Important notice

Important notice
THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED INSTITUTIONAL BUYERS (“QIBs”) WITHIN THE
MEANING OF RULE 144A (“RULE 144A”) UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR
(2) NON-U.S. PERSONS OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S (“REGULATION S”) UNDER THE
U.S. SECURITIES ACT.
IMPORTANT: You must read the following before continuing. The following applies to the preliminary offering memorandum following
this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the preliminary
offering memorandum. In accessing the preliminary offering memorandum, you agree to be bound by the following terms and
conditions, including any modifications to them any time you receive any information from us as a result of such access.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS
UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS.
THE FOLLOWING PRELIMINARY OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND
MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT
IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES
ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
Confirmation of Your Representation: In order to be eligible to view the preliminary offering memorandum or make an investment
decision with respect to the securities, investors must be either (1) QIBs or (2) purchasing the securities in an offshore transaction outside
the United States in reliance on Regulation S. The preliminary offering memorandum is being sent at your request. By accepting the email and accessing the preliminary offering memorandum, you shall be deemed to have represented to us that: (1) you consent to delivery
of such preliminary offering memorandum by electronic transmission, and (2) either: (a) you and any customers you represent are QIBs, or
(b) you are a non-U.S. person outside the United States and the e-mail address that you gave us and to which the e-mail has been
delivered is not located in the United States (as defined in Regulation S) and if you are resident in a member state of the European Union,
you are a qualified investor.
Prospective purchasers that are QIBs are hereby notified that the seller of the securities will be relying on the exemption from the
provisions of Section 5 of the U.S. Securities Act pursuant to Rule 144A.
You are reminded that this preliminary offering memorandum has been delivered to you on the basis that you are a person into whose
possession this offering memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located
and you may not, nor are you authorized to, deliver this offering memorandum to any other person.
You may not transmit this preliminary offering memorandum (or any copy of it or part thereof) or disclose, whether orally or in writing,
any of its contents to any other person except with the explicit consent of the Initial Purchasers (as defined hereinafter). If you receive this
document by e-mail, you should not reply by e-mail to this announcement. Any reply e-mail communications, including those you
generate by using the “Reply” function on your e-mail software, will be ignored or rejected. If you receive this document by e-mail, your
use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items
of a destructive nature.
Under no circumstances shall this preliminary offering memorandum constitute an offer to sell or the solicitation of an offer to buy, nor
shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Initial Purchasers or any affiliate thereof is a
licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Initial Purchasers or affiliate on behalf of
SNAI S.p.A. in such jurisdiction.
This preliminary offering memorandum has been prepared on the basis that any offer of the Notes in any Member State of the European
Economic Area (each, a “Relevant Member State”) that has implemented the Prospectus Directive will be made pursuant to an exemption
under the Prospectus Directive, as implemented in that Relevant Member State, from the requirement to publish a prospectus for offers of
the Notes. Accordingly, any person making or intending to make an offer in that Relevant member State of the Notes which are the subject
of the offering contemplated in this preliminary offering memorandum, must only do so in circumstances in which no obligation arises for
the Issuer, the Guarantors or the Initial Purchasers to produce a prospectus pursuant to Article 3 of the Prospectus Directive. None of the
Issuer nor the Guarantors nor the Initial Purchasers have authorized, nor do they authorize, the making of any offer of Notes through any
financial intermediary, other than offers made by the Initial Purchasers, which constitute the final placement of Notes contemplated in this
preliminary offering memorandum. The expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto) and
includes any relevant implementing measure in the Relevant Member State.
The preliminary offering memorandum has not been submitted to the Commissione Nazionale per le Società e la Borsa, the Italian
securities regulator (“CONSOB”), for clearance and will not be subject to formal review or clearance by the CONSOB pursuant to the
Italian securities legislation. The notes may not be offered, sold or delivered, directly or indirectly, nor may copies of the following
preliminary offering memorandum or of any other document relating to the notes be distributed in the Republic of Italy, except: (1) to
qualified investors (investitori qualificati) as defined by Article 26, first paragraph, letter d) of the CONSOB Regulation
No. 16190 October 29, 2007, as amended, pursuant to Article 100 of Italian Legislative Decree No. 58 of February 24, 1998, as amended
(the “Italian Securities Act”) and Article 34-ter, first paragraph, letter b) of CONSOB Regulation No. 11971 of 14 May 1999, as amended
(“CONSOB Regulation on Issuers”); or (2) in other circumstances which are exempted from the rules on offerings of securities pursuant to
the Italian Securities Act and/or CONSOB Regulation on Issuers.
This preliminary offering memorandum is for distribution only to persons who (i) have professional experience in matters relating to
investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the
“Financial Promotion Order”), (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated
associations etc.”) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or
inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) in
connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such
persons together being referred to as “relevant persons”). This preliminary offering memorandum is directed only at relevant persons and
must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this
preliminary offering memorandum relates is available only to relevant persons and will be engaged in only with relevant persons.
This preliminary offering memorandum has been sent to you in an electronic form. You are reminded that documents transmitted via this
medium may be altered or changed during the process of electronic transmission and consequently neither the Initial Purchasers, nor any
person who controls any of them, nor any director, officer, employee or agent of any of them or affiliate of any such person accepts any
liability or responsibility whatsoever in respect of any difference between the offering memorandum distributed to you in electronic
format and the hard copy version available to you on request from the Initial Purchasers.
The information in this preliminary offering memorandum is not complete and may be changed. This preliminary offering memorandum
is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where such offer or sale is not
permitted.
The information in this preliminary offering memorandum is not complete and may be changed. This preliminary offering memorandum is not an offer to sell the Notes and is not
soliciting an offer to buy the Notes in any jurisdiction where such offer, solicitation or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 20, 2015
Preliminary Offering Memorandum
Confidential
Not for general distribution in the United States
SNAI S.p.A.
€110,000,000 7.625% Senior Secured Notes due 2018
SNAI S.p.A., incorporated as a joint stock company (società per azioni) under the laws of the Republic of Italy (the “Issuer”), is offering (the
“Offering”) €110,000,000 aggregate principal amount of its 7.625% Senior Secured Notes due 2018 (the “Notes”). The Notes will be issued
pursuant to an indenture (the “Indenture”) to be dated on or around
, 2015 (the “Issue Date”) among, inter alios, the Issuer and The Law
Debenture Trust Corporation p.l.c., as trustee (the “Trustee”).
Interest on the Notes will be payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2015. Interest on the
Notes will accrue from the Issue Date. The Notes will mature on June 15, 2018.
At any time on or after December 15, 2015, the Issuer may redeem all or a portion of the Notes at the redemption prices specified herein. At any time
prior to December 15, 2015, the Issuer may redeem up to 10% of the aggregate principal amount of the Notes at a redemption price of 103% of the
principal amount of the Notes redeemed, plus accrued and unpaid interest and Additional Amounts (as defined hereinafter), if any. Prior to
December 15, 2015, the Issuer may also redeem all or part of Notes if the Issuer pays a “make-whole” premium. In addition, on or before December 15,
2015, the Issuer may also redeem up to 35% of the Notes with the net proceeds from one or more equity offerings. If the Issuer undergoes a change of
control or sells certain of its assets, the Issuer may be required to make an offer to purchase the Notes. In the event of the occurrence of certain
developments in applicable tax law, the Issuer may redeem all, but not less than all, of the Notes. See “Description of the Notes” for further
information.
Although the terms of the Notes will be substantially similar to those of the Existing Senior Secured Notes (as defined hereinafter), the Notes will
trade separately under different ISIN/Common Code numbers than the Existing Senior Secured Notes, will not be fungible with the Existing Senior
Secured Notes and will not vote as a class with the Existing Senior Secured Notes for purposes of the indenture governing the Existing Senior
Secured Notes or the Indenture.
Pending the consummation of the Cogemat Acquisition (as defined hereinafter), the Issuer will procure that the proceeds of the Offering, net of a
portion of the fees payable to the Initial Purchasers, are deposited into an escrow account (the “Escrow Account”). The Escrow Account will be
controlled by the Escrow Agent (as defined hereinafter, and charged on a first-ranking basis in favor of the Trustee on behalf of the holders of the
Notes, pursuant to the escrow agreement (the “Escrow Agreement”) dated as of the Issue Date among, inter alios, the Issuer and Deutsche Bank
AG, London Branch, as escrow agent (the “Escrow Agent”). The release of the escrow proceeds will be subject to the satisfaction of certain
conditions, including conditions relating to the Cogemat Acquisition (the date of such release, the “Completion Date”). The consummation of the
Cogemat Acquisition is subject to certain regulatory approvals, the effectiveness of the Cogemat Contribution (as defined hereinafter) and the
satisfaction of other customary closing conditions. If the Completion Date does not occur on or prior to December 31, 2015 (the “Escrow Longstop
Date”) or upon the occurrence of certain other conditions, then all of the Notes will be subject to a special mandatory redemption. The special
mandatory redemption price will be equal to 100% of the aggregate issue price of the Notes, plus accrued and unpaid interest and Additional
Amounts, if any, from the Issue Date to the date of such special mandatory redemption. See “Description of the Notes—Escrow of Proceeds;
Special Mandatory Redemption.”
Prior to the release of the proceeds of the Offering from the Escrow Account, the Notes will be senior obligations of the Issuer secured in favor of
the Trustee on behalf of the holders of the Notes by a first-ranking charge over the proceeds of the Offering, net of a portion of the fees payable
to the Initial Purchasers, held in the Escrow Account subject to the Agreed Security Principles (as defined hereinafter).
Upon release of the proceeds of the Offering from the Escrow Account and satisfaction of other conditions, the Notes will be senior secured
obligations of the Issuer and, subject to the Agreed Security Principles, will be secured on a first-ranking basis by (i) a pledge over 50.00% plus one
share of the share capital of the Issuer, (ii) a pledge over 100.00% of the quotas of Teleippica S.r.l. and (iii) a pledge over certain intellectual
property rights of the Issuer (collectively the “Completion Date Collateral”) as more fully described elsewhere in this offering memorandum (the
“Offering Memorandum”). In addition, the Indenture will require that, subject to the Agreed Security Principles, within 30 business days following
the Completion Date, the Notes will be secured on a first-ranking basis by (i) a pledge over all of the shares of Cogemat S.p.A. (“Cogemat”) held
by the Issuer following the consummation of the Cogemat Acquisition, which as of the date of the execution of the Investment Agreement was
equal to 88.56% of the share capital of Cogemat and which may increase up to 100.00% of the share capital of Cogemat subsequent to the Issue
Date pursuant to the terms of the Investment Agreement and (ii) an assignment of the receivables in respect of the loan to Cogetech S.p.A.
(“Cogetech”) of certain of the proceeds of the Offering (the “Proceeds Loan”) (the “Cogemat Collateral” and, together with the Completion Date
Collateral, the “Collateral”). The Completion Date Collateral also secures the obligations under the Existing Senior Secured Notes on a first-ranking
basis. The Existing Senior Secured Notes will also be secured on a first-ranking basis by the Cogemat Collateral. See “Risk Factors—Risks related to
the Notes, the Guarantees and the Collateral,” “Limitations on Validity and Enforceability of the Guarantees and Security Interests and Certain
Insolvency Law Considerations.” The Revolving Credit Facility (as defined hereinafter) benefits from a perfected mortgage (ipoteca) over certain
real estate assets of the Issuer, is secured by the Completion Date Collateral and will also be secured by the Cogemat Collateral. Under the terms of
the Intercreditor Agreement (as defined hereinafter), lenders under the Revolving Credit Facility and counterparties to certain hedging
obligations, if any, will receive proceeds from any enforcement of the foregoing security interests in the Collateral in priority to holders of the
Notes and the Existing Senior Secured Notes. See “Description of the Notes—Security.” The Collateral will be subject to the Agreed Security
Principles and limitations under applicable law, and may be released in certain circumstances. See “Limitations on Validity and Enforceability of
the Guarantees and Security Interests and Certain Insolvency Law Considerations.”
In addition, the Indenture will require that, subject to the Agreed Security Principles, within 30 business days following the Completion Date,
Cogemat and Cogetech will guarantee the Notes on a senior basis (the “Guarantees”) and such Guarantees will rank equal in right of payment to
all existing and unsubordinated obligations of Cogemat and Cogetech, respectively. The Guarantees will be subject to legal and contractual
limitations that may limit its enforceability, and the Guarantees may be released in certain circumstances. See “Risk Factors—Risks related to the
Notes, the Guarantees and the Collateral” and “Limitations on Validity and Enforceability of the Guarantees and Security Interests and Certain
Insolvency Law Considerations.”
Subject to and as set forth in “Description of the Notes—Additional amounts,” the Issuer will not be liable to pay any additional amounts to
holders of the Notes in relation to, among other things, any withholding or deduction required pursuant to Italian Legislative Decree No. 239 of
April 1, 1996 (as the same may be amended or supplemented from time to time) where the Notes are held by a person resident in a country that
does not allow for satisfactory exchange of information with Italy (as per Article 168-bis, Italian Presidential Decree No. 917 of December 22, 1986)
and otherwise in circumstances as described in “Description of the Notes—Additional amounts.”
This Offering Memorandum includes information on the terms of the Notes, including redemption and repurchase prices, security, covenants and
transfer restrictions.
There is currently no public market for the Notes. Application will be made to have the Notes listed on the Official List of the Luxembourg Stock
Exchange and admitted to trading on the Euro MTF Market of the Luxembourg Stock Exchange.
The Notes will be represented on the Issue Date by two or more global notes, which will be delivered through Euroclear Bank SA/NV (“Euroclear”)
and Clearstream Banking, société anonyme (“Clearstream”) on or about the Issue Date. See “Book-Entry, Delivery and Form.”
Investing in the Notes involves a high degree of risk. See “Risk Factors” beginning on page 43.
Price for the Notes:
% plus accrued interest, if any, from the Issue Date
The Notes and the Guarantees have not been and will not be registered under the U.S. federal securities laws or the securities laws of any other
jurisdiction. The Notes are being offered and sold only to qualified institutional buyers in accordance with Rule 144A under the U.S. Securities
Act of 1933, as amended (the “U.S. Securities Act”), and to non U.S. persons outside the United States in accordance with Regulation S under the
U.S. Securities Act. See “Notice to Investors” and “Plan of Distribution” for additional information about eligible offerees and transfer
restrictions.
Joint Physical Bookrunners
J.P. Morgan
The date of this Offering Memorandum is
UniCredit Bank
, 2015.
Table of Contents
Page
Forward-Looking Statements . . . . . . . . .
Presentation of Financial
Information . . . . . . . . . . . . . . . . . . . . . .
Currency Presentation and
Definitions . . . . . . . . . . . . . . . . . . . . . . .
Industry and Market Data . . . . . . . . . . . .
Summary . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Structure and Certain
Financing Arrangements . . . . . . . . . . .
The Offering . . . . . . . . . . . . . . . . . . . . . . .
Summary Pro Forma and Historical
Consolidated Financial Information
and Other Data . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . .
Selected Historical Consolidated
Financial Information and Other
Data . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unaudited Pro Forma Consolidated
Financial Information . . . . . . . . . . . . . .
Management’s Discussion and Analysis
of Financial Condition and Results of
Operations of Snai . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of
Financial Condition and Results of
Operations of the Cogemat Group . . . .
vi
viii
xv
xxi
1
18
21
28
43
88
90
93
100
111
149
Page
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . .
Snai’s Business . . . . . . . . . . . . . . . . . . . . . .
Cogemat Group Business . . . . . . . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . .
Principal Shareholders . . . . . . . . . . . . . . .
Related Party Transactions . . . . . . . . . . .
Description of Certain Financing and
Guarantee Arrangements . . . . . . . . . .
Description of the Notes . . . . . . . . . . . . .
Book-Entry, Delivery and Form . . . . . . . .
Tax Considerations . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . .
Notice to Investors . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors . . . . . . . . . . . . . . .
Where You Can Find Additional
Information . . . . . . . . . . . . . . . . . . . . . .
Service of Process and Enforcement of
Civil Liabilities . . . . . . . . . . . . . . . . . . . .
Limitations on Validity and
Enforceability of the Guarantees and
Security Interests and Certain
Insolvency Law Considerations . . . . . .
Listing and General Information . . . . . .
Index to Financial Statements . . . . . . . . .
176
184
215
237
253
260
265
266
290
376
381
396
399
403
404
405
407
408
424
F-1
Important Information about this Offering Memorandum
This Offering Memorandum is confidential. The Issuer has prepared this Offering Memorandum
solely for use in connection with the proposed offering of the Notes. This Offering Memorandum
is personal to each offeree and does not constitute an offer to any other person or to the public
generally to subscribe for or otherwise acquire securities. Distribution of this Offering
Memorandum to any person other than the offeree and any person retained to advise such
offeree with respect to its purchase is unauthorized, and any disclosure of any of its contents,
without the Issuer’s prior written consent, is prohibited. By accepting delivery of this Offering
Memorandum, you agree to the foregoing and to make no photocopies of this Offering
Memorandum or any documents referred to herein.
Neither of J.P. Morgan Securities plc and UniCredit Bank AG (together, the “Initial Purchasers”),
The Law Debenture Trust Corporation p.l.c. (the “Trustee”) and the Agents (as defined
hereinafter) make any representation or warranty, express or implied, as to the accuracy or
completeness of the information set forth in this Offering Memorandum. Nothing contained in
this Offering Memorandum is or should be relied upon as a promise or representation by the
Initial Purchasers as to the past or the future. You agree to the foregoing by accepting this
Offering Memorandum.
Except as provided below, we accept responsibility for the information contained in this Offering
Memorandum. We have made all due inquiries and confirm that to the best of our knowledge
and belief, the information contained in this Offering Memorandum is in accordance with the
facts and does not omit anything likely to affect the import of such information. The information
set out in relation to sections of this Offering Memorandum describing clearing and settlement
arrangements, including the section entitled “Book-Entry, Delivery and Form,” is subject to
change in or reinterpretation of the rules, regulations and procedures of Euroclear or
Clearstream currently in effect. While the Issuer accepts responsibility for accurately extracting
and summarizing the information concerning Euroclear and Clearstream, the Issuer does not
accept further responsibility in respect of such information. In addition, this Offering
Memorandum contains summaries believed to be accurate with respect to certain documents, but
reference is made to the actual documents for complete information. All such summaries are
qualified in their entirety by such reference. Copies of documents referred to herein will be made
available to prospective investors upon request to the Issuer. The information in this Offering
Memorandum is current only as of the date on its cover, and may change after that date. For any
time after the cover date of this Offering Memorandum, the Issuer represents that its affairs are
the same as described or that the information in this Offering Memorandum is correct, nor does
the Issuer imply those things by delivering this Offering Memorandum or selling Notes to you.
References to any website contained herein do not form a part of this Offering Memorandum.
By receiving this Offering Memorandum, you acknowledge that you have had an opportunity to
request from the Issuer for review, and that you have received, all additional information you
deem necessary to verify the accuracy and completeness of the information contained in this
Offering Memorandum. You also acknowledge that you have not relied on the Initial Purchasers
in connection with your investigation of the accuracy of this information or your decision
whether to invest in the Notes. You should consult your own legal, tax and business advisors
regarding an investment in the Notes. Information in this Offering Memorandum is not legal, tax
or business advice.
You may not use any information herein for any purpose other than considering an investment
in the Notes.
The Issuer reserves the right to withdraw this offering of the Notes at any time. The Issuer and
the Initial Purchasers reserve the right to reject any offer to purchase the Notes in whole or in
part for any reason or for no reason and to allot to any prospective purchaser less than the full
amount of the Notes sought by such purchaser.
i
Neither the U.S. Securities and Exchange Commission, any U.S. state securities commission nor
any non-U.S. securities authority nor other authority has approved or disapproved the Notes or
determined if this Offering Memorandum is truthful or complete. Any representation to the
contrary is a criminal offense.
This Offering Memorandum is not an offer to sell the Notes and it is not soliciting an offer to buy
any Notes in any jurisdiction in which such offer or sale is not permitted.
The distribution of this Offering Memorandum and the offer and sale of the Notes may, in
certain jurisdictions, be restricted by law. None of the Issuer or the Initial Purchasers represent
that this Offering Memorandum may be lawfully distributed, or that any Notes may be lawfully
offered, in compliance with any applicable registration or other requirements in any such
jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for
facilitating any such distribution or offering. None of the Issuer or the Initial Purchasers shall
have any responsibility for any of the foregoing legal requirements. In particular, no action has
been taken by any of the Issuer or the Initial Purchasers which would permit a public offering of
any Notes or distribution of this Offering Memorandum in any jurisdiction where action for that
purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and
neither this Offering Memorandum nor any advertisement or other offering material may be
distributed or published in any jurisdiction, except under circumstances that will result in
compliance with all applicable laws and regulations.
Each purchaser of the Notes must comply with all applicable laws and regulations in force in each
jurisdiction in which it purchases, offers or sells the Notes or possesses or distributes this Offering
Memorandum, and must obtain any consent, approval or permission required for the purchase,
offer or sale by it of the Notes under the laws and regulations in force in any jurisdiction to
which it is subject or in which it makes purchases, offers or sales. Persons into whose possession
this Offering Memorandum or any Notes may come must inform themselves about, and observe,
any such restrictions on the distribution of this Offering Memorandum and the offering and sale
of Notes. In particular, there are restrictions on the offer and sale of the Notes, and the
circulation of documents relating thereto, in certain jurisdictions including the United States and
the United Kingdom and to persons connected therewith. See “Notice to Investors.” We do not
make any representation to you that the Notes are a legal investment for you.
We have applied to have the Notes listed on the Official List of the Luxembourg Stock Exchange
and admitted for trading on the Euro MTF Market of the Luxembourg Stock Exchange. In the
course of any review by the competent authority, we may be required (under applicable law,
rules, regulations or guidance applicable to the listing of securities or otherwise) to make certain
changes or additions to or deletions from the description of our business, financial statements
and other information contained herein in producing listing particulars for such listing.
Comments by the competent authority may require significant modification or reformulation of
information contained in this Offering Memorandum or may require the inclusion of additional
information in the listing particulars. We may also be required to update the information in this
Offering Memorandum to reflect changes in our business, financial condition or results of
operations and prospects since the publication of this Offering Memorandum. We cannot
guarantee that such application for the admission of the Notes to listing of the Notes on the
Official List of the Luxembourg Stock Exchange and trading on the Euro MTF Market will be
approved as of the settlement date for the Notes or at any time thereafter, and settlement of the
Notes is not conditioned on obtaining this listing. Following the listing, the relevant listing
particulars will be available at the offices of the Listing Agent (as defined hereinafter). Any
investor or potential investor in the European Economic Area (the “EEA”) should not base any
investment decision relating to the Notes on the information contained in this Offering
Memorandum after publication of the listing particulars and should refer instead to those listing
particulars.
In connection with the Offering, the Initial Purchasers are not acting for anyone other than the
Issuer and will not be responsible to anyone other than the Issuer for providing the protections
afforded to their clients nor for providing advice in relation to the Offering.
ii
Stabilization
IN CONNECTION WITH THE OFFERING, UNICREDIT BANK AG (OR PERSONS ACTING ON BEHALF OF
UNICREDIT BANK AG) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO
SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT
OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT UNICREDIT BANK AG (OR
PERSONS ACTING ON BEHALF OF UNICREDIT BANK AG) WILL UNDERTAKE STABILIZATION
ACTION. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH
ADEQUATE PUBLIC DISCLOSURE OF THE FINAL TERMS OF THE OFFER OF THE NOTES IS MADE
AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER
OF 30 CALENDAR DAYS AFTER THE DATE ON WHICH THE ISSUER HAS RECEIVED THE PROCEEDS
OF THE ISSUE AND 60 CALENDAR DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES.
Notice to investors in the United States
This Offering Memorandum is being (1) submitted on a confidential basis in the United States to
a limited number of QIBs for informational use solely in connection with the consideration of the
purchase of the Notes and (2) to investors outside the United States who are not U.S. persons in
connection with offshore transactions complying with Rule 903 or Rule 904 of Regulation S under
the U.S. Securities Act. Prospective investors are hereby notified that sellers of the Notes and the
Guarantees may be relying on the exemption from the provision of Section 5 of the U.S.
Securities Act provided by Rule 144A. Its use for any other purpose in the United States is not
authorized. It may not be copied or reproduced in whole or in part nor may it be distributed or
any of its contents disclosed to anyone other than the prospective investors to whom it is
originally submitted. In making any purchase of Notes, you will be deemed to have made certain
acknowledgments, representations and agreements as stated elsewhere in this Offering
Memorandum.
For the Offering, the Issuer and the Initial Purchasers are relying upon exemptions from registration
under the U.S. Securities Act for offers and sales of securities which do not involve a public offering,
including Rule 144A under the U.S. Securities Act. Prospective investors are hereby notified that sellers
of the Notes may be relying on the exemption from the provision of Section 5 of the U.S. Securities
Act provided by Rule 144A. The Notes are subject to restrictions on transferability and resale.
Purchasers of the Notes may not transfer or resell the Notes except as permitted under the U.S.
Securities Act and applicable U.S. state securities laws. See “Notice to Investors.”
The Notes have not been approved or disapproved by the U.S. Securities and Exchange
Commission or any other securities commission or regulatory authority in the United States, nor
have the foregoing authorities approved this Offering Memorandum or confirmed the accuracy
or determined the adequacy of the information contained in this Offering Memorandum. Any
representation to the contrary is a criminal offense in the United States.
Notice to New Hampshire residents
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS
BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA 421-B”)
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY
OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW
HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER,
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
iii
Notice to Certain European Investors
European Economic Area. This Offering Memorandum has been prepared on the basis that any
offer of the Notes in any Member State of the European Economic Area (each, a “Relevant
Member State”) that has implemented the Prospectus Directive will be made pursuant to an
exemption under the Prospectus Directive, as implemented in that Relevant Member State, from
the requirement to publish a prospectus for offers of the Notes. Accordingly, any person making
or intending to make an offer in that Relevant member State of the Notes which are the subject
of the offering contemplated in this Offering Memorandum, must only do so in circumstances in
which no obligation arises for the Issuer, the Guarantors or the Initial Purchasers to produce a
prospectus pursuant to Article 3 of the Prospectus Directive. None of the Issuer nor the
Guarantors nor the Initial Purchasers have authorized, nor do they authorize, the making of any
offer of Notes through any financial intermediary, other than offers made by the Initial
Purchasers, which constitute the final placement of Notes contemplated in this Offering
Memorandum. The expression “Prospectus Directive” means Directive 2003/71/EC (and
amendments thereto and includes any relevant implementing measure in the Relevant Member
State.
