classified as a sales tax) are presented in the consolidated statement of comprehensive income for the year ended December 31, 2015 as a reduction in revenues equal to Euro 53,868 thousand and that Cost of services (where winnings were recognized under Italian GAAP) and Other operating costs are reduced by Euro 51,480 thousand and Euro 2,388 thousand respectively. (u) The Group received certain amounts from one of the operators, who in this way ensured the maintenance of ongoing business relations with Gamenet beyond the current year. Under Italian GAAP, the amounts received by the Group for this purpose were recognized as Other income. As under EU-IFRS, such up-front amounts paid to Gamenet are considered to be a discount against the cost of services rendered periodically to the Group, they are recognized as a reduction in Cost of services. Accordingly, in the income statement for the year ended December 31, 2015, Cost of services and Other income have both been reduced by Euro 1,763 thousand. (v) In accordance with Italian GAAP in force up to and including the year ended December 31, 2015, the Group recognized releases from Provisions for risks and charges in Other income. Under EU-IFRS, however, such releases must be presented in the same income statement line to which the related provisions were originally charged. Accordingly, for the year ended December 31, 2015, it has been necessary to reduce Other income by Euro 647 thousand, corresponding to the release of Provisions for risks and charges, and reduce Accruals and impairments by a similar amount. (w) The Gamenet Group acquired certain VLT gaming machines, agreeing to pay a variable consideration based on the net income generated by the machines. As Gamenet can only get out of its commitment to pay the aforementioned consideration by ceasing to use the machines, from a substantive viewpoint the consideration paid periodically to the supplier represents the cost of use of the VLTs and, under EU-IFRS, such consideration should be recognized in Cost of services rather than depreciation. Accordingly, in the income statement for the year ended December 31, 2015, Cost of services has been increased by Euro 1,025 thousand and Depreciation, amortization and impairments reduced by a similar amount. 58

86 Annex Combined and consolidated pro forma income statement for the year ended December 31, 2016 (in thousands of Euro) For the year ended December 31, 2016 Combined Gamenet Adjustments Gamenet Group Eliminations Group Pro Forma Pro Forma (A) (B) (C) (D) (E=A+B+C+D) Revenues 606, ,506 Other income 4, ,117 Total revenues and income 610, ,623 Cost of services (506,642) (204) - - (506,846) Personnel expenses (29,086) (29,086) Other operating costs (3,484) (8) - - (3,492) Depreciation, amortization and impairments (37,755) - - (1,165) (2) (38,920) Accruals and impairments (3,151) (3,151) Finance income 188 5,409 (5,409) Finance expenses (26,383) (5,371) ,203 (1) (17,142) Share of profit/(loss) of equity accounted investments Impairment of financial assets (57) (57) Profit/(loss) before tax 4,253 (174) - 8,038 12,117 Income tax expense (8,977) 29 - (1,869) (3) (10,817) Net income/(loss) for the year (4,724) (145) - 6,169 1,300 Attributable to minority interests (888) (888) Attributable to the owners of the parent (3,836) (145) - 6,169 2,188 Notes to the Pro Forma Financial Information Introduction This section presents the unaudited pro forma consolidated income statements 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 Gamenet Group S.p.A. (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. and, indirectly, Intralot Holding & Services S.p.A. and their subsidiaries, pursuant to the Framework Agreement. In particular, the Pro Forma Financial Information has been prepared to retrospectively reflect the effects of the Gamenet Contribution, the Intralot Contribution, the Offering and the Refinancing (all as defined elsewhere in the Special Purpose Financial Information), 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. Description of financial information and pro forma adjustments Note A This column represents the combined income statement of Gamenet and Intralot for the year ended December 31, Note B This column represents the stand alone income statement of Gamenet Group for the period from June 21, 2016 to December 31, Note C This column represents the consolidation eliminations relating to finance income and expense on intercompany financing provided to Gamenet by Gamenet Group. Note D This column represents the pro forma adjustments to reflect the effects of the Gamenet Contribution, the Intralot Contribution, the Offering and the Refinancing as if they had occurred on January 1, 2016, and in particular: (1) This adjustment principally relates to the effects of the Offering and the Refinancing and has been calculated as follows: (in thousands of Euro) Total Reversal of finance costs of 2018 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)

87 Annex Total 9,203 (a) Relates to the elimination of the finance expenses recorded by Gamenet in the income statement for the year ended December 31, 2016 on the 2018 Notes. (b) Relates to the unamortized cost recorded by Gamenet in the income statement for the year ended December 31, 2016 on the 2018 Notes. (c) Relates to the call premium on the 2018 Notes which were reimbursed on August 15, 2016 and for which the cost had been recorded by Gamenet in the consolidated income statement for the year ended December 31, (d) Relates to the finance costs related to the Senior Secured Notes for the year ended December 31, 2016 assuming that the issuance had taken place on January 1, (2) This adjustment includes the amortization of intangible assets arising from the Purchase Price Allocation process. (3) This adjustment reflects the related tax effect of the pro forma income statement adjustments.

88 INDEPENDENT AUDITORS REPORT IN ACCORDANCE WITH ARTICLE 14 OF LEGISLATIVE DECREE NO 39 OF 27 JANUARY 2010 GAMENET GROUP SPA CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016

89 INDEPENDENT AUDITORS REPORT IN ACCORDANCE WITH ARTICLE 14 OF LEGISLATIVE DECREE No 39 OF 27 JANUARY 2010 To the shareholders of Gamenet Group SpA Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of the Gamenet Group, which comprise the consolidated statement of financial position as of 31 December 2016, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory notes. Directors responsibility for the consolidated financial statements The directors of Gamenet Group SpA are responsible for the preparation of consolidated financial statements that give a true and fair view in compliance with International Financial Reporting Standards as adopted by the European Union Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISA Italia) drawn up pursuant to article 11 of Legislative Decree No. 39 of 27 January Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The audit procedures selected depend on the auditor s professional judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of consolidated financial statements that give a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.