In relation to each Relevant Member State, the offer to the public of any Notes which is the
subject of the offering contemplated in this Offering Memorandum is not being made and will
not be made in that Relevant Member State, other than:
(1) to any legal entity which is a “qualified investor” as defined in Article 2 of the Prospectus
Directive;
(2) at any time to fewer than 150 natural or legal persons (other than qualified investors as
defined in the Prospectus Directive), subject to obtaining the prior consent of the relevant
Initial Purchaser or Initial Purchasers nominated by the Issuer for any such offer; and
(3) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided
that no such offer of the Notes shall result in a requirement for the publication by the Issuer
or the Initial Purchasers of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer to the public” in relation to any Notes
in any Relevant Member State means the communication in any form and by any means of
sufficient information on the terms of the offer and the Notes to be offered so as to enable an
investor to decide to purchase or subscribe for the Notes, as the same may be varied in that
Relevant Member State by any measure implementing the Prospectus Directive in that Relevant
Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and
amendments thereto, and includes any relevant implementing measure in the Relevant Member
State.
Each purchaser of the Notes in the Offering located within a Relevant Member State will be
deemed to have represented, acknowledged and agreed that it is a “qualified investor” within
the meaning of Article 2(1)(e) of the Prospectus Directive. The Issuer, the Initial Purchasers and
their affiliates and others will rely upon the truth and accuracy of the foregoing representation,
acknowledgment and agreement.
United Kingdom. This Offering Memorandum is for distribution only to, and is only directed at,
persons who (i) have professional experience in matters relating to investments falling within
Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as
amended (the “Financial Promotion Order”), (ii) are persons falling within Article 49(2)(a) to
(d) (high net worth companies, unincorporated associations, etc.) of the Financial Promotion
Order, (iii) are outside the United Kingdom or (iv) are persons to whom an invitation or
inducement to engage in investment activity (within the meaning of Section 21 of the Financial
Services and Markets Act 2000) (“FSMA”) in connection with the issue or sale of any Notes may
otherwise lawfully be communicated (all such persons together being referred to as “relevant
persons”). This Offering Memorandum is directed only at relevant persons and must not be acted
iv
on or relied on by persons who are not relevant persons. Any investment or investment activity to
which this document relates is available only to relevant persons and will be engaged in only
with relevant persons.
Republic of Italy. No action has been or will be taken which could allow an offering of the Notes
to the public in the Republic of Italy within the meaning of Article 1, paragraph 1, letter t) of
Italian Legislative Decree No. 58 of February 24, 1998, as subsequently integrated and amended
(the “Italian Financial Act”). Accordingly, the Notes may not be offered or sold directly or
indirectly in the Republic of Italy, and neither this Offering Memorandum nor any other offering
circular, prospectus, form of application, advertisement, other offering material or other
information relating to the Issuer, the Guarantors, the Collateral or the Notes may be issued,
distributed or published in the Republic of Italy, except under circumstances that will result in
compliance with all applicable laws, orders, rules and regulations, including any requirement or
limitation which may be imposed, from time to time, by the Commissione Nazionale per le
Società e la Borsa (“CONSOB”) (i.e., the Italian Regulatory Authority) or by the Bank of Italy, as
the case may be. The Notes cannot be offered or sold in the Republic of Italy either on the
primary or on the secondary market (i) to any natural persons or to entities other than qualified
investors (investitori qualificati) as defined pursuant to Article 100 of the Italian Financial Act and
Article 34-ter, paragraph 1, letter b) of CONSOB Regulation No. 11971 of May 14, 1999, as
subsequently integrated and amended (the “Issuers Regulation”), implementing Article 100 of
the Italian Financial Act; and (ii) in all other circumstances which are exempted from the rules on
public offerings pursuant to the Italian Financial Act and the implementing CONSOB regulations,
including the Issuers Regulation.
The Notes may not be offered, sold or delivered and neither this Offering Memorandum nor any
other material relating to the Notes may be distributed or made available in the Republic of Italy
unless such offer, sale or delivery of Notes or distribution or availability of copies of this Offering
Memorandum or any other material relating to the Notes in Italy is made in one of the following
ways: (a) by investment firms, banks or financial intermediaries permitted to conduct such
activities in Italy in accordance with Italian Legislative Decree No. 385 of September 1, 1993, as
subsequently integrated and amended, the Italian Financial Act, CONSOB Regulation No. 16190
of October 29, 2007, as amended and any other applicable laws and regulations; and (b) in
compliance with all relevant Italian securities, tax and exchange control and other applicable
laws and regulations and any other applicable requirement or limitation which may be imposed
from time to time by CONSOB or the Bank of Italy or other competent authority. Any investor
purchasing the Notes is solely responsible for ensuring that any offer or resale of the Notes by
such investor occurs in compliance with applicable laws and regulations.
For a further description of certain restrictions on offers and sales of the Notes and the
distribution of this Offering Memorandum in the Republic of Italy, see “Notice to Investors.”
THIS OFFERING MEMORANDUM CONTAINS IMPORTANT INFORMATION WHICH YOU SHOULD
READ BEFORE YOU MAKE ANY DECISION WITH RESPECT TO AN INVESTMENT IN THE NOTES.
v
Forward-Looking Statements
This Offering Memorandum includes statements that are, or may be deemed to be, forwardlooking statements within the meaning of the securities laws of certain applicable jurisdictions.
These forward-looking statements include, but are not limited to, all statements other than
statements of historical facts contained in this Offering Memorandum, including, without
limitation, those regarding the Issuer’s and its subsidiaries’, including, after the consummation of
the Cogemat Acquisition, the Cogemat Group, (collectively, the “Group”) future financial
position and results of operations, their strategies, plans, objectives, goals and targets, future
developments in the markets in which the Group participates or is seeking to participate or
anticipated regulatory changes in the markets in which the Group operates or intends to
operate. In some cases, you can identify forward-looking statements by terminology such as
“aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,”
“guidance,” “intend,” “may,” “plan,” “potential,” “predict,” “projected,” “should,” “would” or
“will” or the negative of such terms or other comparable terminology.
By their nature, forward-looking statements involve known and unknown risks, uncertainties and
other factors because they relate to events and depend on circumstances that may or may not
occur in the future. We caution you that forward-looking statements are not guarantees of
future performance and are based on numerous assumptions and that our actual results of
operations, including our financial condition and liquidity and the development of the industries
in which we operate, may differ materially from (and be more negative than) those made in, or
suggested by, the forward-looking statements contained in this Offering Memorandum. In
addition, even if our results of operations, including our financial condition and liquidity and the
development of the industries in which we operate, are consistent with the forward-looking
statements contained in this Offering Memorandum, those results or developments may not be
indicative of results or developments in subsequent periods. Important risks, uncertainties and
other factors that could cause these differences include, but are not limited to:
• the existing regulatory framework for betting and gaming, and potential changes to that
framework or the introduction of more stringent laws and regulations;
• liberalization or other changes in the regulatory framework which may increase competition in
our market;
• risks related to the concessions required to operate our business, which are of a limited
duration and could be revoked or terminated in certain circumstances;
• risks related to losses with respect to individual events or betting outcomes;
• failure to determine accurately the odds for bookmaking for sports bets;
• potential exposure to an unfavorable outcome with respect to pending litigation, which could
result in substantial monetary damages;
• credit risks related to trade receivables;
• economic weakness and political uncertainty, particularly in Italy;
• significant upfront cash payments for renewing concessions;
• risks related to maintenance and extraordinary capital expenditures;
• the substantial penalties we face if we fail to perform under our concessions;
• obligations to transfer assets to regulators if we are unable to renew terminated concessions;
• our dependence on technological solutions to block access to our online services by players in
certain jurisdictions;
• our reliance on the integrity of and perceptions of value related to our brand;
• changes in consumer preferences and behavior;
vi
• negative perceptions and negative publicity surrounding the betting and gaming industry;
• competition with illegal betting and gaming;
• the ability of our internal processes to detect money laundering and fraud and comply with
data privacy requirements;
• our ability to maintain information technology system and network security and continuity;
• our reliance on partners and retailers, as well as third party suppliers;
• the dependence of our business on the integrity of our directors, employees and executives;
• changes to taxation or the interpretation or application of tax laws;
• risks related to non-IFRS financial measures;
• risks associated with our capital structure, including the interests of our principal shareholders;
• our high leverage and debt structure obligations and restrictive debt covenants;
• risks associated with the Collateral and the Guarantees, including limitations thereof imposed
by applicable law;
• risks related to the Cogemat Acquisition;
• risks related to the Notes; and
• other risks related to the Offering, Italian taxation law and Italian insolvency law.
We urge you to read the sections of this Offering Memorandum entitled “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of
Snai,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations
of the Cogemat Group,” “Industry,” “Snai’s Business,” “Cogemat Group Business” and
“Limitations on Validity and Enforceability of the Guarantees and Security Interests and Certain
Insolvency Law Considerations” for a more complete discussion of the factors that could affect
the Group’s future performance and the markets in which it operates. In light of these risks,
uncertainties and assumptions, the forward-looking events described in this Offering
Memorandum may not occur. These forward-looking statements speak only as of the date on
which the statements were made. We undertake no obligation to update or revise any forwardlooking statement or risk factors, whether as a result of new information, future events or
developments or otherwise. All subsequent written and oral forward-looking statements
attributable to us or to persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements referred to above and contained elsewhere in this Offering
Memorandum, including those set forth under “Risk Factors.”
The risks set forth under “Risk Factors” are not exhaustive. Other sections of this Offering
Memorandum describe additional factors that could adversely affect our business, financial
condition or results of operations. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not possible for us to
predict all such risks; nor can we assess the impact of all such risks on our business or the extent
to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Given these risks and uncertainties,
prospective investors should not place undue reliance on forward-looking statements as a
prediction of actual results.
vii
Presentation of Financial Information
Snai
Snai’s financial information included in this Offering Memorandum has been extracted or derived
from: (i) the audited consolidated financial statements of Snai and its consolidated subsidiaries as
of and for the years ended December 31, 2012, 2013 and 2014, prepared in accordance with the
International Financial Reporting Standards adopted by the European Union (“IFRS”), audited by
Reconta Ernst & Young S.p.A. (the “Snai Audited Consolidated Financial Statements”) and
containing the auditors’ report therein and (ii) the unaudited interim condensed consolidated
financial statements of the Issuer and its consolidated subsidiaries as of March 31, 2015 and for
the three months ended March 31, 2014 and 2015, prepared in accordance with International
Accounting Standards 34 (the “Snai Unaudited Interim Condensed Consolidated Financial
Statements”).
The audited consolidated financial statements of Snai and its consolidated subsidiaries as of and
for the years ended December 31, 2013 and 2014, and the unaudited interim condensed
consolidated financial statements of the Issuer and its consolidated subsidiaries as of March 31,
2015 and for the three months ended March 31, 2014 and 2015, are included in the F-Pages to
this Offering Memorandum.
The audited consolidated financial statements of Snai and its consolidated subsidiaries as of and
for the year ended December 31, 2012 are incorporated by reference herein and can be
examined on our website (www.snai.it).
The unaudited financial information of Snai for the twelve months ended March 31, 2015 has
been derived by subtracting from the audited consolidated financial statements of Snai and its
consolidated subsidiaries for the year ended December 31, 2014 the information from the
unaudited interim condensed consolidated financial statements of Snai and its consolidated
subsidiaries for the three months ended March 31, 2014 and adding the information from the
unaudited interim condensed consolidated financial statements for the three months ended
March 31, 2015.
The Snai Audited Consolidated Financial Statements and the Snai Unaudited Interim Condensed
Consolidated Financial Statements contained in the F-Pages to this Offering Memorandum have
been prepared in accordance with IFRS and should be read in conjunction with the relevant notes
thereto. Prospective investors are advised to consult their professional advisors for an
understanding of: (i) the differences between IFRS and other systems of generally accepted
accounting principles and how those differences might affect the financial information included
in this Offering Memorandum and (ii) the impact that future additions to, or amendments of,
IFRS principles may have on Snai’s results of operations and/or financial condition, as well as on
the comparability of the prior periods and the comparability of the financial information of Snai
and the Cogemat Group.
The reports of our independent auditors on the Snai Audited Financial Statements as of and for
the years ended December 31, 2012, 2013 and 2014 were unqualified but did contain emphasis of
matter paragraphs regarding disclosures made by our directors and contained in the explanatory
notes with respect to our ability to continue as a going concern and provisions for risks and
charges. For further details, refer to our independent auditors’ opinion contained elsewhere in
this Offering Memorandum. See “Risk Factors—Risks related to our business—We may be subject
to an unfavorable outcome with respect to pending litigation, which could result in substantial
monetary damages or losses or otherwise have a material adverse effect on us,” “Risk Factors—
Risks related to our business—We may be unable to achieve our operating and strategic
objectives,” “Risk Factors— Risks related to our capital structure and indebtedness —We have
recorded a significant amount of goodwill and we may not realize the full value thereof,” “Risk
Factors— Risks related to our capital structure and indebtedness—We may not be able to
generate sufficient cash to meet our debt service obligations, or our obligations under other
financing agreements, in which case our creditors could declare all amounts owed to them due
viii
and payable, leading to liquidity constraints ” and “Risk Factors—Risks related to our capital
structure and indebtedness—Our significant leverage may make it difficult for us to service our
debt, including the Notes, and operate our business.”
The unaudited financial information of Snai for the twelve months ended March 31, 2015 has
been prepared for illustrative purposes only and is not prepared in the ordinary course of Snai’s
financial reporting.
The Cogemat Group
The Cogemat Group’s financial information included in this Offering Memorandum has been
extracted or derived from: (i) the audited consolidated financial statements of Cogemat S.p.A. and its
consolidated subsidiaries (the “Cogemat Group”) as of December 31, 2013 and 2014 and for each of
the years ended December 31, 2012, 2013 and 2014, prepared in accordance with IFRS, audited by
Reconta Ernst & Young S.p.A. (the “Cogemat Audited Consolidated Financial Statements”) and
containing the auditors’ report therein and (ii) the unaudited interim condensed consolidated
financial statements of the Cogemat Group as of March 31, 2015 and for the three months ended
March 31, 2014 and 2015, prepared in accordance with International Accounting Standards 34 (the
“Cogemat Unaudited Interim Condensed Consolidated Financial Statements”).
The unaudited financial information of the Cogemat Group for the twelve months ended
March 31, 2015 has been derived by subtracting from the audited consolidated financial
statements of the Cogemat Group for the year ended December 31, 2014 the information from
the unaudited interim condensed consolidated financial statements of the Cogemat Group for
the three months ended March 31, 2014 and adding the information from the unaudited interim
condensed consolidated financial statements for the three months ended March 31, 2015.
The Cogemat Audited Consolidated Financial Statements and Cogemat Unaudited Interim
Condensed Consolidated Financial Statements contained in the F-Pages to this Offering
Memorandum have been prepared in accordance with IFRS and should be read in conjunction
with the relevant notes thereto. Prospective investors are advised to consult their professional
advisors for an understanding of: (i) the differences between IFRS and other systems of generally
accepted accounting principles and how those differences might affect the financial information
included in this Offering Memorandum and (ii) the impact that future additions to, or
amendments of, IFRS principles may have on the Cogemat Group’s results of operations and/or
financial condition, as well as on the comparability of the prior periods and the comparability of
the financial information of Snai and the Cogemat Group.
The unaudited financial information of the Cogemat Group for the twelve months ended
March 31, 2015 has been prepared for illustrative purposes only and is not prepared in the
ordinary course of the Cogemat Group’s financial reporting.
In addition to the Cogemat Audited Consolidated Financial Statements and Cogemat Unaudited
Interim Condensed Consolidated Financial Statements, we have included in the F-Pages to this
Offering Memorandum the consolidated financial statements of the Cogemat Group as of and
for the years ended December 31, 2012 and December 31, 2011 (“Cogemat 2012 Italian-GAAP
Consolidated Financial Statements”) prepared pursuant to the Italian legal and statutory
requirements, set forth by the Italian Civil Code, governing the preparation of financial
statements, as interpreted by and integrated with the accounting principles established by the
“Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili” (the “Italian
accounting profession”, and together with the various principles, pronouncements and
interpretations of the Italian accounting profession, collectively “Italian-GAAP”). We have
included the Cogemat 2012 Italian-GAAP Consolidated Financial Statements for reference in the
F-Pages only and have not analysed or commented on such financial statements in this Offering
Memorandum, as such financial statements may not be directly comparable to the Cogemat
Audited Consolidated Financial Statements and Cogemat Unaudited Interim Condensed
Consolidated Financial Statements. Investors are cautioned against making such comparisons.
ix
You should consult your own professional advisors for an understanding of the differences
between Italian-GAAP and IFRS and how those differences might affect the financial information
in the Cogemat 2012 Italian-GAAP Consolidated Financial Statements, the Cogemat Audited
Consolidated Financial Statements and Cogemat Unaudited Interim Condensed Consolidated
Financial Statements and comparisons between such financial information.
Pro forma financial information
In connection with the Cogemat Acquisition and the Offering, Snai has prepared unaudited pro
forma consolidated financial information which comprises a pro forma consolidated statement of
financial position as of March 31, 2015 and pro forma consolidated income statements for the
year ended December 31, 2014 and the three and twelve months ended March 31, 2015, and
related explanatory notes (the “Unaudited Pro Forma Consolidated Financial Information”).
The Unaudited Pro Forma Consolidated Financial Information has been prepared to reflect
retroactively the main effects of (i) the Cogemat Acquisition and the proposed Offering,
including the application of the proceeds therefrom (assuming an issue price at par) on Snai’s
consolidated statement of financial position and consolidated income statement, (ii) the
repayment of the Series B Notes on May 5, 2015, (iii) the Azzurro Repayment on June 30, 2015
and (iv) the release of approximately €10.0 million of restricted cash of the Cogemat Group that
will occur in connection with amending the 2011 Guarantee Facility Agreement and the 2013
Guarantee Facility Agreement as if each of (i) through (iv) had taken place on March 31, 2015 for
the purposes of the unaudited pro forma consolidated statement of financial position and on
January 1, 2014, January 1, 2015 and April 1, 2014, respectively for purposes of the unaudited pro
forma consolidated income statements.
The consolidated pro forma financial information included in this Offering Memorandum as of
March 31, 2015, for the year ended December 31, 2014 and for the twelve months ended
March 31, 2015 has been derived from the Unaudited Pro Forma Consolidated Financial
Information included in this Offering Memorandum in the section entitled “Unaudited Pro Forma
Consolidated Financial Information.” The explanatory notes to the Unaudited Pro Forma
Consolidated Financial Information include an explanation of the basis of preparation.
The Unaudited Pro Forma Consolidated Financial Information presented in this Offering
Memorandum is based on available information and certain assumptions that we believe are
reasonable, including assumptions pursuant to the terms of the Cogemat Acquisition and the
proposed Offering. The Unaudited Pro Forma Consolidated Financial Information is presented for
illustrative purposes only and does not purport to represent what the actual results of operations
would have been if the events for which the pro forma adjustments were made had occurred on
the dates assumed, nor does it purport to project our results of operations for any future period
or our financial condition at any future date. Our future operating results may differ materially
from the pro forma amounts set out in this Offering Memorandum due to various factors,
including changes in operating results.
The accounting principles used for the preparation of the Unaudited Pro Forma Consolidated
Financial Information are, unless otherwise specified, consistent with those used in the
preparation of the Snai Unaudited Interim Condensed Consolidated Financial Statements, which
have been prepared in accordance with IFRS. Details of the accounting policies applied is
provided in the Snai Unaudited Interim Condensed Consolidated Financial Statements.
The pro forma financial information set forth elsewhere in this Offering Memorandum has not
been prepared in accordance with the requirements of Regulation S-X under the U.S. Securities
Exchange Act of 1934 or U.S. GAAP. Neither the adjustments nor the resulting pro forma
financial information have been audited or reviewed in accordance with International Standards
on Auditing (Italy) or U.S. GAAP. The Unaudited Pro Forma Consolidated Financial Information
should be read in conjunction with the historical consolidated financial statements and notes
x
thereto of Snai and the Cogemat Group, included elsewhere in this Offering Memorandum and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of Snai”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of
the Cogemat Group.”
In accordance with IFRS 3 (revised) ‘‘Business Combinations,’’ should the Cogemat Acquisition be
successful, and at the date of acquisition, which is defined as the date on which the Issuer will
obtain control over the Cogemat Group, the Issuer will be identified as the acquirer and will
recognize goodwill as the excess of the consideration transferred (consisting of the fair value of
its newly issued shares) over the acquiree’s fair value of identifiable assets acquired and liabilities
or contingent liabilities assumed.
In accordance with IFRS 3 (revised), non-controlling interests in the Cogemat Group that are
current ownership interests and entitle their holders to a proportionate share of the entity’s net
assets can be measured at either fair value or the current ownership instruments’ proportionate
share in the amount of the Cogemat Group’s net identifiable assets recognized in the financial
statements. The Issuer, at the date of the Cogemat Acquisition, intends to measure noncontrolling interests at their fair value at the date of acquisition.
The process for the purchase price allocation has to be completed by the Issuer within twelve
months from the acquisition date. The completion of the purchase price allocation process in
accordance with IFRS 3 (revised) will result in the recognition at fair value, at the date of
acquisition, of all identifiable assets acquired and liabilities or contingent liabilities assumed and
the recognition of goodwill as the excess of the fair value of its newly issued shares over the fair
value of such net assets acquired.
See ‘‘Risk Factors—Risks related to the Cogemat Acquisition—We may be required to make writedowns of intangible assets. The Cogemat Group has recorded a significant amount of goodwill
and we may not realize the full value thereof.”
Non-IFRS financial measures
In this Offering Memorandum, we present certain non-IFRS measures, including EBITDA, Adjusted
EBITDA, EBITDA margin, adjusted EBITDA margin, cash flow from/(used in) operating activities
excluding net financial expenses, cash flow from/(used in) financing including net financial
expenses, cash conversion, net working capital, net financial indebtedness and total financial
indebtedness. These and other non-IFRS financial measures presented in this Offering
Memorandum may be used by different companies for different purposes and are often
calculated in ways that reflect the circumstances of those companies. You should exercise caution
in comparing EBITDA, Adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, cash flow
from/(used in) operating activities excluding net financial expenses, cash flow from/(used in)
financing including net financial expenses, cash conversion, net working capital, net financial
indebtedness and total financial indebtedness to similar measures used by other companies. The
information presented by each of EBITDA, Adjusted EBITDA, EBITDA margin, adjusted EBITDA
margin, cash flow from/(used in) operating activities excluding net financial expenses, cash flow
from/(used in) financing including net financial expenses, cash conversion, net working capital,
net financial indebtedness and total financial indebtedness is unaudited and has not been
prepared in accordance with IFRS or any other accounting standards. In addition, the
presentation of these measures is not intended to and does not comply with the reporting
requirements of the U.S. Securities and Exchange Commission (the “SEC”) and will not be subject
to review by the SEC; compliance with its requirements would require us to make changes to the
presentation of this information.
EBITDA and Adjusted EBITDA are not measurements of performance under IFRS and you should
not consider either of EBITDA or Adjusted EBITDA as an alternative to profit/(loss) before taxes or
profit/(loss) from continuing operations determined in accordance with IFRS, or, as the case may
be, or to cash flows from/(used in) operating activities, cash requirements used in investing
xi
activities or cash flow from/(used in) financing activities. EBITDA and Adjusted EBITDA have
limitations as analytical tools, and you should not consider them in isolation. Some of these
limitations are:
• they do not reflect our capital expenditures or future requirements for capital expenditures or
contractual commitments;
• they do not reflect changes in, or cash requirements for, our working capital needs;
• they do not reflect the significant financial expense, or the cash requirements necessary, to
service interest or principal payments on our indebtedness;
• although depreciation, amortization and write-offs are non-monetary items, the assets being
depreciated, amortized and/or written-off will often need to be replaced in the future and
EBITDA and Adjusted EBITDA do not reflect any cash requirements that would be required for
such replacements; and
• the fact that other companies in our industry may calculate EBITDA and Adjusted EBITDA
differently than we do, which limits their usefulness as comparative measures.
Snai and the Cogemat Group use certain common additional key performance indicators such as
“turnover,” “payout” and “revenues” to assess their underlying performance. We define these
indicators as follows:
• Turnover: refers to the total amount of wagers collected, and, in the case of the Cogemat
Group, total amount of payments received from convenience payment services customers;
• Payout: refers to the portion of turnover which is paid out to players as winnings; and
• Revenues: refers to turnover minus payouts and taxes (other operators in our industry
commonly refer to this figure as “net gaming revenues” (a formulation used in the “Industry”
section of this Offering Memorandum) to distinguish from “gross revenues,” defined as
turnover minus payout).
The Issuer also uses “contribution margin” to assess its performance, which it defines as revenues
minus concession fees and certain IT and distribution costs.
Snai’s and the Cogemat Group’s definitions of such items may differ from those used by other
companies, therefore comparability may be limited. Turnover, payout and contribution margin
are non-IFRS measures and should not be considered as an alternative to operating income or
operating margin as a measure of operating performance.
Segment and business line information
Snai
The Issuer’s financial segment reporting is prepared on the basis of five business segments:
Concessions, Racecourse Management, Television Services, Betting Collection Services and Other
and, consistent with IFRS 8, the Issuer provides segment reporting information thereof in the Snai
Audited Consolidated Financial Statements. The following presents a brief description of these
segments in accordance with IFRS 8:
• Concessions: this segment constitutes Snai’s core operations, including its sports and horse race
betting, virtual events, gaming machines operations, online games, bingo and sports pools on
both offline and online, mobile and tablet platforms;
• Racecourse Management: this segment includes Snai’s results from management of horse
racecourses, including real estate management and organization of races;
• Television Services: this segment includes Snai’s results from its television operations managed
by Teleippica S.r.l. (televised horse race events);
xii
• Betting Collection Services: this segment includes Snai’s results from electronic services to
betting acceptance points; and
• Other: this segment includes Snai’s results from operations not directly attributable to one of
its four primary segments, including non-operative companies in the process of being woundup and companies that will be wound-up.
The Cogemat Group
The Cogemat Group’s financial segment reporting is prepared on the basis of four business
segments: Concessions, Convenience Payment Services, Betting Collection Services and Other and,
consistent with IFRS 8, the Cogemat Group provides segment reporting information thereof in
the Cogemat Audited Consolidated Financial Statements. The following presents a brief
description of these segments in accordance with IFRS 8:
• Concessions: this segment constitutes the Cogemat Group’s core operations, including results
from gaming machines operations, both AWPs, and VLTs, from sports and horse race betting,
both on line and retail, virtual events at branded betting shops and betting corners and on line
poker, skill and casino games;
• Convenience Payment Services: includes results from the Cogemat Group’s convenience
payment services, including PayMat prepaid payment cards, and utility bill payment services in
cooperation with Poste Italiane and a third-party licensed payment institution, as well as
mobile top-ups, phone cards and gift cards;
• Betting Collection Services: this segment includes Cogemat Group’s results from electronic
services to gaming and betting acceptance points; and
• Other: includes the Cogemat Group’s results from operations not directly attributable to one of
its four primary product lines.
Combined segment and business line information
For purposes of this Offering Memorandum, we present a further unaudited combined
breakdown of the Snai segments and the Cogemat Group product/service categories into the
following combined categories for each of the financial periods set forth in this Offering
Memorandum. The following is a brief presentation of these main segments and business lines
(not including the Other segment of residual activities):
• Concessions: this segment comprises our core operations and includes the following business
lines of Snai and the Cogemat Group:
• Gaming Machines: this business line includes the operation of our AWPs and VLTs under
concession and related services such as IT services managing the authorized IT network
connecting gaming machines to ADM’s control system;
• Sports and Horse Race Betting and Virtual Events: this business line includes our fixed-odds
betting operations for sports matches, our virtual events and our betting operations for
horse race events (mainly totalizer), including bookmaking and other statistical services
and related online channel offerings and IT support; and
• Online Skill and Casino Games: this business line includes our online operations (including
Internet, mobile and tablet platforms), encompassing a number of gaming activities (i.e.
bingo, blackjack, backgammon, solitaire card games, dice games and poker) and other
residual revenues related to our Concessions segment.
• Betting Collection Services: this segment includes operations in electronic services to betting
acceptance points of Snai and the Cogemat Group;
• Racecourse Management: this segment includes management of Snai’s horse racecourses
operations, including real estate management and organization of races;
xiii
• Television Services: this segment includes Snai’s television operations managed by Teleippica
(televised horse race events); and
• Convenience Payment Services: this segment includes convenience payment services, utility bill
payment services, mobile phone top-ups, phone cards and gift cards of the Cogemat Group.
Other data
Certain numerical figures contained in this Offering Memorandum, including financial
information and certain operating data, have been subject to rounding adjustments. Accordingly,
in certain instances, the sum of the numbers in a column or a row in tables may not conform
exactly to the total figure given for that column or row or the sum of certain numbers presented
as a percentage may not conform exactly to the total percentage given.
xiv
Currency Presentation and Definitions
In this Offering Memorandum, all references to “euro,” “EUR” or “€” are to the single currency
of the participating member states of the European and Monetary Union of the Treaty
Establishing the European Community, as amended from time to time, and all references to
“U.S. dollars,” “USD” and “$” are to the lawful currency of the United States of America.
Definitions
As used in this Offering Memorandum:
“2011 Guarantee Facility
Agreement” . . . . . . . . . . .
“2011 GFA Amendment
Request” . . . . . . . . . . . . .
“2013 Guarantee Facility
Agreement” . . . . . . . . . . .
“2013 GFA Amendment
Request” . . . . . . . . . . . . .
the guarantee facility agreement entered into on October 10, 2011
among Cogetech, as borrower, and UniCredit S.p.A. and Banca
IMI S.p.A., as lenders, as amended (see “Description of Certain
Financing and Guarantee Arrangements—The Cogemat Group—Bank
guarantees in favor of ADM and UNIRE on behalf of Cogetech”)
a request for amendment of the 2011 Guarantee Facility Agreement
delivered by Cogetech to UniCredit S.p.A., as agent under the 2011
Guarantee Facility Agreement (see “Description of Certain Financing
and Guarantee Arrangements—The Cogemat Group—Bank
guarantees in favor of ADM and UNIRE on behalf of Cogetech”)
the guarantee facility agreement entered into on July 31, 2013 among
Cogetech, as initial borrower, Cogetech Gaming, as additional
borrower, and UniCredit S.p.A., as lender, as amended (see
“Description of Certain Financing and Guarantee Arrangements—The
Cogemat Group—Bank guarantees in favor of ADM and UNIRE on
behalf of Cogetech”)
a request for amendment of the 2013 Guarantee Facility Agreement
delivered by Cogetech to UniCredit S.p.A. (see “Description of Certain
Financing and Guarantee Arrangements—The Cogemat Group—Bank
guarantees in favor of ADM and UNIRE on behalf of Cogetech”)
“ADM” . . . . . . . . . . . . . . .
the Agenzie delle Dogane e dei Monopoli, formerly the
Amministrazione Autonoma dei Monopoli di Stato, the Italian gaming
regulatory authority
“Agents” . . . . . . . . . . . . .
the Escrow Agent, the Paying Agent, the Transfer Agent, the
Registrar, the Luxembourg Listing Agent and the Security Agent,
collectively
“ASSI” . . . . . . . . . . . . . . . .
the Agenzia per lo sviluppo del settore ippico, an Italian agency
operating under the control of the Italian Ministry of Agricultural
Policy and Forestry. In 2011, ASSI succeeded to UNIRE as entity in
charge of the promotion and supervision of the horse breeding and
horse racing in Italy; Law No. 135/2012 and its implementing decree
issued by the MEF jointly with the Ministry of the Agricultural Policy
and Forestry on January 31, 2013, provides for the transfer of the
functions of ASSI to the Ministry of Agricultural Policy and Forestry
and to ADM in this Offering Memorandum, references to ASSI refer to
the agency at the time it was legally designated as the regulator,
unless the context requires otherwise or is clear from the context
xv
“AWP” . . . . . . . . . . . . . . .
amusement with prize, an industry term commonly used to refer to an
electronic slot machine game device, which must comply with the
technical requirements issued by ADM
“Azzurro” . . . . . . . . . . . . .
Azzurro Gaming S.p.A., an indirect subsidiary of Cogemat S.p.A.
“Azzurro Repayment” . . .
the repayment, on June 30, 2015, of €4.6 million, representing the
final deferred payment in respect of the shareholder loan from
Casinos Austria (Swiss) AG to Azzurro, and made by Cogetech in
relation to the acquisition of the entire share capital of Azzurro by
Cogetech
“Bersani Invitation to
Tender” . . . . . . . . . . . . . .
“betting corner” or
“gaming corner” . . . . . . .
the tender process instituted in 2006 as discussed under “Regulation—
Betting—Bersani concessions”
a “shop-in-shop” betting or gaming point of sale located in venues
primarily dedicated to activities other than betting or gaming such as
tobacconist or other shops
“betting shop” or
“gaming shop” . . . . . . . .
a point of sale dedicated to betting and gaming machines
“CAGR” . . . . . . . . . . . . . . .
compound annual growth rate
“Cogemat” . . . . . . . . . . . .
Cogemat S.p.A.
“Cogemat
Acquisition” . . . . . . . . . . .
“Cogemat Collateral” . . .
“Cogemat Contributed
Shares” . . . . . . . . . . . . . . .
“Cogemat Contributing
Shareholders” . . . . . . . . .
“Cogemat Existing
Debt” . . . . . . . . . . . . . . . .
the acquisition by the Issuer of the Cogemat Contributed Shares by
means of (i) the Preliminary Contribution (as defined in Summary—
The Transactions—The Cogemat Acquisition) and (ii) the Cogemat
Contribution (as defined in Summary—The Transactions—The
Cogemat Acquisition)
the security interests, subject to the Intercreditor Agreement, the
Agreed Security Principles and applicable law, to secure the Notes
within 30 business days following the Completion Date, consisting of
first-ranking pledges over (i) the Cogemat Contributed Shares and
(ii) the receivables in respect of the Proceeds Loan
the share capital of Cogemat agreed to be contributed to the Issuer by
the Cogemat Contributing Shareholders and, further to the
Preliminary Contribution, by Global Games, which as of the date of
the execution of the Investment Agreement was 88.56% and which
may, pursuant to the Investment Agreement, increase up to 100.00%
(see “Summary—The Transactions—The Cogemat Acquisition” and
“Principal Shareholders”)
OI Games and OI Games 2 which, prior to the Cogemat Acquisition,
hold in the aggregate 75.25% of the outstanding share capital of
Cogemat (the “Cogemat Majority Shareholders”), and the Cogemat
Minority Shareholders who elect to accede to the Investment
Agreement (the “Acceding Cogemat Minority Shareholders”)
the Cogetech Senior Facility and the Cogemat Notes, both of which
will be repaid with a portion of the proceeds of the Offering on or
xvi
about the Completion Date (see “Summary—The Transactions—
Cogemat Refinancing and use of proceeds” and “Use of Proceeds”)
“Cogemat Group” . . . . . .
“Cogemat Minority
Shareholders” . . . . . . . . .
“Cogemat Notes” . . . . . .
“Cogemat
Refinancing” . . . . . . . . . .
Cogemat S.p.A. and its consolidated subsidiaries, unless the context
requires otherwise or is clear from the context; prior to the Cogemat
Acquisition, the Issuer does not control or own the Cogemat Group
(see “Summary—The Transactions—The Cogemat Acquisition”)
the Cogemat shareholders other than the Cogemat Majority
Shareholders, who, prior to the Cogemat Acquisition, hold in the
aggregate 24.75% of the outstanding share capital of Cogemat
the €50,000,000 million original principal amount secured floating
rate notes due 2019 issued by Cogemat on February 14, 2014
as defined in “Summary—The Transactions—Cogemat Refinancing
and use of proceeds”
“Cogetech” . . . . . . . . . . .
Cogetech S.p.A., a direct subsidiary of Cogemat S.p.A.
“Cogetech Gaming” . . . .
Cogetech Gaming S.p.A., a direct subsidiary of Cogemat S.p.A.
“Cogetech Senior
Facility” . . . . . . . . . . . . . .
the senior secured long term facility among Cogemat, as guarantor,
Cogetech S.p.A., as borrower, UniCredit S.p.A., Mediobanca—Banca
di Credito Finanziario S.p.A. and MPS Capital Services Banca per le
Imprese S.p.A., as original lenders, entered into on November 4, 2013
“Collateral” . . . . . . . . . . .
the Completion Date Collateral and the Cogemat Collateral
“Completion Date” . . . . .
the date of the release of the proceeds of the Notes from escrow,
following the satisfaction of certain conditions, including conditions
relating to the Cogemat Acquisition, which is also the expected date
of the consummation of the Cogemat Acquisition
“Completion Date
Collateral” . . . . . . . . . . . .
“CONSOB” . . . . . . . . . . . .
“Court of Audit
Litigation” . . . . . . . . . . . .
“Escrow Account” . . . . . .
the security interests, subject to the provisions of the Intercreditor
Agreement, the Agreed Security Principles and applicable law, to
secure the Notes on or about the Completion Date consisting of firstranking pledges over (i) 50.00% plus one share of the share capital of
the Issuer, (ii) 100.00% of the quotas of Teleippica S.r.l. and
(iii) certain intellectual property rights of the Issuer
the Commissione Nazionale per le Società e la Borsa, the Italian
securities and financial markets regulator
the legal proceedings originally commenced in 2007 by the Italian
Public Prosecutor before the Court of Audit for the Region of Lazio
(Corte dei Conti del Lazio) against us and nine other gaming machine
concessionaires, including Cogetech, premised on the failure to
comply with certain obligations under the gaming machine
concessions
the segregated bank account into which the Issuer will procure that
the proceeds from the Offering, net of a portion of the fees payable
to the Initial Purchasers, are deposited, and such Escrow Account will
be controlled by the Escrow Agent, and the proceeds therein will be
charged on a first-ranking basis in favor of, the Trustee on behalf of
the holders of the Notes pursuant to the Escrow Agreement
xvii
“Escrow Agreement” . . .
“Escrow Longstop
Date” . . . . . . . . . . . . . . . .
the agreement to be dated as of the Issue Date among, inter alios, the
Issuer, the Trustee and the Escrow Agent
December 31, 2015, being the date on which all proceeds of the
Offering deposited into the Escrow Account, in addition to any
accrued and unpaid interest and Additional Amounts, if any, will be
returned to the holders of the Notes if the Cogemat Acquisition is not
consummated by such date
“EU” . . . . . . . . . . . . . . . . .
European Union
“Eurozone” . . . . . . . . . . .
the member states of the EU participating in the European Monetary
Union
“Existing Senior Secured
Notes” . . . . . . . . . . . . . . .
“Existing Senior Secured
Notes Indenture” . . . . . .
“Global Games” . . . . . . .
“Group,” “us,” “we” and
“our” . . . . . . . . . . . . . . . . .
the Issuer’s €320,000,000 7.625% Senior Secured Notes due 2018
issued on December 4, 2013
the indenture governing the Existing Senior Secured Notes dated as of
December 4, 2013 among, inter alios, the Issuer and the Trustee,
governing the Existing Senior Secured Notes offered hereby
Global Games S.p.A.
the Issuer and its consolidated subsidiaries, including, after the
consummation of the Cogemat Acquisition, the Cogemat Group,
unless the context requires otherwise or is clear from the context
“Guarantees” . . . . . . . . .
the guarantee of the Notes by the Guarantors
“Guarantors” . . . . . . . . . .
Cogemat S.p.A. and Cogetech S.p.A.
“FIFA” . . . . . . . . . . . . . . . .
Fédération Internationale de Football Association, the international
body of association football, futsal and beach football
“fiscal code” . . . . . . . . . .
an Italian tax identification number (codice fiscale) that is unique to
each person
“IE” . . . . . . . . . . . . . . . . . .
International Entertainment S.A., a company holding 50% of the
share capital of OI Games 2
“IFRS” . . . . . . . . . . . . . . . .
International Financial Reporting Standards as adopted by the
European Union
“imposta unica” . . . . . . .
a tax levied on sports and horse race betting as described in more
detail under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations of Snai—Quantitative and
Qualitative Disclosures About Market Risk—Credit risk” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations of the Cogemat Group—Quantitative and
qualitative disclosures about market risk—Market risks—Credit risk”
“Indenture” . . . . . . . . . . .
the indenture to be entered into on or about the Issue Date, among,
inter alios, the Issuer and the Trustee, governing the Notes offered
hereby, as described under “Description of the Notes”
“Indentures” . . . . . . . . . .
taken together, the Indenture and the indentures governing the
Existing Senior Secured Notes and the Senior Subordinated Notes
xviii
“Intercreditor
Agreement” . . . . . . . . . . .
“Investment
Agreement” . . . . . . . . . . .
the intercreditor agreement entered into on December 4, 2013 by and
among, inter alios, the Issuer, the trustee for the holders of the
Existing Senior Secured Notes and the Senior Subordinated Notes, the
original debtors named therein and the Security Agent, and to which
the Trustee will accede on the Completion Date (and to which the
Guarantors will accede within 30 business days following the
Completion date), as amended, restated or otherwise modified or
varied from time to time
the agreement by and between the Issuer and the Cogemat
Contributing Shareholders dated as of July 11, 2015 pursuant to which
the Issuer has agreed to acquire the Cogemat Contributed Shares as
further described under “Summary—The Transactions—The Cogemat
Acquisition”
“Issuer” . . . . . . . . . . . . . .
SNAI S.p.A.
“IT” . . . . . . . . . . . . . . . . . .
information technology
“Italian Civil Code” . . . . .
the Italian civil code (codice civile), enacted by Italian Royal Decree
No. 22 of March 16, 1942, as subsequently amended and
supplemented
“Italian Stability Law of
2015” . . . . . . . . . . . . . . . .
Law No. 190 of December 20, 2014
“Notes” . . . . . . . . . . . . . .
the Notes offered hereby
“NTNG” . . . . . . . . . . . . . .
National Totalisator Number Games
“n.s.” . . . . . . . . . . . . . . . . .
not significant
“OI Games” . . . . . . . . . . .
OI Games S.A.
“OI Games 2” . . . . . . . . . .
OI Games 2 S.A.
“payout” . . . . . . . . . . . . .
an industry term that refers to the portion of turnover which is paid
out to players as winnings
“POS” . . . . . . . . . . . . . . . .
points of sale (can refer to betting and gaming shops and corners)
“PREU” . . . . . . . . . . . . . . .
prelievo erariale unico, a tax paid to ADM in connection with gaming
machine concessions as described in more detail under “Regulation—
Gaming machines—Legal framework governing the gaming machines
network—The gaming machines network”
“Proceeds Loan” . . . . . . .
the Issuer’s loan to Cogetech of the net proceeds of the Offering to be
used by Cogetech and Cogemat to refinance the Cogemat Existing
Debt
“Revolving Credit
Facility Agreement” . . . .
“Revolving Credit
Facility” . . . . . . . . . . . . . .
“Security Agent” . . . . . .
the super senior revolving credit facility agreement dated
November 27, 2013, and made among the Issuer, the several
Mandated Lead Arrangers named therein, UniCredit Bank AG, Milan
Branch as agent, the Security Agent and the original lenders named
therein
the revolving credit facility available pursuant to the Revolving Credit
Facility Agreement
UniCredit Bank AG, Milan Branch, in its capacity as security agent
under the Indenture and the Revolving Credit Facility
xix
“Security
Documents” . . . . . . . . . . .
“Senior Subordinated
Notes” . . . . . . . . . . . . . . .
any pledges, assignments by way of security, agreements and related
documents that will be signed and entered into in connection with
the granting of the Collateral to secure the obligations of the Issuer
under the Notes offered hereby in accordance with the terms of the
Indenture
the Issuer’s €160,000,000 12.000% Senior Subordinated Notes due
2018 issued on December 4, 2013
“Series B Notes” . . . . . . .
the €20,000,000 senior unsecured floating rate notes due 2015 issued
by the Issuer on November 8, 2013 and repaid on May 5, 2015
“SOGEI” . . . . . . . . . . . . . .
Società Generale d’Informatica S.p.A., an information and
communication technology company owned by the Italian Ministry of
Economy and Finance that is generally responsible for, among other
things, the operation of the tax IT system
“Stability Fee” . . . . . . . . .
the €500 million annual fee provided for by the Italian Stability Law of
2015 (which may be changed from year to year) to be paid, starting
from 2015, by VLT and AWP concessionaires and operators in
proportion to the number of VLTs and AWPs they operate as of
December 31 of the prior year
“Trenno” . . . . . . . . . . . . .
Società Trenno S.r.l., a wholly-owned subsidiary of the Issuer
“Teleippica” . . . . . . . . . . .
Teleippica S.r.l., a wholly-owned subsidiary of the Issuer that forms
part of Snai’s Television Services segment
“Transactions” . . . . . . . .
has the meaning set forth under “Summary—The Transactions”
“Trustee” . . . . . . . . . . . . .
The Law Debenture Trust Corporation p.l.c., in its capacity as trustee,
legal representative (mandatario con rappresentanza) under the
Indenture and common representative (rappresentante comune) of
the holders of the Notes pursuant to Articles 2417 and 2418 of the
Italian Civil Code
“turnover” . . . . . . . . . . . .
an industry term that refers to the total amount of wagers collected,
and, in respect of the Cogemat Group’s business, the total amount of
payments received from customers in the gaming industry and
convenience payment services industry
“UEFA” . . . . . . . . . . . . . . .
Union of European Football Associations, the governing body for
football for fifty-four European and Asian countries
“UNIRE” . . . . . . . . . . . . . .
Unione Nazionale per l’Incremento delle Razze Equine, the former
Italian public agency charged with the promotion of the Italian horse
breeding and horse race sectors. Pursuant to applicable law, UNIRE’s
functions were transferred to ASSI in 2011; in this Offering
Memorandum, references to UNIRE refer to the agency at the time it
was legally designated as the regulator, unless the context requires
otherwise or is clear from the context
“United States” or
“U.S.” . . . . . . . . . . . . . . . .
the United States of America
“U.S. Securities Act” . . . .
the U.S. Securities Act of 1933, as amended
“VLT” . . . . . . . . . . . . . . . .
an industry term commonly used to refer to an electronic video lottery
game device, which must comply with the technical requirements
issued by ADM
xx
Industry and Market Data
In this Offering Memorandum, we rely on and refer to information regarding our business and
the market in which we operate and compete. The market data and certain economic and
industry data and forecasts used in this Offering Memorandum were obtained from
governmental and other publicly available information, including information prepared by ADM
and the Istituto nazionale di statistica, Italian national statistics institute (“ISTAT”). With respect
to data provided for gaming machines for the year ended December 31, 2014, the figures
provided in this Offering Memorandum for the industry have been based on management’s
reasonable estimates extrapolating from ADM data for the year ended December 31, 2014, the
most recently published data set. In addition to the foregoing, certain information regarding
markets, market size, market share, market position, growth rates and other industry data
pertaining to our business contained in this Offering Memorandum is based on internal estimates
or derived from third party data sets or information in the public record in each case based on
assumptions we deem reasonable. We also utilize our own research studies as well as surveys or
studies conducted by third parties and other industry or general publications. Industry
publications and forecasts generally state that the information they contain has been obtained
from sources believed to be reliable, but that the accuracy and completeness of such information
is not guaranteed. Market data and statistics are inherently uncertain and not necessarily
reflective of actual market conditions. Such statistics are based on market research, which itself is
based on sampling and subjective judgments by both the researchers and the respondents,
including judgments about what types of products and transactions should be included in the
relevant market. While we believe that each of these studies and publications is reliable, none of
the Group, the Initial Purchasers, the Trustee or any of the Agents have independently verified
such data and cannot guarantee their accuracy or completeness.
In addition, certain information in this Offering Memorandum for which no source is given,
regarding our market position relative to our competitors in the betting and gaming industry, is
not based on published statistical data or information obtained from independent third parties.
Such information and statements reflect our best estimates based upon information obtained
from trade and business organizations and associations and other contacts within the industries
in which we compete, as well as information published by our competitors. To the extent that no
source is given for information contained in this Offering Memorandum, or such information is
identified as being our belief, that information is based on the following: (i) in respect of market
share, information obtained from ADM, trade and business organizations and associations and
other contacts within the industries in which we compete and internal analysis of our sales data,
and unless otherwise stated, market share is based on turnover, except for with respect to AWPs
and VLTs, where market share is based on number of machines; (ii) in respect of industry trends,
our senior management team’s general business experience, as well as their experience in our
industry and the local markets in which we operate; and (iii) in respect of the performance of our
operations, our internal analysis of our audited and unaudited financial and other information.
As some of the foregoing information was compiled or provided by our management or advisers
and is not publicly available, such information accordingly may not be considered to be as
independent as that provided by other third party sources. None of the Group, the Initial
Purchasers, the Trustee or any of the Agents can assure you of the accuracy and completeness of,
or take any responsibility for, such data. Similarly, while we believe our internal estimates to be
reasonable, these estimates have not been verified by any independent sources and neither we
nor the Initial Purchasers can assure you as to their accuracy or the accuracy of the underlying
assumptions used to estimate such data. Unless otherwise indicated, data on our market position
and market share is based on turnover for the year ended December 31, 2014. Our estimates
involve risks and uncertainties and are subject to change based on various factors. See
“Risk Factors,” “Industry,” “Snai’s Business” and “Cogemat Group Business” for further
discussion.
xxi
Summary
This summary highlights selected information about Snai, the Cogemat Group and the
Transactions contained in this Offering Memorandum. This summary is not complete and does
not contain all the information you should consider before investing in the Notes. The following
summary should be read in conjunction with, and the following summary is qualified in its
entirety by, the more detailed information included in this Offering Memorandum, including the
financial statements of our Group and the Cogemat Group and the related notes therein. You
should read this Offering Memorandum carefully in its entirety, including the sections entitled
“Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of
Operations of Snai,” “Management’s Discussion and Analysis of Financial Condition and Results
of Operations of the Cogemat Group,” “Industry,” “Snai’s Business” and “Cogemat Group
Business” as well as the financial statements of our Group and of the Cogemat Group and the
respective notes thereto included elsewhere in this Offering Memorandum.
Unless the context indicates otherwise, when we refer to “we,” “us,” “our” and the “Group” for
the purposes of this “Summary,” we are referring to the combined businesses of Snai and the
Cogemat Group as if the Cogemat Acquisition had already occurred. For more information on the
Cogemat Group, see “Cogemat Group Business,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations of the Cogemat Group” and the financial
statements of the Cogemat Group and the notes thereto included elsewhere in this Offering
Memorandum.
We have not yet completed the Cogemat Acquisition and, therefore, we neither own nor control
the Cogemat Group. This Offering Memorandum includes certain information, including financial
information, about the Cogemat Group, including financial information that presents Snai and
the Cogemat Group on a pro forma basis. Such information is based on our estimates and
assumptions, which are based on a significant number of factors, some of which may be beyond
our control. See “Forward-Looking Statements” and “Risk Factors—Risks related to the Cogemat
Acquisition.” Any information concerning the Cogemat Group is based on documents,
information and representations provided to us and our advisers by the Cogemat Group. While
we have conducted due diligence on the Cogemat Group and have no knowledge that would
indicate that any statement contained herein, based upon such information provided by the
Cogemat Group, is inaccurate, incomplete or untrue, we cannot independently verify the
accuracy, completeness or truthfulness of all such information or that there has not been any
failure by the Cogemat Group to disclose events, developments or circumstances that may have
occurred, but which are unknown to us, which may affect the significance or accuracy of any such
information.
Overview
We are a leader in the Italian betting and gaming entertainment market. We were founded in
1906 and are currently listed on the Italian Stock Exchange. We manage our business pursuant to
a broad portfolio of long-term concessions granted to us by ADM, the Italian gaming industry
regulator, and offer a broad spectrum of betting and gaming products, including (i) gaming
machines, (ii) sports and horse race betting and virtual events (including online betting) and
(iii) online skill and casino games. Operating multiple concessions mitigates our concession
renewal risk compared to mono-concession businesses such as Lotto and SuperEnalotto. Our
concessions have varying expiration dates and although we have consistently been able to renew
and increase all our concessions, we retain discretion as to how many individual shop or machine
concessions we choose to renew at each renewal date, providing us with flexibility to manage
our capital expenditures and liquidity.
On July 11, 2015, as further described under “—The Transactions—The Cogemat Acquisition,” we
entered into an agreement to acquire 88.56% (and up to 100.00%) of the outstanding share
capital of Cogemat, one of the leading gaming machine companies in Italy based on turnover.
The Cogemat Group operates in some of the same market segments that we do, and we believe
that the two companies have highly complementary networks and product offerings.
1
The Cogemat Acquisition strengthens our leading market positions across our primary business
lines. As of March 31, 2015, and pro forma for the Cogemat Acquisition, we would have had a
gaming machines network of approximately 60,000 active AWPs and 10,000 active VLTs,
establishing us as one of the market leaders in gaming machines. The charts below illustrate our
combined market position in respect of our competitor concessionaires based on numbers of
authorized AWPs (left) and VLTs (right).
Source: ADM, 2014
Pro forma for the Cogemat Acquisition we would have had a market share, by 2014 turnover, of
15.1% in the gaming machines market segment. In addition, pro forma for the Cogemat
Acquisition, we would have had market shares, by 2014 turnover, of 19.4%, 40.9% and 33.5% in
the sports betting, horse race betting and virtual events market segments, respectively, and a
market share of 6.3% in the online skill and casino games market segment.
Our acquisition of the Cogemat Group expands our existing physical betting and gaming
network in a market that remains primarily a “brick and mortar” industry, with approximately
83% of the total turnover of the Italian market in 2014 coming from the offline channel. As of
March 31, 2015, pro forma for the Cogemat Acquisition, our distribution network included
717 sports and horse race betting shops, 917 sports betting corners and 670 horse race betting
corners, constituting one of the largest networks of betting POS in Italy. We believe this large
and well-diversified retail platform, with POS across all of Italy, constitutes a strong barrier to
entry for our potential competitors because of the high costs associated with setting up a POS
network extensive enough to compete with us. In addition, our POS platform allows us to
achieve best-in-class brand awareness—we believe our Punto SNAI brand has become
synonymous with sports and horse race betting in Italy—and we believe that an expanded
network can only improve our brand visibility.
We believe that such a strong and well-diversified product portfolio provides revenue stability
because we can mitigate our exposure to the risks posed by sports betting where payout levels
fluctuate over time and we incur bookmaking risk, by focusing on our fixed-payout businesses
such as horse racing, gaming machines and online skill and casino games, where revenues are
more stable because minimum payouts are fixed by ADM.
Following the Cogemat Acquisition, we will acquire the Cogemat Group’s convenience payment
services business through which we will provide customers with payment services such as utility
bill payments, mobile phone top-ups and prepaid cards.
For the twelve months ended March 31, 2015, pro forma for the Cogemat Acquisition, we would
have generated pro forma combined total revenues of €979.0 million and pro forma combined
Adjusted EBITDA of €137.5 million. See “Summary Pro Forma and Historical Consolidated
Financial Information and Other Data.”
2
Following the Cogemat Acquisition, we intend to organize and manage our combined activities
within the following main business segments: Concessions, Racecourse Management, Television
Services, Betting Collection Services and Convenience Payment Services. We also intend to present
a further breakdown of our combined Concessions segment into three business lines: sports and
horse race betting and virtual events, gaming machines and online skill and casino games. The
following is a brief presentation of these main segments and business lines (not including the
Other segment of residual activities):
• Concessions: this segment comprises our core operations and for the twelve months ended
March 31, 2015, represented 96.4% of our total pro forma combined total revenues. The
Concessions segment includes the following business lines of Snai and the Cogemat Group:
• Gaming Machines: this business line includes the operation of our AWPs and VLTs under
concession and related services such as IT services managing the authorized IT network
connecting gaming machines to ADM’s control system;
• Sports and Horse Race Betting and Virtual Events: this business line includes our fixed-odds
betting operations for sports matches, our virtual events and our betting operations for
horse race events (mainly totalizer), which include bookmaking and other statistical
services and related online channel offerings and IT support; and
• Online Skill and Casino Games: this business line includes our online operations (including
Internet, mobile and tablet platforms), encompassing a number of gaming activities
(i.e. bingo, blackjack, backgammon, solitaire card games, dice games and poker) and other
residual revenues related to our Concessions segment;
• Racecourse Management: this segment includes our management of horse race course
operations, including real estate management and organization of races;
• Television Services: this segment includes our television operations managed by Teleippica
(televised horse race events);
• Betting Collection Services: this segment includes operations in electronic services to betting
acceptance points; and
• Convenience Payment Services: this segment includes convenience payment services such as
utility bill payment services, mobile phone top-ups, phone cards and gift cards.
The chart below sets forth the breakdown of our pro forma combined total revenues for each
business line within our Concessions segment for the twelve months ended March 31, 2015,
which represented 96.4% of our total pro forma combined total revenues for the same period.
Sports and
Horse Race
Betting and
Virtual Events
20.2%
Online Skill and
Casino Games
and Other
5.5%
Gaming
Machines
74.3%
3
Cogemat Acquisition rationale
The Cogemat Acquisition is strategically important for us. It strengthens our market positions
across our primary business lines, expands our distribution network, further diversifies our
product portfolio, provides new revenue-generating businesses and increases our scale and
operational efficiencies. As of March 31, 2015, the Cogemat Group’s gaming machine network
included approximately 35,000 AWPs and 5,000 VLTs, and the Cogemat Group’s physical network
included 116 sports and horse race betting shops and 70 sports betting corners. With total
turnover of €4.4 billion for the year ended December 31, 2014, the Cogemat Group held a market
share of 5.2% of the Italian betting and gaming market. For the twelve months ended March 31,
2015, the Cogemat Group generated total revenues of €437.9 million and Cogemat Adjusted
EBITDA of €42.2 million and as of March 31, 2015, its total assets were €270.0 million. For a
further description of the Cogemat Group’s business, see “Cogemat Group Business.”
We believe the Cogemat Acquisition will generate a number of benefits for us, including:
• Strengthened market positions across primary business lines. We believe the Cogemat
Acquisition makes us one of the leaders in the gaming machine market segment. On a
stand-alone basis, the Cogemat Group derived 94.1% of its total revenues for the twelve
months ended March 31, 2015, from gaming machines. For the year ended December 31, 2014,
the Italian gaming machine market generated €46.8 billion in total market-wide turnover,
representing approximately 55.4% of the entire Italian betting and gaming market. On a
stand-alone basis, and based on turnover, the Cogemat Group held a 9.0% share of the gaming
machines market in 2014. We believe that, following the Cogemat Acquisition, we will become
one of the leaders in the gaming machines market segment with a combined market share,
based on turnover, of 15.1% in 2014. Furthermore, we believe the Cogemat Acquisition
strengthens our leading market position in the sports and horse race betting market segments
where, pro forma for the Cogemat Acquisition, we would have had combined market shares,
based on turnover in 2014, of 19.4% and 40.9%, respectively.
• Expanded distribution network. The Italian betting and gaming market is mainly a “brick and
mortar” industry with the offline channel representing approximately 83% of the turnover of
the total market in 2014. We believe that the Cogemat Group’s strong market position
(particularly in gaming machines) is, in part, a consequence of their extensive distribution
network. On a stand-alone basis as of March 31, 2015, the Cogemat Group’s distribution
network included 116 sports and horse race betting shops, 70 sports betting corners and
approximately 35,000 AWPs and 5,000 VLTs. We believe that consolidating our distribution
networks will create one of the largest betting and gaming machine networks in Italy.
• Increased product portfolio diversification. We believe the Cogemat Acquisition will further
diversify our product offering and provide enhanced revenue stability. In particular, revenue
from sports betting, characterized by bookmaking risk and fluctuating payout ratios, will be
reduced from 24.2% of total Snai revenues for 2014 to 12.2% of pro forma combined total
revenues for the twelve months ended March 31, 2015.
• New revenue-generating businesses. In addition to operating in many of our same market
segments, the Cogemat Group also operates in the convenience payment services segment
offering services such as utility bill payment, mobile phone top-ups, phone cards and gift cards.
• Operational synergies and efficiencies and administration optimization from increased scale.
We believe the Cogemat Acquisition will create operational synergies and efficiencies resulting
from our increased size, including a more efficient utilization of resources and distribution
capabilities and an optimization of our administrative capacity. For example, the Cogemat
Group rents a separate corporate headquarters building, and consolidating this overlap will
4
result in significant savings in property rental costs. We have also identified other potential
synergies, including, among others, reduced information technology and insurance costs and
procurement savings.
Based on a preliminary analysis conducted by an independent expert, we believe we will be
able to implement all of the programs and initiatives necessary to achieve these synergies
within a year from the Completion Date, and that the full benefit therefrom, which we
estimate will be between €10.0 million and €15.0 million annually, will be achieved within two
years from the Completion Date. We estimate that the non-recurring costs of achieving the
synergies from the Cogemat Acquisition will be between €10.0 million and €15.0 million, all of
which are expected to be incurred within 18 months from the Completion Date.
Synergy and cost estimates are based on a number of assumptions made in reliance on the
information available to us and management’s judgments based on such information. The
available information is preliminary, and the assumptions used in estimating the synergies and
associated costs relating to the Cogemat Acquisition are inherently uncertain and are subject to
a wide variety of significant business, economic, and competitive risks and uncertainties. We
cannot assure you that the information on which we have based our assumptions will not
change or that we will be able to realize any of the synergies or other benefits we believe are
possible from the Cogemat Acquisition. Furthermore, the costs we incur in trying to realize
these synergies and other benefits may be substantially higher than our current estimates and
may outweigh any benefit. See “—The Cogemat Acquisition,” “Risk Factors—Risks related to
the Cogemat Acquisition—We may be unable to integrate the Cogemat Group effectively and
realize the expected synergies and cost savings from the Cogemat Acquisition” and “ForwardLooking Statements.”
Our strengths
We believe that, following the Cogemat Acquisition, our key strengths and competitive
advantages include:
Operating in the largest and most developed betting and gaming market in Europe, with a
robust track record of growth (even during periods of declining GDP), favorable regulatory
regime and future growth prospects
Italy is the largest and most developed betting and gaming market in Europe with gross gaming
revenues of €17.5 billion for 2014, which we believe is 50% larger than the United Kingdom and
Ireland, the next largest gaming market in Europe. Betting and gaming has historically been one
of the fastest growing sectors of the Italian economy with a robust track record of growth, even
during periods of declining GDP. From 2007 to 2014, during which time Italian real GDP
contracted at a CAGR of -1.3%, the turnover of the Italian betting and gaming market grew at a
CAGR of 10.7% according to ADM data, reaching an estimated total turnover of approximately
€84.5 billion.
The market in which we operate is regulated by ADM, and permission to operate in our industry
is granted pursuant to a limited number of typically long-term concessions. Even though the
regulations themselves change periodically, we believe the overall structure of the regulatory
regime provides clear rules, which allows operators such as us to develop and implement our
business strategy with confidence and creates a regulatory environment that we believe is
generally favorable to betting and gaming providers.
In addition, we believe that the Italian betting and gaming market exhibits appealing prospects
for future growth, driven by factors including a resilient offline betting channel (favoring
operators with strong retail networks like us) and a growing online channel, with a regulatory
framework that has historically favored the introduction of new products. We believe we are
well-positioned to benefit from these opportunities.
5
Leading market position in key market segments
We believe the Cogemat Acquisition makes us a leader in the gaming machines market segment
where, pro forma for the Cogemat Acquisition, we would have had a 15.1% combined market
share in 2014, by turnover, and would have ranked as the third largest operator in Italy on the
basis of number of authorized AWPs and VLTs. We also believe the Cogemat Acquisition
strengthens our leading position in the Italian sports and horse race betting market segments
where, pro forma for the Cogemat Acquisition, we would have had 19.4% and 40.9% market
shares, respectively, in 2014, by turnover. Further, we believe the Cogemat Acquisition
strengthens our market position in the online skill and casino games market segment where we
believe we are a market leader with a 6.3% market share, by 2014 turnover. As of March 31,
2015, and pro forma for the Cogemat Acquisition, our online sites had 518,601 unique, active
registered users.
Diversified product portfolio: one-stop-shop for betting and gaming in Italy
We operate as an authorized “multi-concession holder” in all multi-concession segments of the
Italian betting and gaming industry. We offer our customers a broad range of products, from
offline and online betting, to gaming machines (AWPs and VLTs) and online skill and casino
games. We believe we have been able to adapt our product offering to evolving customer trends
and to successfully diversify our revenue streams, creating a more stable revenue base. Our horse
race betting, gaming machines and online skill and casino games businesses generate stable
revenues as the payout levels are generally set by applicable law or regulation which reduces our
exposure to sports betting, the business line where payout levels fluctuate over time and we
incur bookmaking risk. Moreover, we believe the breadth of our offering appeals to different
demographics, and our strong presence in sports betting caters to the most widely followed sport
in Italy, football.
Finally, our diversified product portfolio provides us with know-how of the entire betting and
gaming market that helps us cater to and anticipate changes in consumer behavior and adapt
faster to regulatory and technological changes. For example, when rolling out our online betting
and gaming offering, we leveraged our existing offline platform to sell prepaid and rechargeable
SNAI cards. We believe our market leading positions and strong brand name in offline betting,
especially sports and horse race betting, generates new customers for our online channel, virtual
events and gaming machines, as our existing offline customers choose Snai as their betting and
gaming provider at home or using our mobile and tablet apps. In addition, we believe that
integrating the Cogemat Group’s convenience payment services network expands our product
offerings and attracts additional customers to our POS.
Resilient business model
We believe that we operate a resilient business model and that we are well-positioned, in part as
a result of the Cogemat Acquisition, to defend our leading market positions in the segments in
which we already have an established presence and to further expand our business in related
areas such as payments services.
We also believe that the Italian betting and gaming market presents significant barriers to entry
for new entrants (including overseas operators), due to, among other things, the preference of
Italian consumers for offline betting and gaming channels as well as certain regulatory,
technological and operating requirements specific to the Italian market.
We believe the Italian marketplace is characterized by a focus on “brick and mortar” where
betting is primarily done at betting shops and corners which in turn favors operators like us with
a large nationwide footprint. According to ADM data, and pro forma for the Cogemat
Acquisition, our retail platform would have been the largest dedicated betting network in Italy
as of March 31, 2015, with 717 sports and horse race betting shops, 917 sports betting corners
and 670 horse race betting corners. The scale and breadth of this network was formed through
6
our long history of leadership in the Italian betting and gaming sector and we have POS in every
region of Italy. Our presence throughout Italy and our strong brand name inextricably linked to
our long history in the marketplace serves as another competitive advantage and we believe
helps us foster and maintain customer loyalty. For example, our market share in terms of
turnover tends to increase around high-profile sporting events, such as the FIFA World Cup and
UEFA European Championship, because we believe a greater number of customers, including
those that rarely place wagers, place bets with us as a result of our large network and strong
brand names. As a result, we believe a new competitor would need significant financial
resources, operating expertise and a qualified workforce to build profitable operations and
notoriety in the marketplace, each representing a significant barrier for new competitors in our
core business areas.
Regulatory requirements function as a further barrier to entry. We hold several long-term
concessions, some of which terminate in 2020 and 2022, and public tenders for new or bolt-on
concessions are infrequent. Furthermore, incumbent concessionaires such as us benefit from the
criteria established by ADM for participation in public tenders for betting and gaming
concessions that require bidders to demonstrate extensive expertise in the information
technology processes necessary for the operation of a gaming network. We have successfully
participated in all public tenders for multi-concessions and we have a 100% track record of
successfully renewing such concessions. For example, in 2004, we received our first AWP
concession, in 2006, we significantly expanded our sports and horse race betting concessions
through the Bersani Invitation to Tender, and the same year, we received our first online sports
and horse race betting concessions. Moreover, when VLTs were first introduced to Italy in 2009,
only existing AWP concessionaires were eligible to bid, and we therefore benefitted from this
favorable position.
In addition, we possess other competitive advantages that promote resiliency and reinforce our
incumbent position in key business areas. For example, our Betting Collection Services segment
gives us insight on how to promote efficiency throughout our business as we have in-house
capabilities in gaming technology and related infrastructure management.
Significant cash generation and resilient financial performance with flexible cost structure
Our business is highly cash generative. For the years ended December 31, 2012, 2013 and 2014,
Snai’s cash conversion was 89.4%, 84.7% and 96.5%, respectively. For the twelve months ended
March 31, 2015, pro forma for the Cogemat Acquisition, our cash conversion was 93.0%.
We benefit from a lean and flexible cost structure that helps to shield us from swings in volumes
and temporary market shocks. In contrast to some of our competitors, we neither own nor
operate the majority of our shops and we do not incur any substantial rental and personnel
expense, and our payments to our network partners (distribution costs and concession fees) are
linked to turnover and hence variable in nature. Moreover, in the gaming machines business line,
our large AWP and VLT network allows us to exploit economies of scale, spreading the cost of
providing coin collection and outage response over more machines (minimizing machine
downtime and maximizing revenue potential). As a result, our variable costs have historically
averaged over 63% of total revenues (since 2010), and for the twelve months ended March 31,
2015, pro forma for the Cogemat Acquisition, our variable costs would have represented 66.8%
of pro forma total combined revenues. In addition, we recently completed the process of
implementing new contractual arrangements with our distribution network to provide incentives
our sports betting points of sale that deliver more multiple bets, which historically have lower
payouts, thus improving our profitability.
Our major capital expenditures have historically been acquisitions of concessions, where we have
a successful track record of renewing our concessions. However, as a multi-concession business,
the risk and cost of renewal of each individual concession is significantly lower than the
concentrated costs and renewal risks associated with mono-concession businesses (such as
7
lotteries). Our AWP and VLT concessions, including the concessions gained from the Cogemat
Acquisition, were successfully renewed in March 2013 for an additional nine years. Our sports
betting and horse race betting concessions, including those gained from the Cogemat
Acquisition, will have to be renewed in 2016 and we expect to be able to renew them on similar
terms for at least six additional years. Finally, capital expenditures related to the ongoing
maintenance and reallocation of our gaming machines are expected to be modest due to our inhouse operational capabilities, the fact that our IT support partner is compensated with a
percentage of turnover as consideration for covering maintenance costs of the machines and a
business model based on a limited number of owned or directly-operated POS.
Seasoned management team with decades of experience
Our senior management team comprises individuals with extensive experience in the Italian
betting and gaming market as well as managers who have joined our Group more recently,
bringing further expertise in management of public companies from long careers developed in
the betting and gaming as well as in other industries. In recent years, our senior management
team has managed the Group through a period of successful revenue diversification, transitioned
our Group towards the next generation of gaming technology with the rollout of VLTs and the
introduction and development of our online channel and guided the Group through the
Cogemat Acquisition. In addition, following the Cogemat Acquisition we will integrate the
Cogemat Group’s experienced senior managers into our management team, thus further
strengthening it. See “Management.”
Our strategies
Our objective is to successfully integrate the Cogemat Group and Snai to further strengthen our
position as a leading betting and gaming company in Italy and achieve sustainable, profitable
growth through the following strategic pillars:
Leverage expanded betting and gaming network and combined know-how of the Group
Pro forma for the Cogemat Acquisition, we believe we will be one of the largest betting and
gaming entertainment player in the Italian market, based on turnover. As of March 31, 2015, pro
forma for the Cogemat Acquisition, our combined distribution network included 717 sports and
horse race betting shops, 917 sports betting corners and 670 horse race betting corners all across
Italy and we intend to focus our efforts on leveraging this larger distribution network to reach
new customers. For example, in 2013, we introduced a virtual events offering and by the end of
2014 were a market leader in virtual events with a 30% market share, and we believe that
leveraging the Cogemat Group network to expand our virtual events offering is a promising
opportunity to continue growing that business line. Moreover, Snai plans to move approximately
500 VLTs to better-performing locations before the end of 2015 and the expanded postacquisition network offers us increased relocation options. We also intend to apply know-how
and best practices from Snai’s and the Cogemat Group’s respective businesses, including, in
particular, Snai’s experience in sports betting and the Cogemat Group’s experience in gaming
machines, to further enhance the combined group’s operations and profitability. Overall, we
believe that an expanded physical network and combined know-how of the Group, will increase
our market share and help us become one of the leading Italian betting and gaming players in
every individual segment and business line in which we operate.
Expand and maximize online channel
Our online channel, launched in 2008, consists of a series of interactive single and multiplayer
websites and downloadable program environments for desktop computers that range from
online arcade-style skills games to casino house settings (introduced in 2011) and slot machines
with specific movie or sports themes. We have introduced new products since the launch of our
8
online channel, including an online AWP offering, which launched in December 2012. We intend
to continue to innovate with our online, mobile and tablet platforms, introducing new sports
betting activities and games and leveraging our strong brand name to appeal to new
demographics, particularly young adults. We are further training our customer relationship
management teams and we are implementing specific marketing initiatives towards our online
business line. We have gained market share over the last twelve months, particularly in online
sports betting, and we intend to leverage our leading market positions to continue this trend.
Strengthen and maintain leading market position in the offline channel
We intend to further reinforce our leading distribution network. Though the online channel has
significantly expanded in recent years, ADM statistics indicate that the offline channel is resilient
and we believe it will remain the reference channel for the foreseeable future for Italian betting
and gaming activities. Our strategy calls for new shop formats with bigger areas dedicated to
real time betting and gaming machines. In the recent auction for the renewal of certain sports
and horse race betting concessions, Snai was awarded 50 additional concessions (in addition to
our expiring concessions that we successfully renewed) which were strategically placed in areas
that offered the most traffic and, therefore, enhanced brand awareness. We also believe that our
strong offline presence in betting and gaming can be instrumental to further fuel the growth of
our online presence. For example, customers in our betting shops can purchase SNAI cards to
spend on our mobile and online platforms and provide a convenient payment option to
encourage traffic towards our sites.
Focus on profitability and cash management
We operate in stable and growing segments of the Italian betting and gaming market and our
business is highly cash generative. We will focus on increasing our revenues through aligning the
incentives of our network partners with those of the Group, utilizing operational efficiencies and
economies of scale afforded by our increased size as a result of the Cogemat Acquisition and
investing in areas of our business which are likely to generate higher profitability (such as
gaming machines and online skill and casino games). We are currently evaluating contractual
arrangements with sports betting partners which would include a reward mechanism based on
quality of the bets rather than on the wagers collected. For example, should the relevant POS
deliver more multiple/bundled bets, we would be well-placed to benefit from a potential
decrease in payouts that such bets typically generate. We further intend to operate our business
in line with our historic trend of limited capital expenditure requirements, and carefully consider
initiatives before committing funds, and make an investment only when we believe it will drive
revenue generation and further enhance our brand and competitive position.
The Transactions
Throughout this Offering Memorandum, we collectively refer to the Cogemat Acquisition and
the Offering of the Notes hereby and the application of the proceeds therefrom, including the
Cogemat Refinancing, as the “Transactions.” In addition, in connection with the Cogemat
Acquisition, and subject to the requirements of the Revolving Credit Facility Agreement and to
the satisfaction of certain conditions set out in a commitment letter including the completion of
certain “know your customer” and anti-money laundering checks (the “Commitment Letter”)
entered into on or about July 20, 2015 with affiliates of the Initial Purchasers, the Revolving
Credit Facility will be increased by an amount of €25.0 million to an aggregate of €55.0 million
pursuant to the terms of the Revolving Credit Facility Agreement upon consummation of the
Cogemat Acquisition and the satisfaction of certain other conditions (the “RCF Upsize”). Pursuant
to the terms of the Commitment Letter, the additional lenders committed to take up the RCF
Upsize. Furthermore, subject to the consummation of the Cogemat Acquisition and the
satisfaction of certain conditions set out in the 2011 GFA Amendment Request, the 2013 GFA
Amendment Request and the GFA Commitment Letter entered into by, inter alios, Cogetech prior
9
to the date hereof, Cogetech will enter into certain amendment agreements on or about the
Completion Date which will amend the guarantees currently issued and outstanding under the
2011 Guarantee Facility Agreement and the 2013 Guarantee Facility Agreement. For additional
information, see “Use of Proceeds,” “Description of Certain Financing and Guarantee
Arrangements,” “Description of the Notes,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations of Snai—Liquidity and capital resources,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of the Cogemat Group—
Liquidity and capital resources,” “Description of Certain Financing and Guarantee
Arrangements—The combined Group—Revolving Credit Facility” and “Description of Certain
Financing and Guarantee Arrangements—The Cogemat Group—Bank guarantees in favor of
ADM and UNIRE on behalf of Cogetech.”
The Cogemat Acquisition
The below is a summary of the main terms and conditions of the Cogemat Acquisition and the
documents and agreements related thereto. For further information, see “Principal Shareholders.”
On July 11, 2015, the Issuer entered into an investment agreement with the Cogemat Majority
Shareholders and IE (the “Investment Agreement”) setting forth the terms and conditions of the
proposed Cogemat Acquisition, and to which the remaining Cogemat Minority Shareholders may
accede by August 5, 2015. On the same date, Cogemat Minority Shareholders holding in the
aggregate 13.31% of Cogemat’s share capital acceded to the Investment Agreement and,
therefore, as of the date of the execution of the Investment Agreement, 88.56% of the share
capital of Cogemat was committed to be contributed.
Pursuant to the Investment Agreement, the Issuer undertook to approve a capital increase (the
“Capital Increase”), with exclusion of pre-emptive subscription rights, for a maximum amount of
€140,000,000 with the issuance of a maximum of 71,602,410 new ordinary shares of the same
class as those already outstanding (the “New Snai Shares”), to be subscribed in exchange for the
Cogemat Contributed Shares.
The Cogemat Acquisition shall be completed through (i) the contribution of between 12,701,963
and 12,845,166 of the Cogemat Contributed Shares (the “GG Cogemat Shares”) to Global Games
by OI Games 2 in exchange for between 65,881 and 66,624 newly issued non-voting Global
Games shares (the “Preliminary Contribution”) and (ii) immediately following the Preliminary
Contribution, the subsequent contribution of all of the Cogemat Contributed Shares (comprising
(a) the GG Cogemat Shares and (b) any other Cogemat Contributed Shares retained by the
Cogemat Contributing Shareholders following the Preliminary Contribution) to the Issuer by each
of the Cogemat Contributing Shareholders and Global Games in exchange for the New Snai
Shares (the “Cogemat Contribution” and, together with the Preliminary Contribution, the
“Contributions”).
The execution of the deed of contribution relating to the Cogemat Contribution, pursuant to the
terms of the Investment Agreement, is subject to the satisfaction of certain conditions, including,
inter alia: (i) authorization by the Italian Competition Authority; (ii) authorization by ADM; (iii)
Cogemat and Cogetech obtaining any authorizations and/or consents that may be required
pursuant to the terms of the Cogemat Existing Debt; (iv) amendment of the 2011 Guarantee
Facility Agreement and the 2013 Guarantee Facility Agreement (see “Description of Certain
Financing and Guarantee Arrangements—The Cogemat Group—Bank guarantees in favor of
ADM and UNIRE on behalf of Cogetech”); (v) approval of the Capital Increase by the Issuer’s
shareholders meeting; (vi) delivery of the appraisal report by KPMG Advisory S.p.A., as the
independent expert pursuant to applicable Italian law, attesting that the value of the Cogemat
Contributed Shares is not lower than the value for which the Cogemat Contribution is made, as
agreed upon in the Investment Agreement; (vii) delivery of an auditors’ report relating to the
exchange ratio of shares by Reconta Ernst & Young S.p.A.; and (viii) execution of the deed of
10
contribution relating to the Preliminary Contribution. See “Risk Factors—Risks related to the
Cogemat Acquisition—We may not be able to satisfy, or may experience delays in satisfying, the
conditions required to consummate the Cogemat Acquisition”.
The effectiveness of each of the Contributions is subject to the further condition that, within 30
days of the later of (a) the execution of the deed of contribution relating to the Cogemat
Contributed Shares and (b) the registration of the resolution approving the Capital Increase with
the competent companies’ register, (i) the Issuer’s directors do not commence new appraisal
procedures as a result of, inter alia, new material facts having arisen since the original appraisal
date and (ii) the Issuer’s shareholders holding at least 5% of the Issuer’s pre-Capital Increase
share capital requesting a new appraisal (the “Effectiveness Condition”).
No later than seven business days after the fulfilment of the Effectiveness Condition (the
“Transfer Date”), each of the Cogemat Contributing Shareholders and Global Games will transfer
the Cogemat Contributed Shares to Snai free and clear of any encumbrance, provided that, upon
fulfilment of the Effectiveness Condition, each of the Contributions shall be deemed effective as
of the date of execution of the respective deed of contribution.
Pursuant to the Investment Agreement, between the execution date of the Investment
Agreement and the Transfer Date (the “Interim Period”), the Cogemat Contributing Shareholders
shall cause Cogemat and its subsidiaries to conduct their business in the ordinary course and in
compliance with applicable law, aiming primarily at preserving the value thereof and abstaining
from taking, without the Issuer’s prior written consent, any actions that may be outside the
ordinary course of business or may jeopardize the successful outcome of the Cogemat
Acquisition. However, such restrictions do not apply to certain actions, for which the Issuer has
already given its prior consent, including, inter alia: (i) the approval and implementation of the
merger of Azzurro into another company within the Cogemat Group; (ii) the payments (and the
potential advance payments in favor of third-party operators within the Cogemat Group’s
network) due under the Italian Stability Law of 2015; (iii) actions connected to relations with
ADM, including those based on, or instrumental to, the Cogemat Acquisition or arising from, or
consequent to, the Italian Stability Law of 2015; (iv) the adoption of the resolution for and the
payment of amounts due to the general manager of Cogetech and nine senior managers of the
Cogemat Group pursuant to the relevant incentive plans (for a total amount of approximately
€3.5 million); and (v) the amendment of the maturity date, or the waiver, of the shareholders’
loans currently existing between Cogetech and its wholly-owned subsidiary Azzurro for an
aggregate amount of €15.5 million. In addition, the Cogemat Contributing Shareholders shall
procure that, during the Interim Period, Cogemat and its subsidiaries, inter alia, (i) do not pay
dividends or issue notes, bonds or other securities (or any option, warrant or other right to
acquire them), (ii) do not amend their by-laws or approve extraordinary corporate transactions
(including acquisitions, mergers, de-mergers and contributions), (iii) do not make payments or
undertake obligations in favor of, or waive their rights towards, the Cogemat Contributing
Shareholders or their related parties (with the exception of, inter alia, the return of certain
deposits to the companies belonging to the “Pragma/Punto Quota” group), and (iv) do not make
payments or undertake obligations in favor of their directors or employees pursuant to incentive
plans other than those specified in the Investment Agreement. In addition, during the Interim
Period, the Cogemat Contributing Shareholders shall provide the Issuer with any information
being reasonably necessary in order for the Issuer to monitor the Cogemat Contributing
Shareholders’ compliance with their obligations.
The Cogemat Majority Shareholders (also on behalf of each of the Acceding Cogemat Minority
Shareholders) may unilaterally terminate the Investment Agreement in the event that, between
the date of its execution and the date of execution of the deed of contribution in respect of the
Cogemat Contributed Shares, (i) there occurs any material adverse change with respect to Snai or
(ii) the Issuer’s shareholders resolve to distribute dividends and/or capital reserves. The Issuer may
unilaterally terminate the Investment Agreement in the event that, between the date of its
execution and the date of execution of the deed of contribution in respect of the Cogemat
11
Contributed Shares, (i) Cogemat’s shareholders resolve to distribute dividends and/or capital
reserves, or (ii) there occurs any material adverse change with respect to the Cogemat Group. In
addition, both the Issuer and the Cogemat Majority Shareholders (also on behalf of each of the
Acceding Cogemat Minority Shareholders) may unilaterally terminate the Investment Agreement
if the regulation to be passed in the context of the implementation of potential changes to the
regulations governing the Italian gaming industry would have decreased the aggregate
contribution margin of the Issuer’s and the Cogemat Group’s gaming machines by more than
€20.0 million as of December 31, 2014. See “Summary—Recent developments—Potential change
in Italian gaming industry regulation.”
Furthermore, under the Investment Agreement, the Cogemat Contributing Shareholders make
certain representations and warranties, including, inter alia, (i) that, except for the limitations set
forth under the existing pledge agreements (which are expected to be released on or about the
consummation of the Cogemat Acquisition), they are able to freely dispose of the Cogemat
Contributed Shares as of the date of the Investment Agreement and they (together with Global
Games) will be able to dispose of such shares as of the Transfer Date and (ii) that, on or about
the Transfer Date, the Cogemat Contributed Shares will be free and clear of any encumbrances
(including the existing pledge agreements) and of any other third party rights (including the
right to subscribe for any new shares of Cogemat or any other agreement or arrangement to that
effect). In the event that the representations and warranties above turn out to be untrue, the
Issuer will be entitled to recover the damages suffered as a result of such untruthfulness.
Under the Investment Agreement, the Cogemat Contributing Shareholders also represent and
warrant that (i) no termination indemnities are due by Cogemat and its subsidiaries to their
respective directors and there are no agreements providing for indemnities or benefits (other
than certain agreements specified in the Investment Agreement) currently in force, (ii) as of the
execution date of the Investment Agreement, neither Cogemat nor its subsidiaries have received
termination notices – in respect of the commercial agreements in place with those suppliers and
managers that constitute Cogemat’s distribution network – in a manner inconsistent with the
termination notices received in the last 24 months and (iii) the documents received by the Issuer
for the purposes of its due diligence activities are solely those listed in an annex to the
Investment Agreement. Pursuant to the terms of the Investment Agreement, the Issuer’s right to
recover the damages suffered in connection with the potential untruthfulness of the
representations and warranties mentioned under items (i), (ii) and (iii) above may be enforced no
later than December 31, 2016 and, in any event, only if the aggregate damages are at least equal
to €1.0 million.
The Cogemat Contributing Shareholders are severally liable for the obligations to pay damages
which may arise from the Investment Agreement. In particular, each of the Cogemat
Contributing Shareholders shall be liable in proportion to the amount of Cogemat Contributed
Shares that it will have contributed to the Issuer, except that the GG Cogemat Shares will be
considered as having been contributed by OI Games 2 (as opposed to Global Games).
Moreover, the Investment Agreement provides for further obligations to be undertaken by the
Acceding Cogemat Minority Shareholders, including non-compete obligations (such as the
prohibition to purchase and/or hold, directly or indirectly, an interest in companies holding VLT
or AWP concessions), as well as certain restrictions on the transfer of the New Snai Shares until
December 31, 2016.
In light of the indirect shareholdings of Investindustrial IV L.P. in both Global Games (the Issuer’s
majority shareholder) and OI Games 2 (one of the Cogemat Majority Shareholders) the Cogemat
Acquisition qualifies as a related party transaction under applicable Italian law. On July 11, 2015,
the Cogemat Acquisition was approved by the Issuer’s Board of Directors on the basis of an
opinion of the Issuer’s Related Parties Transactions Committee according to which a proper
evaluation has been made in respect of both the interest of the Issuer in connection with the
completion of the Cogemat Acquisition and the substantial fairness of its relevant terms and
12
conditions. In connection therewith, on June 30, 2015, Lazard S.r.l. issued a fairness opinion to
the Issuer’s Board of Directors in respect of the Cogemat Acquisition. Pursuant to the Investment
Agreement, and subject to certain conditions, the approval of the Capital Increase by the Issuer’s
shareholders meeting must occur by September 28, 2015, and the execution of the deed of
contribution must occur no later than September 30, 2015.
Concurrent with the execution of the Investment Agreement, Global Win S.p.A. and Global
Entertainment S.A. entered into a new shareholders’ agreement (the “New Shareholders’
Agreement”). In addition, on the same date, Global Games, Orlando Italy Special Situations SICAR
S.C.A. (jointly with OI Games, “Orlando”), OI Games and OI Games 2 entered into a shareholders’
agreement (the “Orlando Shareholders’ Agreement”). See “Principal Shareholders—New
Shareholders’ Agreement” and “Principal Shareholders—Orlando Shareholders’ Agreement.”
Cogemat Refinancing and use of proceeds
We expect the gross proceeds from the Offering will be approximately €110.0 million. We intend
to use the net proceeds from the Offering and Cogemat Group cash to refinance the Cogemat
Existing Debt (the “Cogemat Refinancing”) and for general corporate purposes. As of the Issue
Date, the Revolving Credit Facility is expected to be undrawn. The estimated sources and uses of
the funds are shown in the table below. Actual amounts will vary from estimated amounts
depending on several factors, including estimated costs, fees and expenses, differences from our
estimates of existing cash in the business, differences from our estimates of the cost of repaying
the Cogemat Existing Debt and the ultimate timing of the Completion Date.
Sources of funds
Uses of funds
(millions of €)
Notes offered hereby(1) . . . . . . . . . . . . . . . .
Cogemat Group cash(2) . . . . . . . . . . . . . . . .
Total sources . . . . . . . . . . . . . . . . . . . . . . . .
110.0 Refinancing of Cogemat Existing
Debt(3) . . . . . . . . . . . . . . . . . . . . . . . . . .
36.1 General corporate purposes . . . . . . . . . .
115.5
27.6
Transaction fees and expenses . . . . . . . .
3.0
146.1 Total uses . . . . . . . . . . . . . . . . . . . . . . . . .
146.1
(1) Assumes issuance of the Notes offered hereby at par.
(2) Cogemat Group cash includes approximately €10.0 million in restricted cash as of March 31, 2015, that, in connection with
amending the 2011 Guarantee Facility Agreement and the 2013 Guarantee Facility Agreement, will be released and become
freely available to the Group. Restricted cash refers to Cogetech’s accounts or deposits that have been pledged to secure
guarantee facility agreements of Cogetech. See “Description of Certain Financing and Guarantee Arrangements—The
Cogemat Group—Bank guarantees in favor of ADM and UNIRE on behalf of Cogetech.” Cogemat Group cash includes
€4.6 million of cash used for the Azzurro Repayment made on June 30, 2015. Cogemat Group cash excludes deposits made to
ADM, equal to €26.4 million as of March 31, 2015, which are periodically returned to the Cogemat Group by ADM provided
they honor the commitments of their gaming machine concessions. The amount the Cogemat Group’s deposit with ADM for
2015 was reduced by €6.6 million in May 2015 to satisfy the first installment of their portion of the Stability Fee. See
“Cogemat Group Business—Legal Proceedings—Pending litigation regarding the Italian Stability Law of 2015—Administrative
proceeding against the Italian Stability Law of 2015.” The actual amount of cash received from the Cogemat Group may vary
as a result of certain adjustments related to changes in the Cogemat Group’s working capital, closing cash and debt and
certain other items, including tax liabilities and this could affect the cash reflected hereunder.
(3) Following the Completion Date we intend to use the net proceeds from the Notes offered hereby, together with cash on
hand, to refinance the Cogetech Senior Facility and the Cogemat Notes.
Pending the consummation of the Cogemat Acquisition, the proceeds of the Offering, net of a
portion of the fees payable to the Initial Purchasers, will be deposited into the Escrow Account in the
name of the Issuer but controlled by the Escrow Agent and charged on a first-ranking basis in favor
of the Trustee on behalf of the holders of the Notes pursuant to the Escrow Agreement. The release
of the escrow proceeds will be subject to the satisfaction of certain conditions, including conditions
relating to the Cogemat Acquisition on the terms set forth in the Investment Agreement, except for
changes or other modifications or waivers that will not, individually or when taken as a whole, have a
materially adverse effect on the holders of the Notes. The consummation of the Cogemat Acquisition
is subject to certain conditions, including regulatory and antitrust approvals and the effectiveness of
the Cogemat Contribution. If the Cogemat Acquisition is not consummated on or prior to the Escrow
13
Longstop Date, or upon the occurrence of certain other events, then all of the Notes will be subject to
a special mandatory redemption. The special mandatory redemption will be at a price equal to 100%
of the issue price of the Notes, plus accrued and unpaid interest and Additional Amounts, if any, from
the Issue Date to the date of the special mandatory redemption. See “Description of the Notes—
Escrow of Proceeds; Special Mandatory Redemption” and “Risk Factors—Risks related to the Cogemat
Acquisition—If consummation of the Cogemat Acquisition is delayed beyond the Longstop Date, or if
the other conditions to the escrow are not satisfied, the Issuer will be required to redeem the Notes,
which means that you may not obtain the return you expect on the Notes.”
Upon consummation of the Cogemat Acquisition and release of the escrow proceeds to the
Issuer, the Issuer will loan the net proceeds of the Offering to Cogetech (the “Proceeds Loan”) to
be used by Cogetech and Cogemat to refinance the Cogemat Existing Debt. See “Description of
Certain Financing and Guarantee Arrangements—The combined Group—Proceeds Loan.” The
Cogemat Senior Facility will be repaid and extinguished and the associated hedging
arrangements will be terminated on the Completion Date. If the Completion Date occurs prior to
November 16, 2015, funds necessary to repay the Cogemat Notes on November 16, 2015,
including the principal amount thereof and all accrued and unpaid interest up to and including
November 16, 2015 (the “Cogemat Notes Cash Collateral”), will be deposited into a bank account
of Cogemat charged in favor of the holders of the Cogemat Notes (the “Cogemat Notes
Account”). Upon deposit of the Cogemat Notes Cash Collateral into the Cogemat Notes Account,
all security and guarantees in respect of the Cogemat Notes will be released (other than the
Cogemat Notes Cash Collateral) and certain covenants relating to the Cogemat Notes will cease
to apply to Cogemat and none of the covenants or other provisions provided in the conditions
governing the Cogemat Notes will apply to Cogetech or its subsidiaries. Certain events of default,
including but not limited to non-payment, breach of other obligations, cross default and
insolvency matters set forth in the conditions governing the Cogemat Notes, would continue to
apply to Cogemat up through the date on which the Cogemat Notes are redeemed. In this
circumstance, the Cogemat Notes Cash Collateral will be released from the Cogemat Notes
Account to the holders of the Cogemat Notes on November 16, 2015, completing the redemption
of the Cogemat Notes and satisfying Cogemat’s obligations in respect thereof. The holders of the
Cogemat Notes may request and receive an advance payment of the Cogemat Notes Cash
Collateral (the “Advance”) prior to November 16, 2015 in certain circumstances. Cogemat may
not withdraw funds from the Cogemat Notes Account other than to pay interest on the Cogemat
Notes and to fund the Advance or to redeem the Cogemat Notes on November 16, 2015. If,
however, the Completion Date occurs on or after November 16, 2015, the Cogemat Notes,
including all accrued and unpaid interest up to and including the date of repayment, will be
redeemed by Cogemat on or about the Completion Date.
Recent developments
Changes to Snai’s Board of Directors and senior management
On July 9, 2015, Mr. Giorgio Sandi resigned his positions as Chairman and Chief Executive Officer
of Snai, effective July 12, 2015. In addition, on July 7, 2015, Ms. Stefania Rossini resigned her
position on the Snai Board of Directors effective as of July 9, 2015.
Following Ms. Rossini’s resignation, Mr. Gabriele Del Torchio, who served on Snai’s Board of
Directors from 2011 to 2014, was re-appointed as a member of the Board of Directors and,
pursuant to a board resolution dated July 13, 2015, currently serves as Snai’s interim Chairman
and Chief Executive Officer.
Following the Cogemat Acquisition, Mr. Fabio Schiavolin, the current Chief Executive Officer of
Cogemat and Cogetech, will be appointed to Snai’s Board of Directors for the 2016–2018 term.
With a letter agreement dated July 10, 2015, Global Games has committed to vote in favor of
Mr. Schiavolin’s appointment to Snai’s Board of Directors. In addition, Mr. Schiavolin is expected
14
to become Snai’s Chief Executive Officer. At the time of Mr. Schiavolin’s appointment, Mr. Del
Torchio will cease to act as Snai’s Chief Executive Officer, but will continue to serve as the
Executive Chairman of Snai’s Board of Directors. See “Management.”
Repayment of Series B Notes
The Series B Notes matured on May 5, 2015, and the Issuer repaid the outstanding principal
amount of €20.0 million plus accrued and unpaid interest from cash on balance sheet. As a result,
the Series B Notes are no longer outstanding liabilities of the Issuer.
Stability Fee payments
The Italian Stability Law of 2015 requires Snai and the Cogemat Group to pay our proportionate
amounts of the Stability Fee, which were quantified by ADM Decree 4076/2015, dated
January 15, 2015 (the “Decree”). Furthermore, according to the Italian Stability Law of 2015 and
the Decree, VLT and AWP concessionaires are responsible for remitting the entire portion of the
Stability Fee represented by all VLTs and AWPs operated relating to their concessions, whether or
not those machines are operated directly by the concessionaire. Concessionaires must remit
payment of the entire portion of the Stability Fee assigned to them by the Decree, and are
individually responsible for seeking contribution from all partners operating VLTs and AWPs by
virtue of their concession.
Our and the Cogemat Group’s portions of the Stability Fee payable in 2015 are €37.8 million and
€47.0 million, respectively, due in two separate installments on April 30 and October 31. On
April 30, 2015, we and the Cogemat Group each settled our first installment of the Stability Fee.
See “Snai’s Business—Legal proceedings—Pending litigation regarding the Italian Stability Law of
2015” and “Cogemat Group Business—Legal proceedings—Pending litigation regarding the
Italian Stability Law of 2015.”
Potential change in Italian gaming industry regulation
Pursuant to Italian Law 23/2014, the Italian government was given a mandate to comprehensively
reform the regulations governing the Italian gaming industry through an Italian Legislative
Decree. Based on preliminary drafts of that decree that have been made public, we believe the
material reforms were likely to include:
• a reform of the taxation regime, including calculation of taxes owed by concessionaires as a
percentage of gross gaming revenues as opposed to a percentage of turnover and elimination
of the Stability Fee;
• increased geographic restrictions on newly-opened shops or corners governing and restrictions
governing where AWPs can be located and how many can be installed at a specific location,
which could decrease the total number of AWPs in operation across the industry by between
80,000 and 100,000 (for shops already in operation, these rules would not go into effect until
new gaming machines concessions are awarded in 2022);
• increased restrictions on advertising by gaming companies; and
• clarification that national betting and gaming laws and regulations enjoy supremacy over
conflicting local laws and regulations.
The Italian government did not enact the Legislative Decree before the expiration of the
mandate on June 27, 2015. However, the Italian Parliament may enact another law, provision or
other regulation that would nevertheless implement the abovementioned reforms in whole or in
part.
According to media reports that we are unable to verify, a large portion of these changes could
come into effect in the near future. However, until the Italian Parliament actually enacts the
15
reforms, they may be modified, even significantly, or rejected altogether. While we cannot be
sure that the approved law, provision or other regulation (if any) will align with the
publicly-available preliminary drafts, we believe that these potential reforms could increase the
stability and clarity of the regulatory regime. See “Forward-Looking Statements” and “Risk
Factors—Risks related to our business—The industries in which we operate are highly regulated,
and if we fail to comply with applicable laws and regulations, or if we become subject to new,
more stringent laws and regulations, it could adversely affect our financial results” and “Risk
Factors—Risks related to our business—Changes to taxation or the interpretation or application
of tax laws could have an adverse impact on our results of operations and financial condition.”
Bid to purchase SIS
Società Italiana Scommesse S.r.l. (“SIS”) is a third-party operator of 55 of our POS. On March 25,
2015, SIS entered into a court-supervised pre-bankruptcy composition with creditors (concordato
preventivo). In response to SIS’s invitation for offers to purchase it out of bankruptcy, published
on April 9, 2015, we, together with our subsidiary SNAI Rete Italia S.r.l. (“Snai Rete”), submitted a
binding offer to SIS, pursuant to which, inter alia, Snai Rete will lease and subsequently purchase
a business division of SIS and we will waive certain receivables due to us from SIS of
approximately €12.9 million. On June 23, 2015, SIS obtained from the delegated judge (giudice
delegato) the authorization to accept such offer and, on July 7, 2015, we entered into a trilateral
lease and purchase agreement with Snai Rete and SIS (the “Lease and Purchase Agreement”).
The proposed composition (in the context of which the Lease and Purchase Agreement was
signed) has been already approved by the SIS creditors attending the creditors’ meeting
(Assemblea dei Creditori) held on July 9, 2015. Such approval, however, is not yet definitive as
the absent creditors may submit their vote in respect thereof within 20 days of the creditors’
meeting and the proposed composition plan must be further sanctioned by the presiding
bankruptcy court by means of a confirmation order (decreto di omologazione). We expect that
the confirmation order will be granted without material delay.
Subject to the fulfilment of certain conditions precedent set forth under the Lease and Purchase
Agreement, Snai Rete will be able to re-open the previously SIS-operated POS as directlymanaged POS, while the transfer of the business division from SIS to Snai Rete shall be effective
only upon the issuance of the aforementioned confirmation order (decreto di omologazione). In
addition, pursuant to the Lease and Purchase Agreement, Snai Rete shall hold SIS harmless and
indemnified up to a maximum amount of €2.5 million from the costs that SIS might incur before
June 30, 2016 in connection with (i) the termination of certain agreements with project workers
(contratti di collaborazione coordinata e continuativa) and (ii) the labor disputes to which SIS was
a party as of March 2015. Pursuant to the terms and conditions of the Lease and Purchase
Agreement, if the aforementioned confirmation order (decreto di omologazione) is not issued
before June 30, 2016, the Lease and Purchase Agreement shall be deemed to be terminated and
ineffective.
Purchase of Finscom
On December 27, 2013, Finscom S.r.l. (“Finscom”), a third-party operator of eight of our POS,
entered into liquidation proceedings and, on February 5, 2015, further to certain financial
difficulties in meeting its payment obligations, Finscom was admitted by the Court of Mantova to
a court-supervised pre-bankruptcy composition with creditors (concordato preventivo). During
the negotiations on the relevant composition plan, we, together with Finscom’s creditors,
expressed our willingness to enter into a debt restructuring agreement aimed both at covering
Finscom’s previous losses and at injecting capital into Finscom. On March 26, 2015, upon
Finscom’s request, the court-supervised pre-bankruptcy composition with creditors (concordato
preventivo) was declared extinguished by the Court of Mantova and, on April 8, 2015, we,
together with Finscom and Finscom’s other creditors, entered into the aforementioned debt
16
restructuring agreement, pursuant to which, inter alia, we (alone or jointly with one of our
subsidiaries) undertook to subscribe for the entire share capital of Finscom. On such date, the
shareholders’ meeting of Finscom resolved upon the termination of the liquidation proceedings
(such resolution became effective on June 21, 2015, as no creditors filed an opposition in respect
thereof) and, according to the terms of the aforementioned debt restructuring agreement, we
subscribed to 53% of the outstanding share capital of Finscom by converting into equity
€2.7 million of receivables held by us towards Finscom and Snai Rete subscribed to the remaining
47% through a cash payment of approximately €2.4 million. All eight Finscom POS are currently
operative as directly-managed POS.
Risk factors
Investing in the Notes involves substantial risks. Please see the “Risk Factors” section for a
description of certain of the risks you should carefully consider before investing in the Notes.
Additional information
The Issuer’s registered offices are located at Via Luigi Boccherini, 39, 55016 Porcari (Lucca), Italy
and its telephone number is +39 0583 28 11.
17
Corporate Structure and Certain Financing Arrangements
The following chart shows a simplified summary of the corporate and financing structure and
nominal amounts of the principal indebtedness of the Group as of March 31, 2015 after giving
pro forma effect to the Transactions. The chart does not include all entities in the Group, nor all
of the debt obligations thereof. All entities shown below are, unless otherwise indicated, wholly
owned, directly or indirectly, by their respective parent company. Outstanding debt amounts are
based on the nominal value figures as of March 31, 2015. For further information and a summary
of the debt obligations identified in this diagram, please refer to the sections entitled “Use of
Proceed,” the “Acquisition,” “Principal Shareholders,” “Unaudited Pro Forma Consolidated
Financial Information,” “Description of the Notes,” “Description of Certain Financing and
Guarantee Arrangements” and “Capitalization.”
Global Games S.p.A.(1)(2)
58.06%(4)
Cogemat Contributing
Shareholders(2)
20.68%(4)
Free float on Borsa
Italiana(3)
19.63%(4)
€55.0 million
Revolving Credit
Facility(7)
€110.0 million Notes
offered hereby(6)
Snai S.p.A.
(the “Issuer”)(5)
€320.0 million
Existing Senior
Secured Notes and
€160.0 million Senior
Subordinated Notes(8)
Issuer
Guarantors(9)
Proceeds Loan(10)
non-Guarantors
88.56%(4)
Teleippica S.r.l.
Cogemat S.p.A.(9)(11)
Società Trenno S.r.l.
Cogetech S.p.A.(9)(12)
Other operating
subsidiaries
Cogetech Gaming
S.r.l.(13)
Azzurro Gaming
S.p.A.(14)
(1) The Issuer is controlled by Global Games, a company owned in equal shares by Global Entertainment S.A. (of which
InvestIndustrial IV L.P. holds a majority participation) and by Global Win S.p.A. (of which Venice European Investment Capital
S.p.A. holds a majority participation). InvestIndustrial IV L.P. is a closed-end fund which has terminated its investment period.
See “Principal Shareholders.”
(2) Pursuant to the Investment Agreement, Global Games and the Cogemat Contributing Shareholders (led by majority holders,
OI Games and OI Games 2) will receive up to 71,602,410 New Snai Shares in exchange for up to 100.00% of the share capital
of Cogemat. See “Summary—The Transactions—The Cogemat Acquisition.” The relationship between Global Games, on the
18
one hand, and OI Games, OI Games 2 and IE (the majority shareholder of OI Games 2), on the other, will be governed by the
Issuer’s bylaws and a shareholders’ agreement. See “Principal Shareholders—Orlando Shareholders’ Agreement.”
(3) Since 1996, the Issuer’s ordinary shares have been listed on the Mercato Telematico Azionario, the Italian screen-based
regulated market managed by Borsa Italiana S.p.A. (the “Italian Stock Exchange”) under the trading symbol “SNA MI.” See
also “Principal Shareholders.”
(4) Percentages represent the shareholdings of Snai and Cogemat based on the contribution of 88.56% of the share capital of
Cogemat to Snai, which was the percentage agreed to be contributed by the Cogemat Contributing Shareholders and Global
Games as of the date of the execution of the Investment Agreement, and assuming that, pursuant to the Preliminary
Contribution, OI Games 2 will contribute 12,845,166 Cogemat shares to Global Games. The Issuer has one additional
shareholder, Piero Colzi, who would hold a 1.64% interest in Snai, not specifically named in the chart above. See “Summary—
Recent developments—The Cogemat Acquisition,” and “Principal Shareholders.” Pursuant to the Investment Agreement, the
percentage of contributed Cogemat Shares may increase up to 100.00%. Any increase in the percentage of Cogemat share
capital contributed to Snai prior to the Completion Date would, pursuant to the Investment Agreement, increase the
percentage of New Snai Shares held by the Cogemat Contributing Shareholders and would, in turn, further dilute the share
capital of Snai held by both Global Games and available for public trading on Borsa Italiana. If, pursuant to the Investment
Agreement, 100.00% of the share capital of Cogemat is contributed to Snai, and assuming that, pursuant to the Preliminary
Contribution, OI Games 2 will contribute 12,845,166 Cogemat shares to Global Games, the share capital of Snai would be held
as follows: 55.53% by Global Games; 24.12% by the Cogemat Contributing Shareholders; 1.57% by Piero Colzi and 18.78%
available for public trading on Borsa Italiana. If less than 100.00% of the share capital of Cogemat is contributed to Snai by
the Completion Date, any remaining Cogemat share capital will be held by Cogemat shareholders who elected not to accede
to the Investment Agreement and tender their Cogemat shares for the New Snai Shares. See “Summary—The Transactions—
The Cogemat Acquisition” and “Principal Shareholders.”
(5) The Issuer is incorporated as a joint stock company (società per azioni) under the laws of the Republic of Italy. See “Listing
and General Information—Issuer Legal Information.” The Issuer has certain other subsidiaries which are not specifically
named in the chart above. As required under applicable law to secure its obligations under its various concessions, the Issuer
has procured certain off-balance sheet guarantees (which as of March 31, 2015 had an aggregate outstanding amount of
€124.7 million) from bank and insurance companies and is party to a number of guarantee agreements thereunder. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of Snai—Off-balance sheet
arrangements,” “Description of Certain Financing and Guarantee Arrangements—Snai—Bank guarantees in favor of ADM
and UNIRE on behalf of Snai” and footnote 33 to our audited consolidated financial statements as of and for the year ended
December 31, 2014 and footnote 33 to our unaudited interim condensed consolidated financial statements as of and for the
three months ended March 31, 2015 for more information. The Issuer is also party to certain financial and operating leases
under which the future commitments are equal in the nominal amount to €1.0 million as of March 31, 2015. See “Description
of Certain Financing and Guarantee Arrangements—Snai—Snai financial and operating lease agreements.” For the twelve
months ended March 31, 2015, the Issuer and the Guarantors generated pro forma combined total revenues of €952.5 million,
or 95.9% of the Group’s aggregated pro forma combined total revenues (gross of intercompany amounts and consolidation
eliminations) amounting to €993.2 million. In the same period, the Issuer and the Guarantors recorded pro forma Adjusted
EBITDA of €131.3 million or approximately 95.5% of the Group’s pro forma combined Adjusted EBITDA. As of March 31, 2015,
the Issuer and the Guarantors constituted approximately 93.7% of the Group’s aggregated combined total assets gross of
intercompany amounts and consolidation eliminations.
(6) The Notes offered hereby will be senior obligations of the Issuer. Although the terms of the Notes will be substantially similar
to those of the Existing Senior Secured Notes, the Notes will trade separately under different ISIN/Common Code numbers
than the Existing Senior Secured Notes, will not be fungible with the Existing Senior Secured Notes and will not vote as a class
with the Existing Senior Secured Notes for purposes of the indenture governing the Existing Senior Secured Notes or the
Indenture. Prior to the Completion Date, the obligations of the Issuer under the Notes will be secured by a charge over the
Escrow Account. See “Risk Factors—Risk Related to the Cogemat Acquisition—If consummation of the Cogemat acquisition is
delayed beyond the Longstop Date, or if the other conditions to the escrow are not satisfied, the Issuer will be required to
redeem the Notes, which means that you will not obtain the return you expect on the Notes.” On or about the Completion
Date, subject to the Agreed Security Principles, the Notes will be secured on a first ranking basis by first-ranking pledges over
(i) 50.00% plus one share of the share capital of the Issuer, (ii) 100.00% of the quotas of Teleippica S.r.l. and (iii) certain
intellectual property rights of the Issuer (the “Completion Date Collateral”). In addition, the Indenture will require that,
subject to the Agreed Security Principles, within 30 business days following the Completion Date, the Notes will be secured on
a first-ranking basis by (i) a pledge over the Cogemat Contributed Shares and (ii) an assignment of the receivables in respect
of the Proceeds Loan (the “Cogemat Collateral” and, together with the Completion Date Collateral, the “Collateral”).
Furthermore, the Completion Date Collateral secures, and the Cogemat Collateral will secure, the obligations under the
Existing Senior Secured Notes and the Revolving Credit Facility on a first-ranking basis. See “Risk Factors—Risks related to the
Notes, the Guarantees and the Collateral,” “Limitations on Validity and Enforceability of the Guarantees and Security
Interests and Certain Insolvency Law Considerations.” The Collateral will be subject to the Agreed Security Principles and
limitations under applicable law and may be released in certain circumstances. See “Limitations on Validity and Enforceability
of the Guarantees and Security Interests and Certain Insolvency Law Considerations.”
(7) In addition, upon consummation of the Cogemat Acquisition and the satisfaction of certain other conditions, the Revolving
Credit Facility will be increased by €25.0 million to an aggregate amount of €55.0 million pursuant to the terms of the
Revolving Credit Facility Agreement. See “Summary—The Transactions.” As of the Completion Date, it is expected that the
Revolving Credit Facility will be undrawn. The Revolving Credit Facility is secured by first-ranking security interests granted on
an equal and ratable first-priority basis over the Completion Date Collateral, benefits from a perfected mortgage (ipoteca)
over certain real estate assets of the Issuer and will also be secured by the Cogemat Collateral and will be guaranteed by the
Guarantors. In the event of enforcement of the Collateral, the holders of the Notes and the Existing Senior Secured Notes will
receive proceeds from the Collateral only after lenders under the Revolving Credit Facility and counterparties to certain
hedging obligations, if any, have been repaid in full. See “Description of Certain Financing and Guarantee Arrangements—
Revolving Credit Facility” and “—Intercreditor Agreement” for further information.
(8) The Existing Senior Secured Notes are senior secured obligations of the Issuer and rank equally in right of payment with all
other existing and future senior obligations of the Issuer, including the Notes. The Existing Senior Secured Notes are secured
on a first-ranking basis by the same assets that will constitute the Completion Date Collateral that will secure the Notes on
19
the Completion Date, and will also be secured on a first-ranking basis by the Cogemat Collateral. The Senior Subordinated
Notes are unsecured obligations of the Issuer contractually subordinated in right of payment to any senior indebtedness of
the Issuer, including the Existing Senior Secured Notes and the Notes, through certain payment blockage, standstill and
turnover provisions.
(9) Within 30 business days following the Completion Date, Cogemat and Cogetech will accede to the Indenture and become the
Guarantors of the Notes. The Guarantees will be made on a senior basis and such Guarantees will rank equal in right of
payment to all existing and unsubordinated obligations of Cogemat and Cogetech. The Guarantees will be subject to legal
and contractual limitations that may limit its enforceability, and the Guarantees may be released in certain circumstances. See
“Risk Factors—Risks related to the Notes, the Guarantees and the Collateral” and “Limitations on Validity and Enforceability
of the Guarantees and Security Interests and Certain Insolvency Law Considerations.” As a result of applicable Italian law, the
Guarantors will not guarantee the obligations under the Existing Senior Secured Notes. However, enforcement of the
Guarantees will be subject to the Intercreditor Agreement, according to which any enforcement proceeds will be made
available to the creditors of the Notes only after the lenders under the Revolving Credit Facility have been repaid in full. See
“Description of Certain Financing and Guarantee Arrangements—Intercreditor Agreement.” As of March 31, 2015, on a pro
forma basis after giving effect to the Transactions, the repayment of the Series B Notes and the Azzurro Repayment, the
Issuer and its consolidated Subsidiaries (including the Cogemat Group) would have had approximately €309.9 million of total
pari passu financial indebtedness outstanding (other than the Notes) and the Issuer’s Subsidiaries (including the Cogemat
Group) which will not guarantee the Notes would have had no outstanding financial indebtedness.
(10) On or about the Completion Date the Issuer intends to lend the proceeds from the Offering to Cogetech pursuant to the
Proceeds Loan to be used by Cogetech and Cogemat to refinance the Cogemat Existing Debt.
(11) Cogemat S.p.A. is a holding company incorporated as a joint stock company (società per azioni) under the laws of the
Republic of Italy. Prior to consummation of the Cogemat Acquisition, the Issuer will not control Cogemat or any of its
subsidiaries and none of Cogemat nor any of its subsidiaries will be subject to the restrictive covenants of the Indenture.
(12) Cogetech S.p.A. is a joint stock company (società per azioni) under the laws of the Republic of Italy, and is wholly-owned by
Cogemat S.p.A. As required under applicable law to secure its obligations under its various concessions, Cogetech has
procured certain off-balance sheet guarantees (which as of March 31, 2015 had an aggregate outstanding amount of €139.8
million) from bank and insurance companies and are parties to a number of guarantee agreements thereunder. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Cogemat Group—Financial
indebtedness—Off-balance sheet arrangements,” “Description of Certain Financing and Guarantee Arrangements—The
Cogemat Group—Bank guarantees in favor of ADM and UNIRE on behalf of Cogetech,” footnote 42 to the Cogemat Group’s
audited consolidated financial statements as of and for the year ended December 31, 2014, footnote 37 to the Cogemat
Unaudited Interim Condensed Consolidated Financial Statements for more information and “Description of Certain Financing
and Guarantee Arrangements—The Cogemat Group— Bank guarantees in favor of ADM and UNIRE on behalf of Cogetech.”
The Cogemat Group did not have any capital leases outstanding as of March 31, 2015.
(13) Cogetech Gaming S.r.l. is a limited liability company (società a responsibilità limitata) under the laws of the republic of Italy,
and is wholly-owned by Cogemat S.p.A.
(14) Azzurro Gaming S.p.A. is a joint stock company (società per azioni) under the laws of the Republic of Italy, and is whollyowned by Cogetech S.p.A.
20
The Offering
The summary below describes the principal terms of the Notes and the Collateral. Certain of the
terms and conditions described below are subject to important limitations and exceptions. The
“Description of the Notes” section of this Offering Memorandum contains a more detailed
description of the terms and conditions of the Notes, including the definitions of certain terms
used in this summary.
Issuer . . . . . . . . . . . . . . . .
SNAI S.p.A.
Notes Offered . . . . . . . .
€110,000,000 aggregate principal amount of Senior Secured Notes.
Maturity Date . . . . . . . .
The Notes will mature on June 15, 2018.
Interest . . . . . . . . . . . . . .
The Notes will bear interest at a rate of 7.625% per annum. Interest
on the Notes will accrue from the Issue Date.
Issue Price . . . . . . . . . . . .
Interest Payment
Dates . . . . . . . . . . . . . . . .
Guarantees . . . . . . . . . . .
%.
Interest on the Notes will be payable semi-annually in arrears on
June 15 and December 15 of each year, beginning on December 15,
2015.
On the Issue Date, the Notes will not be guaranteed.
Within 30 business days following the Completion Date, subject to the
Agreed Security Principles, Cogemat S.p.A. and Cogetech S.p.A. (each
a “Guarantor” and, together, the “Guarantors”) will accede to the
Indenture as guarantors.
The Guarantees will be subject to contractual and legal limitations, and
may be released under certain circumstances. See “Risk Factors—Risks
related to the Notes, the Guarantees and the Collateral,” “Limitations
on Validity and Enforceability of the Guarantees and Security Interests
and Certain Insolvency Law Considerations” and “Description of Certain
Financing and Guarantee Arrangements—Intercreditor Agreement.”
For the twelve months ended March 31, 2015, and pro forma for the
Transactions, the Issuer and the Guarantors generated approximately
95.9% of the Group’s pro forma combined total revenues and
approximately 95.5% of the Group’s pro forma combined Adjusted
EBITDA, and, as of March 31, 2015, comprised approximately 93.7% of
the Group’s pro forma combined assets. As of March 31, 2015, on a
pro forma basis after giving effect to the Transactions, the repayment
of the Series B Notes and the Azzurro Repayment, the Issuer and its
consolidated Subsidiaries (including the Cogemat Group) would have
had approximately €309.9 million of total pari passu financial
indebtedness outstanding (other than the Notes) and the Issuer’s
Subsidiaries (including the Cogemat Group) which will not guarantee
the Notes would have had no outstanding financial indebtedness.
Security . . . . . . . . . . . . . .
Prior to the Completion Date, the Notes will be secured in favor of the
Trustee on behalf of the holders of the Notes by a first-ranking charge
over the proceeds of the Offering, net of a portion of the fees payable
to the Initial Purchasers, held in the Escrow Account as further
described below under “—Escrow of Proceeds; Special Mandatory
Redemption.”
21
On or about the Completion Date, subject to the Agreed Security
Principles, the Notes will be secured on a first-ranking basis by (i) a
pledge over 50.00% plus one share of the share capital of the Issuer,
(ii) a pledge over 100.00% of the quotas of Teleippica S.r.l. and (iii) a
pledge over certain intellectual property rights of the Issuer (the
“Completion Date Collateral”).
In addition, the Indenture will require that, subject to the Agreed
Security Principles, within 30 business days following the Completion
Date, the Notes be secured on a first-ranking basis by (i) a pledge over
the Cogemat Contributed Shares and (ii) an assignment of the
receivables in respect of the Proceeds Loan (the “Cogemat Collateral”
and, together with the Completion Date Collateral, the “Collateral”).
In each case, the Collateral will be granted to the Trustee as legal
representative (mandatario con rappresentanza) and common
representative (rappresentante comune) of, and on behalf of, the
holders of the New Notes. See “Description of the Notes—Security.”
The Revolving Credit Facility is secured by the Completion Date
Collateral and benefits from a perfected mortgage (ipoteca) over
certain real estate assets of the Issuer and will also be secured by the
Cogemat Collateral and will be guaranteed by the Guarantors. The
Intercreditor Agreement, to which the Trustee will accede on the
Completion Date (and to which the Guarantors will accede within 30
business days following the Completion date), provides that in the
event of enforcement of the Cogemat Collateral, the holders of the
Issuer’s senior obligations, including the Notes, will receive proceeds
from the Collateral only after lenders under the Revolving Credit
Facility and counterparties to certain hedging obligations, if any, have
been repaid in full. See “Description of the Notes—Security” and
“Description of Certain Financing and Guarantee Arrangements—
Intercreditor Agreement” for further information.
The Existing Senior Secured Notes are secured by the Completion Date
Collateral and, within 30 business days following the Completion
Date, will also be secured on a first-ranking basis by the Cogemat
Collateral.
In addition, the Indenture will permit us to secure additional
indebtedness with liens on the Collateral under certain circumstances,
including on a super senior priority basis.
The security interests may be limited by applicable law or subject to
certain defenses that may limit their validity and enforceability. For
more information on potential limitations to security interests, see
“Limitations on Validity and Enforceability of the Guarantees and
Security Interests and Certain Insolvency Law Considerations.”
Ranking of the Notes . . .
The Notes will be senior secured obligations of the Issuer and will:
• rank pari passu in right of payment to any existing or future
obligations of the Issuer that are not subordinated in right of
payment to the Notes, including the Existing Senior Secured Notes;
• rank senior in right of payment to any existing or future obligations
of the Issuer that are expressly subordinated in right of payment to
the Notes, including the Existing Senior Secured Notes;
• be secured on a first-priority basis along with obligations under the
Revolving Credit Facility and Existing Senior Secured Notes;
22
• be effectively senior in right of payment to any existing or future
unsecured obligations of the Issuer to the extent of the value of the
Collateral that is available to satisfy the obligations under the Notes;
• be effectively junior to any existing and future indebtedness of the
Issuer that will receive proceeds from any enforcement action over
the Collateral on a priority basis including indebtedness under the
Revolving Credit Facility and certain future hedging obligations, if
any, including any hedging obligations and certain other future
indebtedness;
• be effectively subordinated to any existing and future obligations of
the Issuer that are secured by property and assets that do not secure
the Notes, to the extent of the value of the property and assets
securing such obligations;
• as soon as practicable and in any case within 30 business days
following the Completion Date, benefit from the Guarantees given
by Cogemat and Cogetech, which Guarantees will be subject to
certain limitations on recovery as described in this Offering
Memorandum; and
• be structurally subordinated to all existing and future obligations of
the Issuer’s non-Guarantor subsidiaries.
See “Description of the Notes.”
Ranking of the
Guarantees . . . . . . . . . . .
The Guarantees will be a general, unsecured senior obligation of the
Guarantors and will:
• rank pari passu in right of payment to any existing or future
obligations of the Guarantors that are not subordinated in right of
payment to such Guarantee;
• rank senior in right of payment to any and all of the Guarantors’
existing or future obligations that are expressly subordinated in
right of payment to the Guarantee;
• be effectively subordinated to any existing or future obligations of
the applicable Guarantor that are secured by property or assets that
do not secure the applicable Guarantee, to the extent of the value
of the property and assets securing such obligations; and
• be subject to certain limitations on recovery as described in this
Offering Memorandum.
Optional Redemption . . .
The Issuer may redeem all or part of the Notes at any time prior to
December 15, 2015, at a price equal to 100% of the principal amount
of the Notes redeemed plus accrued and unpaid interest and
Additional Amounts, if any, to the redemption date and a
“make-whole” premium as described in the section entitled
“Description of the Notes—Optional redemption.”
In addition, at any time prior to December 15, 2015, the Issuer may
redeem up to 35% of the aggregate principal amount of the Notes at
a price equal to 107.625% of the principal amount of the Notes
redeemed, plus accrued and unpaid interest and Additional Amounts,
if any, to the redemption date with the net proceeds from certain
equity offerings.
23
In addition, prior to December 15, 2015, the Issuer may redeem up to
10% of the aggregate principal amount of the Notes (calculated after
giving effect to the issuance of any Additional Notes) at a redemption
price equal to 103% of the principal amount plus accrued and unpaid
interest and additional amounts, if any.
The Issuer may redeem all or part of the Notes on or after
December 15, 2015, at the redemption prices listed in the section
entitled “Description of the Notes—Optional redemption,” plus
accrued and unpaid interest and additional amounts, if any, to the
redemption date.
See “Description of the Notes—Optional redemption.”
Tax Redemption . . . . . . .
Escrow of Proceeds;
Special Mandatory
Redemption . . . . . . . . . . .
The Issuer may redeem the Notes, in whole but not in part, at a
redemption price of 100% of the principal amount, plus accrued and
unpaid interest and additional amounts, if any, to the redemption
date, if the Issuer would become obligated to pay certain additional
amounts as a result of certain changes in specified tax laws or certain
other circumstances. See “Description of the Notes—Redemption for
changes in taxes.”
On the Issue Date, the proceeds of the Offering, net of a portion of
the fees payable to the Initial Purchasers, will be deposited into the
Escrow Account in the name of the Issuer but controlled by the Escrow
Agent, and charged in favor of the Trustee on behalf of the holders of
the Notes, pursuant to the Escrow Agreement. The Escrow Agreement
will provide that the proceeds of the Offering, net of the fees payable
to the Initial Purchasers, will be released on the Completion Date
upon delivery of an officer’s certificate to the Escrow Agent certifying
certain items, including that:
• concurrently with or promptly after the release of the funds from
the Offering from the Escrow Account, the Cogemat Acquisition
(including the effective transfer of Cogemat Contributed Shares) will
be consummated on the terms as described in the Investment
Agreement, except for any changes or other modifications or
waivers that will not, individually or when taken as a whole, have a
materially adverse effect on the holders of the Notes;
• the funds from the Offering will be applied in the manner described
under the caption “Use of Proceeds”;
• after consummation of the Cogemat Acquisition, the Issuer will
own, directly or indirectly, the Cogemat Contributed Shares, free
and clear from any encumbrance or any other third party right;
• the Issuer will execute and deliver on or about the Completion Date,
the applicable Security Documents (as defined in “Description of the
Notes”) with respect to the Completion Date Collateral and all other
relevant documents that, in accordance with the terms of the
Indenture and the Escrow Agreement, are to be delivered subject
only, in the case of the Security Documents, to registration
formalities (where applicable) that will be completed promptly
following the Completion Date; and
24
• as of the Completion Date and concurrently with the release of the
funds from the Offering, no Event of Default (as defined in “The
Description of the Notes”) shall have occurred and in any case be
continuing.
Thereafter the escrowed funds will be released to us and utilized as
described in “Summary—The Transactions” and “Use of Proceeds.”
All of the Notes will be subject to a special mandatory redemption at
a redemption price equal to 100% of the aggregate issue price of the
Notes plus accrued and unpaid interest and Additional Amounts, if
any, from the Issue Date to the date of the special mandatory
redemption if: (a) the Cogemat Acquisition is not consummated on or
prior to December 31, 2015 (the “Escrow Longstop Date”); (b) in the
reasonable judgment of the Issuer, the Cogemat Acquisition will not
be consummated by the Escrow Longstop Date; (c) the Investment
Agreement is terminated at any time prior to the Escrow Longstop
Date; or (d) an Event of Default occurs under the Indenture prior to
the Escrow Longstop Date. See “Description of the Notes—Escrow of
Proceeds; Special Mandatory Redemption.”
Additional Amounts . . .
All payments made by or on behalf of the Issuer under or with respect
to the Notes or any Guarantor (as defined in “Description of the
Notes”) in respect of any Notes Guarantee (as defined in “Description
of the Notes”) will be made without withholding or deduction for
taxes in any relevant taxing jurisdiction unless required by law. If any
such withholding or deduction for taxes is required by law to be made
with respect to any payment under the Notes or Guarantees, subject
to certain exceptions, we will pay the additional amounts necessary so
that the net amount received by the holders of the Notes after such
withholding (including any withholding or deduction in respect of the
additional amounts) is not less than the amount that such holders
would have received in the absence of such withholding or
deductions. See “Description of the Notes—Additional amounts.”
The Issuer is organized under the laws of the Republic of Italy and
therefore payments of principal and interest on the Notes and, in
certain circumstances, any gain on the Notes, will be subject to Italian
tax laws and regulations. Subject to and as set forth in “Description of
the Notes—Additional amounts,” the Issuer will not be liable to pay
any additional amounts to holders of the Notes if any withholding or
deduction is required pursuant to Italian Legislative Decree No. 239 of
April 1, 1996 (as the same may be amended or supplemented from
time to time) (“Decree No. 239”) or pursuant to Italian Legislative
Decree No. 461 of November 21, 1997 (“Decree No. 461”), except, in
the case of Decree No. 239, where the procedures required under
Decree No. 239 in order to benefit from an exemption have not been
complied with due to the actions or omissions of the Issuer or its
agents. See “Description of the Notes—Additional amounts.”
Although we believe that, under current law, Italian withholding tax
will not be imposed under Decree No. 239 or Decree No. 461 where a
holder of Notes is resident for tax purposes in a country which allows
for a satisfactory exchange of information with Italy (as identified by
the Italian tax authorities in the Italian Ministerial Decree of
September 4, 1996 and in the Italian Ministerial Decree to be issued as
25
per Article 168-bis, Italian Presidential Decree No. 917 of December 22,
1986) (a “white list country”) and such holder of Notes complies with
certain certification requirements, there is no assurance that this will
be the case. Moreover, holders of the Notes will bear the risk of any
change in Decree No. 239 after the date hereof, including any change
in the white list countries.
Change of Control . . . . .
Upon the occurrence of a change of control at any time, you will have
the right to require the Issuer to repurchase the Notes at a price equal
to 101% of the principal amount thereof plus accrued and unpaid
interest and additional amounts, if any, to the date of repurchase.
See “Description of the Notes—Change of Control.”
Covenants . . . . . . . . . . . .
The Indenture will, among other things, restrict the ability of the
Issuer and its restricted subsidiaries to:
• incur indebtedness;
• pay dividends or make other distributions on, redeem or repurchase
capital stock;
• make certain restricted payments and investments;
• create or incur certain liens;
• create encumbrances or restrictions on the ability of our Restricted
Subsidiaries (as defined under “Description of the Notes”) to make
payment of dividends or other distributions, loans or advances to
and on the transfer of assets to us or any of our Restricted
Subsidiaries sell, lease or transfer certain assets including stock of
Restricted Subsidiaries;
• sell, lease or transfer certain assets including stock of Restricted
Subsidiaries;
• merge or consolidate with other entities; and
• enter into certain transactions with affiliates.
In addition, the Issuer will provide to the Trustee annual and quarterly
reports of the Issuer.
These covenants are subject to important exceptions and
qualifications. See “Description of the Notes—Certain covenants.”
Prior to the consummation of the Cogemat Acquisition, Snai will not
control Cogemat or any of its subsidiaries and none of Cogemat nor
any of its subsidiaries will be subject to the restrictive covenants of the
Indenture.
Use of Proceeds . . . . . . .
Form and
Denomination . . . . . . . . .
We will use the net proceeds from the Offering, together with certain
cash on balance sheet of the Cogemat Group, to refinance the
Cogemat Existing Debt and for general corporate purposes. See “Use
of Proceeds.”
The Issuer will issue the Notes on the Issue Date in global form in
minimum denominations of €100,000 and integral multiples of €1,000
in excess thereof, maintained in book-entry form. Notes in
denominations of less than €100,000 will not be available.
26
Transfer Restrictions;
Absence of a Public
Market for the Notes . . .
The Notes have not been registered under the U.S. Securities Act and
thus are subject to restrictions on transferability and resale. The Issuer
cannot assure you that a market for the Notes will develop or that, if
a market develops, the market will be a liquid market.
The Initial Purchasers have advised the Issuer that they currently
intend to make a market in the Notes. However, the Initial Purchasers
are not obligated to do so and any market making with respect to the
Notes may be discontinued without notice. See “Plan of Distribution.”
Listing . . . . . . . . . . . . . . . .
Application will be made to admit the Notes to listing on the Official
List of the Luxembourg Stock Exchange and trading on the Euro MTF
Market of the Luxembourg Stock Exchange.
Trustee and
Rappresentante
Comune of the holders
of the Notes . . . . . . . . . .
The Law Debenture Trust Corporation p.l.c.
Paying Agent and
Escrow Agent . . . . . . . . .
Deutsche Bank AG, London Branch.
Registrar, Transfer
Agent and Luxembourg
Listing Agent . . . . . . . . . .
Deutsche Bank Luxembourg S.A.
Security Agent . . . . . . . .
UniCredit Bank AG, Milan Branch.
Governing Law of the
Notes and the
Indenture . . . . . . . . . . . . .
New York.
Governing Law of the
Intercreditor
Agreement . . . . . . . . . . .
England and Wales.
Governing Law of the
Security Documents . . . .
Italy.
27
Summary Pro Forma and Historical Consolidated Financial
Information and Other Data
The following tables present summary consolidated historical financial information and other
data as of and for each of the years ended December 31, 2012, 2013 and 2014 and as of March
31, 2015 and for the three months ended March 31, 2014 and 2015 for the Issuer, as of December
31, 2013 and 2014 and for each of the years ended December 31, 2012, 2013 and 2014 and as of
March 31, 2015 and for the three months ended March 31, 2014 and 2015 for the Cogemat
Group, as well as pro forma financial information and other data for the Issuer after giving pro
forma effect to the Transactions for the periods ended and as of the dates indicated below. The
historical financial data presented in the following tables do not reflect changes as a result of the
Transactions. The following tables should be read in conjunction with the information contained
in “Presentation of Financial Information,” “Use of Proceeds,” “Capitalization,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of Snai,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of the
Cogemat Group,” “Unaudited Pro Forma Consolidated Financial Information” and the
consolidated financial information and related notes included elsewhere in this Offering
Memorandum.
Basis of presentation
Snai
The summary consolidated income statement, consolidated statement of financial position,
consolidated cash flow statement and other financial information of the Issuer as of
December 31, 2012, 2013 and 2014 and for each of the years then ended and as of March 31,
2015 and for the three months ended March 31, 2014 and 2015 have been derived from: (i) the
Snai Audited Consolidated Financial Statements and (ii) the Snai Unaudited Interim Condensed
Consolidated Financial Statements.
The audited consolidated financial statements of Snai and its consolidated subsidiaries as of and
for the years ended December 31, 2013 and 2014, and the unaudited interim condensed
consolidated financial statements of the Issuer and its consolidated subsidiaries as of March 31,
2015 and for the three months ended March 31, 2014 and 2015, are included in the F-Pages to
this Offering Memorandum.
The audited consolidated financial statements of Snai and its consolidated subsidiaries as of and
for the year ended December 31, 2012 are incorporated by reference herein and can be
examined on our website (www.snai.it).
The summary unaudited financial information for the twelve months ended March 31, 2015 has
been derived by subtracting from the audited consolidated financial statements of the Issuer for
the year ended December 31, 2014 the information from the unaudited interim condensed
consolidated financial statements for the three months ended March 31, 2014 and adding the
information from the unaudited interim condensed consolidated financial statements for the
three months ended March 31, 2015.
The Snai Audited Consolidated Financial Statements and the Snai Unaudited Interim Condensed
Consolidated Financial Statements contained in the F-Pages to this Offering Memorandum have
been prepared in accordance with IFRS and should be read in conjunction with the relevant notes
thereto. Prospective investors are advised to consult their professional advisors for an
understanding of: (i) the differences between IFRS and other systems of generally accepted
accounting principles and how those differences might affect the financial information included
in this Offering Memorandum and (ii) the impact that future additions to, or amendments of,
IFRS principles may have on Snai’s results of operations and/or financial condition, as well as on
the comparability of the prior periods and the comparability of the financial information of Snai
and the Cogemat Group.
28
The reports of our independent auditors on the Snai Audited Consolidated Financial Statements
for the years ended and as of December 31, 2012, 2013 and 2014 were unqualified but did
contain emphasis of matter paragraphs regarding disclosures made by our directors and
contained in the explanatory notes with respect to our ability to continue as a going concern and
provision for risks and charges. For further details, refer to our independent auditors’ opinion
contained elsewhere in this Offering Memorandum.
Historical audited consolidated financial information is not necessarily indicative of future
expected results. The financial information for the three and twelve months ended March 31,
2015 is not necessarily indicative of the results that may be expected for the year ended
December 31, 2015, and should not be used as the basis for or prediction of an annualized
calculation.
The Cogemat Group
The summary consolidated income statement, consolidated cash flow statement and other
financial information of the Cogemat Group for the years ended December 31, 2012, 2013 and
2014 and for the three months ended March 31, 2014 and 2015, and the consolidated statement
of financial position as of December 31, 2013 and 2014 and March 31, 2015 has been derived
from: (i) the Cogemat Audited Consolidated Financial Statements and (ii) the Cogemat Unaudited
Interim Condensed Consolidated Financial Statements.
The summary unaudited financial information for the twelve months ended March 31, 2015 has
been derived by subtracting from the audited consolidated financial statements of the Cogemat
Group for the year ended December 31, 2014 the information from the unaudited interim
condensed consolidated financial statements for the three months ended March 31, 2014 and
adding the information from the unaudited interim condensed consolidated financial statements
for the three months ended March 31, 2015.
The Cogemat Audited Consolidated Financial Statements and Cogemat Unaudited Interim
Condensed Consolidated Financial Statements contained in the F-Pages to this Offering
Memorandum have been prepared in accordance with IFRS and should be read in conjunction
with the relevant notes thereto. Prospective investors are advised to consult their professional
advisors for an understanding of: (i) the differences between IFRS and other systems of generally
accepted accounting principles and how those differences might affect the financial information
included in this Offering Memorandum and (ii) the impact that future additions to, or
amendments of, IFRS principles may have on the Cogemat Group’s results of operations and/or
financial condition, as well as on the comparability of the prior periods and the comparability of
the financial information of Snai and the Cogemat Group.
Historical audited consolidated financial information is not necessarily indicative of future
expected results. The financial information for the three and twelve months ended March 31,
2015 is not necessarily indicative of the results that may be expected for the year ended
December 31, 2015, and should not be used as the basis for or prediction of an annualized
calculation.
Pro forma information
In connection with the Cogemat Acquisition and the Offering, Snai has prepared unaudited pro
forma consolidated financial information which comprises a pro forma consolidated statement of
financial position as of March 31, 2015 and pro forma consolidated income statements for the
year ended December 31, 2014 and the three and twelve months ended March 31, 2015, and
related explanatory notes (the “Unaudited Pro Forma Consolidated Financial Information”).
29
The Unaudited Pro Forma Consolidated Financial Information has been prepared to reflect
retroactively the main effects of (i) the Cogemat Acquisition and the proposed Offering,
including the application of the proceeds therefrom on Snai’s consolidated statement of financial
position and consolidated income statement, (ii) the repayment of the Series B Notes on May 5,
2015, (iii) the Azzurro Repayment on June 30, 2015 and (iv) the release of €10.0 million of
restricted cash of the Cogemat Group that will occur in connection with amending the 2011
Guarantee Facility Agreement and the 2013 Guarantee Facility Agreement as each of (i) through
(iv) had taken place on March 31, 2015 for the purposes of the unaudited pro forma consolidated
statement of financial position and on January 1, 2014, January 1, 2015 and April 1, 2014,
respectively for purposes of the unaudited pro forma consolidated income statements.
The consolidated pro forma financial information included in this Offering Memorandum as of
March 31, 2015, for the year ended December 31, 2014 and for the twelve months ended
March 31, 2015 has been derived from the Unaudited Pro Forma Consolidated Financial
Information included in this Offering Memorandum in the section entitled “Unaudited Pro Forma
Consolidated Financial Information.” The explanatory notes to the Unaudited Pro Forma
Consolidated Financial Information includes an explanation of the basis of preparation.
The Unaudited Pro Forma Consolidated Financial Information presented in this Offering
Memorandum is based on available information and certain assumptions that we believe are
reasonable, including assumptions pursuant to the terms of the Cogemat Acquisition and the
proposed Offering. The Unaudited Pro Forma Consolidated Financial Information is presented for
illustrative purposes only and does not purport to represent what the actual results of operations
would have been if the events for which the pro forma adjustments were made had occurred on
the dates assumed, nor does it purport to project our results of operations for any future period
or our financial condition at any future date. Our future operating results may differ materially
from the pro forma amounts set out in this Offering Memorandum due to various factors,
including changes in operating results.
The accounting principles used for the preparation of the Unaudited Pro Forma Consolidated
Financial Information are, unless otherwise specified, consistent with those used in the
preparation of the Snai Unaudited Interim Condensed Consolidated Financial Statements, which
have been prepared in accordance with IFRS. Details of the accounting policies applied is
provided in the Snai Unaudited Interim Condensed Consolidated Financial Statements.
The pro forma financial information set forth elsewhere in this Offering Memorandum has not
been prepared in accordance with the requirements of Regulation S-X under the U.S. Securities
Exchange Act of 1934 or U.S. GAAP. Neither the adjustments nor the resulting pro forma
financial information have been audited or reviewed in accordance with International Standards
on Auditing (Italy) or U.S. GAAP. The Unaudited Pro Forma Consolidated Financial Information
should be read in conjunction with the historical consolidated financial statements and notes
thereto of Snai and the Cogemat Group, included elsewhere in this Offering Memorandum and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of Snai”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of
the Cogemat Group.”
30
Summary pro forma combined financial information:
As of and for the
12 months ended
March 31, 2015
(unaudited)
(thousands of €, except ratios and percentages)
Pro forma combined total revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma combined EBITDA(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma combined Adjusted EBITDA(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma combined Adjusted EBITDA margin(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma adjusted combined cash and cash equivalents(5) . . . . . . . . . . . . . . . . . . .
Pro forma combined total financial indebtedness(6) . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma adjusted combined net financial indebtedness(7) . . . . . . . . . . . . . . . . . .
Pro forma adjusted combined net senior financial indebtedness(8) . . . . . . . . . . . .
Pro forma combined net financial expense(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratio of pro forma combined Adjusted EBITDA to Pro forma combined net
financial expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratio of pro forma adjusted combined net senior financial indebtedness to pro
forma combined Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratio of pro forma adjusted combined net financial indebtedness to pro forma
combined Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
979,045
129,005
137,461
14.0%
73,369
586,081
512,712
351,693
66,598
2.06x
2.56x
3.73x
(1) The following table sets forth the calculation of pro forma combined total revenues for the period indicated:
For the 12 months
ended
March 31, 2015
(thousands of €)
Snai total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cogemat total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
541,166
437,879
Pro forma combined total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
979,045
(2) In evaluating pro forma combined EBITDA, you should be aware that, as an analytical measure, EBITDA is subject to certain
limitations. Please see “Presentation of Financial Information—Non-IFRS financial measures.” EBITDA is not a measurement of
performance under IFRS or any other generally accepted accounting standards and you should not consider EBITDA as an
alternative to (a) operating profit or profit (as determined in accordance with IFRS or any other generally accepted
accounting principles) as a measure of our operating performance, (b) cash flows from operating, investing and financing
activities as a measure of our ability to meet our cash needs or (c) any other measures of performance under IFRS or any other
generally accepted accounting principles. Pro forma combined EBITDA as presented here differs from the definition of
“Consolidated EBITDA” contained in the Description of the Notes.
The following table sets forth the calculation of pro forma combined EBITDA:
For the 12 months
ended
March 31, 2015
(thousands of €)
Snai EBITDA(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cogemat EBITDA(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89,655
39,350
Pro forma combined EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129,005
(a) See “—Snai other financial information” Footnote 1 for the calculation of Snai EBITDA.
(b) See “—Cogemat Group other financial and operating information” Footnote 1 for the calculation of Cogemat Adjusted
EBITDA.
(3) In evaluating pro forma combined Adjusted EBITDA, you should be aware that, as an analytical measure, Adjusted EBITDA is
subject to certain limitations. Please see “Presentation of Financial Information—Non-IFRS financial measures.” Adjusted
EBITDA is not a measurement of performance under IFRS or any other generally accepted accounting standards and you
should not consider Adjusted EBITDA as an alternative to (a) operating profit or profit (as determined in accordance with IFRS
or any other generally accepted accounting principles) as a measure of our operating performance, (b) cash flows from
operating, investing and financing activities as a measure of our ability to meet our cash needs or (c) any other measures of
performance under IFRS or any other generally accepted accounting principles.
31
The following table sets forth the calculation of pro forma combined Adjusted EBITDA:
For the 12 months
ended
March 31, 2015
(thousands of €)
Snai Adjusted EBITDA(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cogemat Adjusted EBITDA(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,259
42,202
Pro forma combined Adjusted EBITDA(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
137,461
(a) See “—Snai other financial information” Footnote 1 for the calculation of Snai Adjusted EBITDA.
(b) See “—Cogemat Group other financial and operating information” Footnote 3 for the calculation of Cogemat Adjusted
EBITDA.
(c) Pro forma combined Adjusted EBITDA does not include any synergies or cost savings from the Cogemat Acquisition. See
“Summary—Cogemat Acquisition rationale.”
(4) Pro forma combined Adjusted EBITDA margin is pro forma combined Adjusted EBITDA as a percentage of pro forma
combined total revenues. Pro forma combined Adjusted EBITDA margin is not a defined term under IFRS or any other
generally accepted accounting standards and therefore may not be comparable with other similar titled measures reported
by other companies. The criteria for determining pro forma combined Adjusted EBITDA margin applied by us might not be
the same as the criteria adopted by other companies and, therefore, the figures presented by us might not be comparable
with those presented by such other groups. See “Presentation of Financial Information—Non-IFRS financial measures.”
(5) Pro forma adjusted combined cash and cash equivalents represents pro forma combined cash and cash equivalents as of
March 31, 2015, further adjusted to show the effects of the payment by both Snai and the Cogemat Group of the first
installment of the Stability Fee on April 30, 2015 in the amounts of €11.1 million and €12.2 million, respectively. The actual
amount of cash available at the Cogemat Group may vary as a result of changes in the Cogemat Group’s working capital,
closing cash and debt and certain other items, including tax liabilities and this could affect the cash reflected hereunder. For a
description of the adjustments to the historical information of Snai see “Capitalization” and “Unaudited Pro Forma
Consolidated Financial Information.”
(6) Pro forma combined total financial indebtedness represents the principal amount of combined financial indebtedness pro
forma for the Transactions, the repayment of the Series B Notes, which occurred on May 5, 2015 and the Azzurro Repayment,
which occurred on June 30, 2015.
(7) Pro forma adjusted combined net financial indebtedness represents pro forma combined total financial indebtedness less pro
forma adjusted combined cash and cash equivalents.
(8) Pro forma adjusted combined net senior financial indebtedness is calculated as the Notes offered hereby plus (i) the Existing
Senior Secured Notes, including accrued interest of €7.1 million and related amortized costs of €11.8 million, (ii) the
amortized costs related to the Revolving Credit Facility of €2.5 million and (iii) financial leases of €2.1 million, less pro forma
adjusted combined cash and cash equivalents. See “Capitalization.” Pro forma net senior financial indebtedness has not been
prepared in accordance with IFRS or any other generally accepted accounting principles and has been presented for
illustrative purposes only and does not purport to represent what our net senior financial indebtedness would have actually
been had the Transactions occurred on the date assumed, nor does it purport to project our net financial indebtedness for
any future period or our financial condition at any future date. Pro forma net senior financial indebtedness is not a
recognized measure of financial performance or liquidity under IFRS and therefore no undue reliance should be placed on
such data contained in this Offering Memorandum. See “Presentation of Financial Information—Non-IFRS financial
measures.”
(9) Pro forma combined net financial expense represents the interest expense of the Issuer net of financial income and share of
net loss of associates as if the Transactions had taken place on April 1, 2014 based on the actual coupon of the Notes of
7.625% assuming the Notes are issued at par, and the cash interest expense on other financial liabilities which will remain
outstanding following the Transactions and the repayment of the Series B Notes, assuming that the Revolving Credit Facility
was undrawn during such period.
32
Snai summary consolidated income statement:
(thousands of €)
For the
12 months
For the year ended
For the three months
ended
December 31,
ended March 31, March 31,
2012
2013
2014
2014
2015
2015
(audited)
(unaudited)
Revenues from sales and services . . . . . . . 512,683 477,535 526,203 142,255 128,456
Other revenues . . . . . . . . . . . . . . . . . . . . . .
1,689
1,228
1,278
183 27,667
512,404
28,762
Total revenues . . . . . . . . . . . . . . . . . . . . . . 514,372 478,763 527,481 142,438 156,123 541,166
Changes in inventory of finished and
semi-finished products . . . . . . . . . . . . . .
(3)
107
–
–
(16)
(16)
Cost of raw materials and
consumables . . . . . . . . . . . . . . . . . . . . . .
(1,206) (1,162)
(917)
(410)
(151)
(658)
Cost for services and use of third party
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (389,335) (324,470) (358,015) (89,330) (92,161) (360,846)
Cost of personnel . . . . . . . . . . . . . . . . . . . . (33,840) (36,891) (35,969) (8,826) (9,364) (36,507)
Other operating costs . . . . . . . . . . . . . . . . (33,697) (102,579) (40,468) (8,817) (8,338) (39,989)
Capitalized internal construction costs . .
1,096
1,337
1,539
225
225
1,539
Operating income before amortization,
depreciation, write-downs, interest
and taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization, depreciation and writedowns . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . . . . . . . .
(59,748) (54,867) (58,669) (14,810) (14,204)
(11,529) (2,039)
(72)
(424)
–
(58,063)
352
Operating income/(loss) . . . . . . . . . . . . . .
Share of net profit/(loss) of associates . . .
Financial income . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . .
(13,890) (41,801) 34,910 20,046 32,114
1,451
(398)
(548)
11
–
1,002
1,267
1,742
348
338
(45,027) (59,983) (60,138) (15,237) (14,144)
(46,978)
(559)
1,732
(59,045)
Net financial expenses . . . . . . . . . . . . . . . .
(42,574) (59,114) (58,944) (14,878) (13,806)
(57,872)
Income/(loss) before taxes . . . . . . . . . . . .
Income tax benefit/ (expense) . . . . . . . . . .
(56,464) (100,915) (24,034) 5,168 18,308
13,904
6,385
(2,048) (2,965) (6,872)
(10,894)
(5,955)
Net profit/(loss) for the period . . . . . . . . .
Other comprehensive profit/ (loss) net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42,560) (94,530) (26,082)
(16,849)
Total comprehensive profit/(loss) for
period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,387
(3,561)
15,105
2,648
93,651
1,836
(46,121) (91,882) (24,246)
33
35,280
46,318
2,203
11,436
531
531
2,734
11,967
104,689
1,836
(15,013)
Snai summary consolidated statement of financial position:
As of December 31,
2012
2013
2014
(audited)
As of
March 31,
2015
(unaudited)
Assets
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
604,583 600,017 563,891
152,844 168,533 171,773
549,539
241,926
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
757,427 768,550 735,664
791,465
Liabilities
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
424,863 559,690 541,138
168,335 136,513 146,425
542,010
189,387
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
593,198 696,203 687,563
731,397
Total net shareholders’ equity . . . . . . . . . . . . . . . . . . . . . .
164,229
48,101
60,068
Total liabilities and shareholders’ equity . . . . . . . . . . . . .
757,427 768,550 735,664
791,465
(thousands of €)
72,347
Snai summary consolidated statement of cash flow information:
(thousands of €)
Cash flow from/(used in) operating
activities excluding net financial
expenses(a) . . . . . . . . . . . . . . . . . . . . . . .
Cash flow used in investing activities . . .
Cash flow from/(used in) financing
activities including net financial
expenses(b) . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the
beginning of the period . . . . . . . . . . . .
Change in cash and cash equivalents . . .
Cash and cash equivalents at the end of
the period . . . . . . . . . . . . . . . . . . . . . . . .
For the three
For the year ended
months
December 31,
ended March 31,
2012
2013
2014
2014
2015
(unaudited)
For the
12 months
ended
March 31,
2015
63,267 30,558 100,302 20,624 30,977
(21,772) (39,601) (18,460) (2,784) (3,452)
110,655
(19,128)
(70,767)
43,532
(58,712) (4,651) (2,215)
(56,276)
40,282
(29,272)
11,010
34,489
45,499 45,499 68,629
23,130 13,189 25,310
58,688
35,251
11,010
45,499
68,629 58,688 93,939
93,939
(a) We define cash flow from/(used in) operating activities excluding net financial expenses as the sum of cash flow from/(used
in) operating activities, plus net financial expenses of the period. Cash flow from/(used in) operating activities excluding net
financial expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash
flows from operating, activities. We believe that cash flow from/(used in) operating activities excluding net financial expenses
is a useful indicators of our ability to generate cash flow and can assist securities analysts, investors and other parties to
evaluate us. The following is a calculation to reconcile cash flow from/(used in) operating activities to cash flow from/(used in)
operating activities excluding net financial expenses.
For the year ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
Cash flow from/(used in) operating activities . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . .
20,693 (28,556)
42,574 59,114
Cash flow from/(used in) operating activities
excluding net financial expenses . . . . . . . . . . . .
63,267
For the three
months ended
March 31,
2014
2015
(unaudited)
41,358
5,746 17,171
58,944 14,878 13,806
30,588 100,302 20,624 30,977
(b) We define cash flow from/(used in) financing activities including net financial expenses as the sum of cash flow from/(used in)
financing activities and the net financial expenses. Cash flow from/(used in) financing activities including net financial
expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash flows from
34
financing activities. We believe that cash flow from/(used in) financing activities including net financial expenses is a useful
indicators of our financing activity and can assist securities analysts, investors and other parties to evaluate us. The following
is a calculation to reconcile cash flow from/(used in) financing activities to cash flow from/(used in) financing activities
including net financial expenses.
For the year ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
For the three
months ended
March 31,
2014
2015
(unaudited)
Cash flow from/(used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . .
(28,193) 102,646
232 10,227 11,591
(42,574) (59,114) (58,944) (14,878) (13,806)
Cash flow from/(used in) financing activities
including interest net financial expenses . . .
(70,767)
43,532 (58,712)
(4,651)
(2,215)
Snai other financial information:
As of and for the year ended
December 31,
(thousands of €, except
percentages and ratios)
Cash and cash equivalents(1) . . . . . . .
Snai EBITDA(2) . . . . . . . . . . . . . . . . . . . .
Snai EBITDA margin(3) . . . . . . . . . . . . .
Snai Adjusted EBITDA(2) . . . . . . . . . . .
Snai Adjusted EBITDA margin(3) . . . .
Cash conversion(4) . . . . . . . . . . . . . . . .
Net financial indebtedness(5) . . . . . . .
Net financial expense(6) . . . . . . . . . . .
Capital expenditures(7) . . . . . . . . . . . .
Ratio of net financial indebtedness(5)
to Snai Adjusted EBITDA(2) . . . . . . .
2012
2013
11,010
45,499
64,522
92,588
12.5%
19.3%
68,935
97,564
13.4%
20.4%
89.4%
84.7%
369,613 443,389
(42,574) (59,114)
21,809
39,808
5.4x
4.5x
As of and
for the
12 months
ended
March 31,
As of and for the
three
months ended
March 31,
2014
2014
(unaudited)
2015
68,629
58,688
93,939
105,877
36,445
20,223
20.1%
25.6%
13.0%
111,470
37,486
21,275
21.1%
26.3%
13.6%
96.5%
57.9%
23.1%
419,062 439,946 405,144
(58,944) (14,878) (13,806)
18,590
2,788
3,505
3.8x
–
–
2015
93,939
89,655
16.6%
95,259
17.6%
95.2%
405,144
(57,313)
19,307
4.3x
(1) Snai cash and cash equivalents excludes deposits made to ADM, equal to €17.9 million as of March 31, 2015, which are
periodically returned to us by ADM provided we honor the commitments of our gaming machine concession. The amount of
our deposit with ADM for 2015 was reduced by €4.1 million in May 2015 to satisfy the first installment of our portion of the
Stability Fee. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Snai—Net
financial indebtedness.”
35
(2) We define “Snai EBITDA” as profit before net financial expenses, income taxes, depreciation, amortization, write-downs and
other provisions and certain non-recurring costs and revenues. “Snai Adjusted EBITDA” is defined as Snai EBITDA as adjusted
for our allowance for doubtful accounts as described below. EBITDA and Adjusted EBITDA are not measurements of
performance under IFRS and you should not consider EBITDA and Adjusted EBITDA as alternatives to operating income or
consolidated profits as a measure of our operating performance, cash flows from operating, investing and financing
activities, as a measure of our ability to meet our cash needs or any other measures of performance under generally accepted
accounting principles. We believe that EBITDA and Adjusted EBITDA are useful indicators of our ability to incur and service
our indebtedness and can assist securities analysts, investors and other parties to evaluate us. EBITDA and Adjusted EBITDA
and similar measures may be used by different companies for different purposes and are often calculated in ways that reflect
the circumstances of those companies. EBITDA and Adjusted EBITDA may not be indicative of our historical operating results,
nor are they meant to be predictive of potential future results. See “Presentation of Financial Information—Non-IFRS
financial measures.” The following is a calculation of Snai EBITDA and displays the adjustments to reconcile Snai Adjusted
EBITDA to Snai EBITDA.
(thousands of €)
Net profit/(loss) for the period . . . .
Net financial expenses . . . . . . . . . . .
Income tax benefit/(expense) . . . . . .
Amortization, depreciation and
write-downs and other
provisions . . . . . . . . . . . . . . . . . . . .
Snai operating income before
amortization, depreciation,
write-downs, interest and
taxes . . . . . . . . . . . . . . . . . . . . . . . .
Non-recurring costs and
revenues(a) . . . . . . . . . . . . . . . . . . . .
For the three
For the year ended
months ended
December 31,
March 31,
2012
2013
2014
2014
2015
(unaudited)
(42,560) (94,530) (26,082) 2,203
42,574 59,114
58,944 14,878
(13,904) (6,385)
2,048
2,965
For the
12 months
ended
March 31,
2015
11,436
13,806
6,872
(16,849)
57,872
5,955
71,277
56,906
58,741 15,234
14,204
57,711
57,387
15,105
93,651 35,280
46,318
104,689
7,135
77,483
12,226
Snai EBITDA . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful
accounts(b) . . . . . . . . . . . . . . . . . . . .
64,522
Snai Adjusted EBITDA . . . . . . . . . . . .
68,935
4,413
1,165 (26,095)
92,588 105,877 36,445
(15,034)
20,223
89,655
1,041
1,052
5,604
97,564 111,470 37,486
21,275
95,259
4,976
5,593
(a) Includes costs that are considered by management to be non-recurring in nature, such as advisory costs related to
acquisitions, non-recurring employee severance payments, costs related to the Snai stock option plan granted to certain
managers and the allowance for doubtful accounts related to the revision of certain trade receivables in our portfolio
that we believe to be non-recurring. For the twelve and three months ended March 31, 2015, non-recurring revenues
include €27.4 million reimbursed to us in the first quarter of 2015 by Barcrest Group Limited to settle the litigation
commenced by us against them on October 4, 2012 in respect of a malfunction of our Barcrest gaming system on
April 16, 2012. See “Snai’s Business—Legal proceedings—Malfunctioning of Barcrest VLT Platform.”
(b) Includes recurring provisions for allowance of doubtful accounts related to impairment of trade receivables where
recoverability is considered to be doubtful, net of the portion considered non-recurring as described in note (a) above.
(3) “Snai EBITDA margin” is defined as Snai EBITDA divided by total revenues and “Snai Adjusted EBITDA margin” is defined as
Snai Adjusted EBITDA divided by total revenues.
(4) “Cash conversion” is defined as Snai Adjusted EBITDA minus capital expenditures minus change in net working capital
divided by Snai Adjusted EBITDA. Cash conversion is not a recognized measure of financial performance or liquidity under
IFRS and therefore no undue reliance should be placed on such data contained in this Offering Memorandum. See
“Presentation of Financial Information—Non-IFRS financial measures.”
(5) “Net financial indebtedness” is defined as the sum of current bank payables, current portion of non-current debt, other
current financial payables and non-current bank payables (including the fair value of hedging derivatives, non-current
payables to other lenders and current financial receivables) less cash and cash equivalents. Net financial indebtedness is
intended to indicate the amount of Snai’s indebtedness if all liabilities were to be repaid using liquid funds and in accordance
with the CONSOB Communication No. DEM/6064293 of July 28, 2006. See “Presentation of Financial Information—Non-IFRS
financial measures.”
(6) “Net financial expense” is defined as the financial expenses for the period net of financial income.
(7) Our capital expenditures consist primarily of investments in property plant and equipment, concession rights and intangible
assets aimed to expand our shop network and/or improve our existing betting shops.
36
Snai summary other financial and operational data:
As of and for the year ended
December 31,
(millions of €, except as otherwise
indicated)
2012
Total turnover(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse betting payout ratio(9) . . . . . . .
Number of AWPs(10) . . . . . . . . . . . . . . . . . . . . . . . . .
Number of VLTs(11) . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of online registered users(12) . . . . . . . . . .
2013
2014
(unaudited)
As of and for the
three months
ended March 31,
2014
2015
5,045.4 4,993.3 4,926.2 1,286.3 1,245.6
82.7%
78.9%
79.1%
74.3%
82.4%
29,900
24,653
26,289
24,982
27,253
2,585
4,956
4,950
4,847
4,902
291,914 387,895 482,511 414,698 506,796
(8) Total turnover refers to total wagers collected.
(9) Sports and horse betting payout ratio refers to the ratio of turnover to revenues for fixed-odds sports betting. Our fixed-odds
betting products, mainly represented by sports betting, involve betting where winnings are paid on the basis of the stake
placed and the odds quoted, rather than derived from a pool of stake money received from all customers, and therefore, the
payout ratio fluctuates from period to period. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations of Snai—Factors affecting our results of operations—Sports and horse race betting and virtual events payout
ratio.”
(10) Number of AWP machines deployed as of the end of the period.
(11) Number of certified VLT machines operated by Snai as of the end of the period.
(12) Refers to the number of unique active customer accounts opened as of the end of the period.
Cogemat Group summary consolidated income statement:
(thousands of €)
Revenues from sales and
services . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . .
Change in inventory of finished
and semi-finished products . . . .
Cost of materials and
consumables . . . . . . . . . . . . . . . . .
Cost of services and use of thirdparty assets . . . . . . . . . . . . . . . . . .
Cost of personnel . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . .
For the year ended
December 31,
2012
2013
(audited)
2014
For the
For the three
12 months
months ended
ended
March 31,
March 31,
2014
2015
2015
(unaudited)
444,373
2,481
415,684
4,161
434,017 108,430 110,634
2,571
1,191
278
436,221
1,658
446,854
419,845
436,588 109,621 110,912
437,879
15
46
(44)
0
0
(44)
(364)
(275)
(229)
(91)
(46)
(184)
(368,587) (352,233) (361,584) (90,582) (92,027)
(19,689) (18,739) (19,882) (4,482) (3,970)
(20,599) (96,803) (18,943) (4,595) (5,995)
(363,029)
(19,370)
(20,343)
Operating income / (loss) before
depreciation, amortization,
write-downs and other
provisions . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and
write-down . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . .
37,630
(48,159)
35,906
9,871
8,874
34,909
(15,646)
(580)
(21,473)
(1,027)
(17,182)
(440)
(4,274)
0
(3,847)
(85)
(16,755)
(525)
Operating income / (loss) . . . . . . . .
Net financial expenses . . . . . . . . . .
21,404
(3,898)
(70,659)
(8,017)
18,284
(13,391)
5,597
(3,502)
4,942
(2,976)
17,629
(12,865)
Income / (loss) before taxes . . . . .
Income tax benefit/(expense) . . . .
17,506
(4,665)
(78,676)
20,937
4,893
(646)
2,095
(1,431)
1,966
(1,017)
4,764
(232)
Net income for the period . . . . . . .
12,841
(57,739)
4,247
37
664
949
4,532
Cogemat Group summary consolidated statement of financial position:
As of December 31,
2013
2014
(audited)
As of
March 31,
2015
(unaudited)
Assets
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,348 107,059
100,634 118,827
103,662
166,353
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,982 225,886
270,015
Shareholders’ Equity and Liabilities
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,480 108,775
119,057
77,518
109,460
120,108
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
194,537 186,293
229,568
(thousands of €)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity and liabilities . . . . . . . . . . . . . . . . . . . . .
31,445
39,593
40,447
225,982 225,886
270,015
Cogemat Group summary consolidated statement of cash flows information:
(thousands of €)
Cash flow from/(used in)
operating activities excluding
net financial expenses(a) . . . . . .
Cash flow used in investing
activities . . . . . . . . . . . . . . . . . . .
Cash flow from/(used in)
financing activities including
net financial expenses(b) . . . . . .
Cash and cash equivalents at the
beginning of the period . . . . . .
Change in cash and cash
equivalents . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the
end of the period . . . . . . . . . . . .
For the
12 months
For the three months
ended
For the year ended December 31,
ended March 31,
March 31,
2012
2013
2014
2014
2015
2015
(audited)
(unaudited)
20,933
(75,268)
28,034
(9,580)
(5,675)
257
(17,106)
74,773
(5,628)
16,901
11,148
(5,753)
11,148
(1,864)
30,201
(1,172)
(1,180)
9,228
1,519
(13,337)
4,978
4,978
27,641
10,440
(6,170)
22,663
5,462
(1,517)
15,684
4,978
27,641
10,440
26,124
26,124
38
(4,031)
265
(a) The Cogemat Group defines cash flow from/(used in) operating activities excluding net financial expenses as the sum of cash
flow from/(used in) operating activities, plus net financial expenses of the period. Cash flow from/(used in) operating
activities excluding net financial expenses is not a measurement of performance under IFRS and you should not consider it as
alternatives to cash flows from operating, activities. We believe that cash flow from/(used in) operating activities excluding
net financial expenses is a useful indicators of our ability to generate cash flow and can assist securities analysts, investors and
other parties to evaluate the Cogemat Group. The following is a calculation to reconcile cash flow from/(used in) operating
activities to cash flow from/(used in) operating activities excluding net financial expenses. See “Presentation of Financial
Information—Non-IFRS financial measures.”
For the year ended
For the three months
December 31,
ended March 31,
2012
2013
2014
2014
2015
(unaudited)
(thousands of €)
Cash flow from/(used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . .
17,035
3,898
(83,285)
8,017
14,643
13,391
(7,533)
3,502
(4,840)
2,976
Cash flow from/(used in) operating
activities excluding net financial
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,933
(75,268)
28,034
(4,031)
(1,864)
(b) The Cogemat Group defines cash flow from/(used in) financing activities including net financial expenses as the sum of cash
flow from/(used in) financing activities and the net financial expenses. Cash flow from/(used in) financing activities including
net financial expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash
flows from financing activities. We believe that cash flow from/(used in) financing activities including net financial expenses is
a useful indicators of our financing activity and can assist securities analysts, investors and other parties to evaluate the
Cogemat Group. The following is a calculation to reconcile cash flow from/(used in) financing activities to cash flow from/
(used in) financing activities including net financial expenses. See “Presentation of Financial Information—Non-IFRS financial
measures.”
For the year ended
For the three months
December 31,
ended March 31,
2012
2013
2014
2014
2015
(unaudited)
(thousands of €)
Cash flow from/(used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . .
(13,208)
(3,898)
82,790
(8,017)
7,763
(13,391)
12,730
(3,502)
4,495
(2,976)
Cash flow from/(used in) financing
activities including interest net financial
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,106)
74,773
(5,628)
9,228
1,519
39
Cogemat Group other financial and operating information:
As of and for the year ended
December 31,
(thousands of €, unless
otherwise noted)
Cash and cash equivalents(1) . . .
Cogemat EBITDA(2) . . . . . . . . . . .
Cogemat EBITDA margin(3) . . . .
Cogemat Adjusted EBITDA(2) . . .
Cogemat Adjusted EBITDA
margin(3) . . . . . . . . . . . . . . . . . .
Cash conversion(4) . . . . . . . . . . . .
Net financial indebtedness(5) . . .
Net financial expense(6) . . . . . . .
Capital expenditures(7) . . . . . . . .
Ratio of net financial
indebtedness(5) to Cogemat
Adjusted EBITDA(2) . . . . . . . . .
2012
2013
11,148
35,210
7.9%
37,861
4,978
34,820
8.3%
36,954
27,641
39,921
9.1%
42,196
8.5%
62.2%
34,764
(3,898)
9,845
8.8%
47.4%
103,388
(8,017)
5,383
9.7%
81.6%
84,240
(13,391)
2,289
0.9x
2.8x
As of and for
the
As of and for the
12 months
three months ended
ended
March 31,
March 31,
2014
2014
(unaudited)
2.0x
2015
2015
10,440
9,762
8.9%
9,804
26,124
9,191
8.3%
9,810
26,124
39,350
9.0%
42,202
8.9%
(46.0)%
110,690
(3,502)
566
8.8%
(19.2)%
88,727
(2,976)
1,183
9.6%
84.5%
88,727
(12,865)
2,906
–
–
2.1x
(1) Cash and cash equivalents does not include restricted cash. Restricted cash refers to accounts or deposits that have been
pledged to secure guarantee facility agreements of the Cogemat Group, which totaled €14.5 million, €11.6 million and
€11.6 million for the years ended December 31, 2012, 2013 and 2014, respectively, and €10.1 million as of March 31, 2015. See
“Description of Certain Financing and Guarantee Arrangements—The Cogemat Group—Bank guarantees in favor of ADM
and UNIRE on behalf of Cogetech.” Approximately €10.0 million of Cogemat Group restricted cash relating to the cash
collateral posted under Cogetech’s 2011 Guarantee Facility Agreement and 2013 Guarantee Facility will be released and
become freely available to the Group in connection with amending the 2011 Guarantee Facility Agreement and the 2013
Guarantee Facility Agreement. See “—Summary pro forma combined financial information” footnote 5 and “Description of
Certain Financing and Guarantee Arrangements—The Cogemat Group—Bank Guarantees in favor of ADM and UNIRE on
behalf of Cogetech.” Cash and cash equivalents excludes deposits made to ADM, equal to €26.4 million as of March 31, 2015,
which are periodically returned to the Cogemat Group by ADM provided they honor the commitments of their gaming
machine concessions. The amount the Cogemat Group’s deposit with ADM for 2015 was reduced by €6.6 million in May 2015
to satisfy the first installment of their portion of the Stability Fee. See “Cogemat Group Business—Legal Proceedings—
Pending litigation regarding the Italian Stability Law of 2015—Administrative proceeding against the Italian Stability Law of
2015.”
40
(2) “Cogemat EBITDA” is defined as net income before income taxes, net financial expenses, other provisions, depreciation,
amortization and write-downs, non-recurring operating costs and revenues, non-cash income from joint ventures and
adjustments in respect of the acquisition of Azzurro. “Cogemat Adjusted EBITDA” is defined as Cogemat EBITDA less
recurring allowance for doubtful accounts. EBITDA and Adjusted EBITDA are non-IFRS measures of performance and you
should not consider EBITDA or Adjusted EBITDA as alternatives to operating income or consolidated profits as a measure of
the Cogemat Group’s operating performance, cash flows from operating, investing and financing activities, as a measure of
our ability to meet their cash needs or any other measures of performance under generally accepted accounting principles.
We believe that EBITDA and Adjusted EBITDA are useful indicators of the Cogemat Group’s performance and can assist
securities analysts, investors and other parties to evaluate their business. EBITDA and Adjusted EBITDA may be used by
different companies for different purposes and are often calculated in ways that reflect the circumstances of those
companies. EBITDA and Adjusted EBITDA may not be indicative of the Cogemat Group’s historical operating results, nor is it
meant to be predictive of potential future results. See “Presentation of Financial Information—Non-IFRS financial measures.”
The following is a calculation of Cogemat EBITDA and displays the adjustments to reconcile Cogemat Adjusted EBITDA to
Cogemat EBITDA.
(thousands of €)
For the
12 months
For the year ended
For the three months
ended
December 31,
ended March 31,
March 31,
2012
2013
2014
2014
2015
2015
(unaudited)
Net income / (loss) for the period . . . 12,841 (57,739) 4,247
Income tax benefit/(expense) . . . . . . (4,665) 20,937
(646)
Net financial expenses . . . . . . . . . . . . (3,898) (8,017) (13,391)
Other provisions . . . . . . . . . . . . . . . . .
(580) (1,027)
(440)
Depreciation, amortization and
write-downs . . . . . . . . . . . . . . . . . . . (15,646) (21,473) (17,182)
Cogemat operating income / (loss)
before depreciation,
amortization, write-downs and
other provisions . . . . . . . . . . . . . . . 37,630 (48,159) 35,906
Non-recurring operating costs /
(revenues) . . . . . . . . . . . . . . . . . . . . . (2,191) (84,613) (4,968)
Non-cash income from joint
ventures(a) . . . . . . . . . . . . . . . . . . . . . 4,611 2,848
953
Azzurro acquisition . . . . . . . . . . . . . .
– (1,214)
–
664
(1,431)
(3,502)
–
949
(1,017)
(2,976)
(85)
4,532
(232)
(12,865)
(525)
(4,274)
(3,847)
(16,755)
9,871
8,874
34,909
(129)
(503)
238
–
186
–
901
–
9,762
9,191
39,350
2,275
42
619
2,852
Cogemat Adjusted EBITDA . . . . . . . . 37,861 36,954 42,196
9,804
9,810
42,202
Cogemat EBITDA . . . . . . . . . . . . . . . . . 35,210 34,820 39,921
Allowance for doubtful
accounts(b) . . . . . . . . . . . . . . . . . . . .
2,651
2,134
(5,342)
(a) Historically the Cogemat Group partially financed VLT operations through advance payments from its joint ventures,
Azzurro and Jackpot S.p.A., and to a much smaller extent, from VLT operators, in exchange for the right for the joint
venture or operator to operate the related VLTs. There is no cash due to the joint venture or operator for these advances.
However, based on the Cogemat Group’s accounting principles, such advances are recorded as financial liabilities that
reduce over time as the Cogemat Group approaches the maturity of the related agreement, and the Cogemat Group
records non-cash income reflecting the equivalent of a fee due to it from the joint venture or operator for their right to
operate the VLTs.
(b) Includes recurring provisions for allowance of doubtful accounts related to impairment of trade receivables where
recoverability is considered to be doubtful, net of the portion considered non-recurring as described in note (a) above.
(3) “Cogemat EBITDA margin” is defined as Cogemat EBITDA divided by total revenues and “Cogemat Adjusted EBITDA margin”
is defined as Cogemat Adjusted EBITDA divided by total revenues. See “Presentation of Financial Information—Non-IFRS
financial measures.”
(4) “Cash conversion” is defined as Cogemat Adjusted EBITDA minus capital expenditures minus change in net working capital
divided by Cogemat Adjusted EBITDA. Cash conversion is not a recognized measure of financial performance or liquidity
under IFRS and therefore no undue reliance should be placed on such data contained in this Offering Memorandum. See
“Presentation of Financial Information—Non-IFRS financial measures.”
(5) “Net financial indebtedness” is defined as the sum of current bank payables, current portion of non-current debt, other
current financial payables and non-current bank payables (including the fair value of hedging derivatives, non-current
payables to other lenders and current financial receivables) less cash and cash equivalents. Net financial indebtedness is
intended to indicate the amount of the Cogemat Group’s indebtedness if all liabilities were to be repaid using liquid funds
and in accordance with the CONSOB Communication No. DEM/6064293 of July 28, 2006. See “Presentation of Financial
Information—Non-IFRS financial measures.”
41
(6) “Net financial expense” is defined as the financial expenses for the period net of financial income.
(7) The Cogemat Group’s capital expenditures consist primarily of investments in property, plant and equipment, concession
rights and intangible assets aimed to expand their shop network and/or improve their existing betting shops.
Cogemat Group other financial and operational information:
(millions, unless otherwise noted)
Total turnover (euro) . . . . . . . . . .
Gaming machine turnover
(euro) . . . . . . . . . . . . . . . . . . . . . .
Number of AWPs . . . . . . . . . . . . . .
Number of VLTs . . . . . . . . . . . . . . .
Number of POS . . . . . . . . . . . . . . .
For the year ended
December 31,
2012
2013
For the
12 months
For the three months
ended
ended March 31,
March 31,
2014
2014
2015
2015
(unaudited)
4,225
4,279
4,401
1,103
1,143
4,441
3,860
39,334
4,413
148
4,082
38,449
4,715
171
4,216
33,775
4,958
186
1,056
37,108
4,845
178
1,095
34,747
5,003
186
4,255
34,747
5,003
186
42
Risk Factors
An investment in the Notes is subject to a number of risks. Prospective investors should consider
carefully the risks described below and the other information contained in this Offering
Memorandum prior to making any investment decision with respect to the Notes. Each of the
risks discussed below could have a material adverse effect on our business, financial condition,
results of operations or prospects which, in turn, could have a material adverse effect on the
payment of the interest and repayment of the principal amount in respect of the Notes. In
addition, each of the risks discussed below could adversely affect the trading or the trading price
of the Notes or the rights of investors under the Notes and, as a result, investors could lose some
or all of their investment.
Prospective investors should note that the risks described below may not be the only risks we
face. We have described only those risks that we currently consider to be material and there may
be additional risks and uncertainties not presently known to us, or that we currently consider
immaterial, that might also have a material adverse effect on our business, financial condition or
results of operations.
Unless the context indicates otherwise, references to “we,” “us,” “our” and the “Group” for the
purposes of “Risk Factors—Risks related to our business” refer to the business of Snai. The
Cogemat Group is subject to many of the same risks faced by Snai and that are described in this
Offering Memorandum, and those same risks may have a material adverse effect on the business,
financial condition and results of operations of the Cogemat Group.
This Offering Memorandum also contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated in these forward
looking statements as a result of various factors, including the risks described below and
elsewhere in this Offering Memorandum.
Risks related to our business
The industries in which we operate are highly regulated, and if we fail to comply with
applicable laws and regulations, or if we become subject to new, more stringent laws and
regulations, it could adversely affect our financial results.
The betting and gaming industry in Italy is heavily regulated by ADM, the Italian betting and
gaming authority, which determines (i) which games may be operated and, for certain activities,
what amounts may be charged by operators, (ii) what level of winnings may be awarded, (iii) for
certain activities, what level of compensation may be paid to concessionaires, including ourselves,
(iv) the number of the points of sale and whether a given concession is exclusive or available to
multiple concessionaires and (v) minimum levels of service. Concessionaires in the betting and
gaming industry must also obtain a police license and, if required by specific law provisions and
ADM regulations, additional permits (such as authorizations and nihil obstat). The applicable
regulations also require, inter alia, that our directors, officers and employees and our
shareholders and beneficial owners owning directly and indirectly more than two percent of the
concessionaire (including their respective directors, officers and employees) satisfy certain good
standing requirements (including anti-mafia requirements).
We currently hold betting and gaming concessions from ADM. Renewing existing, and applying
for new, concessions, rights, permits, and approvals can be costly and time consuming, and there
is no assurance of success. Any failure to renew or obtain any such concession, right, permit or
approval could have a material adverse effect on our business, results of operations and financial
condition. We could also from time to time experience delays in the application for new
concessions or licenses, or delays in obtaining regulatory approval or legislative changes that may
be required in order to modify certain attributes of a current product offered under an existing
concession, such as the delay by ADM in approving new games for VLTs, and such delays could
preclude us from taking advantage of attractive market opportunities or require us to
temporarily cease operations. If we fail to maintain a constructive relationship with ADM, or if
43
our relationship were to be adversely affected for any reason, including any action or omission
on our part or negative publicity concerning us or the betting and gaming industry in general,
our business, results of operations, and financial condition could be materially adversely affected.
For a description of the regulatory framework applicable to our business, see “Regulation.”
Compliance with this extensive regulatory framework requires significant investments in
infrastructure and personnel. In addition, failure to comply with applicable laws, regulations and
rules could result in investigations and enforcement actions, concessions or licenses that we need
to do business not being renewed or being revoked, criminal sanctions, administrative fines or
the separation, suspension or termination of our operations. For example, in 2007 the Italian
Public Prosecutor initiated the Court of Audit Litigation in which we, along with nine other
gaming machine concessionaires, including the Cogemat Group, were charged with failing to
comply with certain obligations under our gaming machine concessions. The initial ruling in the
Court of Audit Litigation required us to pay damages of €210.0 million and the Cogemat Group
to pay €255.0 million. After a series of appeals, we and the Cogemat Group settled our respective
portions of the Court of Audit Litigation for a total of €63.0 million and €76.5 million,
respectively. We cannot guarantee that we and the Cogemat Group will not be subject to similar
lengthy and costly legal proceedings in the future.
The legal and regulatory requirements to which we are already subject may change, and we may
become subject to new legislation or regulatory requirements that could have a material effect
on our business, results of operations and financial condition. For example, the Italian Stability
Law of 2015 requires Italian VLT and AWP operators to pay a ratable portion of an annual
€500.0 million fee levied by the Italian government, based on the number of VLTs and AWPs they
operate. For 2015, our and the Cogemat Group’s ratable portions amounted to €37.8 million
€47.0 million, respectively. Both we and the Cogemat Group paid the first installment of this
payment on April 30, 2015, in amounts of €11.1 million and €12.2 million. See “Summary—Recent
developments—Stability Fee payments.” In addition, pursuant to Italian Law 23/2014, the Italian
government has been given a mandate to comprehensively reform the regulations governing the
Italian gaming industry. Various media reports and interviews with government officials suggest
that, although the Italian government did not act under the mandate of Italian Law 23/2014,
they may enact another law, provision or other regulation that would nevertheless implement
reforms that could, inter alia, change the methods of taxing concessionaires, increase restrictions
on the locations and overall number of AWPs and increase restrictions on advertising by gaming
companies. These reforms could increase our tax burden or reduce the number of AWPs we are
able to install. See “Summary—Recent developments—Potential change in Italian gaming
industry regulation.” We cannot guarantee that we will be able to adequately respond to
changes in the legal requirements governing our business.
Local Italian laws and regulations could also have a negative impact on our results of operations.
For example, certain regions and municipalities have recently enacted regulations (i) setting forth
restrictions on the installation of gaming machines with respect to, inter alia, distance from
schools and religious buildings, (ii) providing financial incentives to shops that decide not to
install gaming machines, (iii) tightening restrictions on advertising activities and (iv) placing
restrictions on the opening hours of betting shops. We can provide no assurances that such
provisions or similar ones will not have a material adverse effect on our business. Within the EU,
there have been from time to time initiatives to consider harmonizing regulation of online
betting and gaming among member states. Moreover, there may in the future be new laws
related to gaming, anti-money laundering, taxation requirements, employment and data privacy
and protection, among others. For example, changes in law or regulation that have the effect of
reducing the consideration paid to concession holders or increasing the number of licenses,
authorizations or concessions awarded by ADM to competitors, among other changes, could have
a material adverse effect on our business, results of operations and financial condition.
44
Liberalization or other changes in the regulatory framework may increase the number of
competitors in the betting and gaming sector, including competitors who are not required to
comply with all the requirements of the Italian regulatory framework.
Since 2001, Italian betting and gaming legislation has been challenged from time to time before
the European Court of Justice. According to the European Court of Justice, national laws
prohibiting collecting, taking, booking and forwarding offers of bets without a concession are
permissible under Articles 43 EC (freedom of establishment) and 49 EC (freedom to provide
services) only in certain cases where a national court determines that such laws genuinely
contribute to the objective of preventing criminal or fraudulent activities. Accordingly, Italian
courts, including higher level courts, have ruled that in certain cases EU betting and gaming
operators authorized to operate in their home member state may begin operating in Italy
without a concession, though a police license is still required. For example, Italian courts have
permitted such EU betting and gaming operators to commence operations in Italy without a
concession where it is determined that the operator was unable to participate in the public
tender for the concession due to restrictions put in place at the time of such tender that are
found to be discriminatory against foreign operators. As a result, several EU operators are active
in the Italian betting and gaming market without an ADM concession. For so long as such
operators are permitted to act outside the Italian regulatory framework, they may be able to
obtain a competitive advantage against operators that hold an ADM concession, as such
operators will not be subject to the restrictions imposed by the concession.
ADM and the Italian legislature have taken certain steps in order to make Italian betting and
gaming legislation compliant with the EC Treaty and European Court of Justice statements. For
example, pursuant to Law No. 88/2009 (the “2008 Community Law”), ADM may grant betting
and gaming concessions to any betting and gaming operator filing an application with ADM and
meeting certain legal requirements and economic conditions, without having to go through a
public tender process. More recently, with the betting licenses tender procedure of July 2012,
ADM has amended the concession regime with the aim to further liberalize the betting and
gaming sector.
In September 2013, ADM granted additional VLT concession rights to three new operators. Each
such new concessionaire received concession rights up to 14% of the number of AWPs managed
by such operators as of September 2013. The other current VLT concessionaires (such as Snai) may
also acquire additional VLT concession rights only if they have in operation more AWPs than
when they first acquired VLT concession rights in 2009. We did not acquire any new VLT rights in
the September 2013 concession awards. In addition, ADM recently awarded concessions for 2,000
new POS for sports and horse betting, of which we were awarded a total of 278 concession
rights, consisting of 228 sports and horse race POS already in operation that were renewed
following the expiration of the previous concession on March 31, 2013 and an additional
50 rights to open new POS. Other operators also acquired additional sports and horse race
betting POS concessions. The grant of new concessions and/or concession rights could provide our
competitors with a more advantageous position and/or otherwise increase competitive pressures
in our market.
Any change in the applicable regulatory regime that has the effect of further opening the Italian
betting and gaming market and increasing the number of competitors could have a material
adverse effect on our business, financial condition and results of operations. Furthermore, should
the courts determine that the recent efforts of ADM and the Italian legislature to modify the
Italian regulatory framework to comply with the European Court of Justice rulings are
insufficient, operators that do not hold an ADM concession may be able to continue to operate
outside the Italian regulatory framework and even increase their activities, which could have a
material adverse effect on our business, financial condition and results of operations.
45
A significant portion of our and the Cogemat Group’s revenues are derived from time-limited
concessions required to operate our businesses, some of which will expire in 2016 and which in
certain cases, are subject to early termination.
Under applicable Italian law, a concession is required in order to offer gaming products, and
these concessions are of limited duration. Both we and the Cogemat Group currently hold a
number of key gaming concessions from ADM, the Italian gaming authority. Our and the
Cogemat Group’s sports and horse race betting concessions expire in June 2016. These
concessions accounted for 36.9% of our total revenues and 4.8% of the Cogemat Group’s total
revenues for the year ended December 31, 2014. Our and the Cogemat Group’s concessions for
the operation of a network of gaming machines (AWPs and VLTs), which represented 52.8% and
93.5% of our and the Cogemat Group’s total revenues for the year ended December 31, 2014,
respectively, expire in March 2022. Our and the Cogemat Group’s concessions for online skill
games, which represented 4.7% and 0.2% of our and the Cogemat Group’s total revenues for the
year ended December 31, 2014, respectively, expire in September 2020 and June 2016,
respectively. See “Snai’s Business” and “Cogemat Group Business” for further information.
Upon the expiration of these concessions, new concessions may be awarded to one or more
parties through a competitive bidding process. Renewing concessions can be costly and time
consuming, and we cannot guarantee that we will be successful. In the past, both we and the
Cogemat Group have historically renewed our concessions through a combination of cash on
hand and available credit, and we expect to fund the 2016 renewals in the same way. However,
while we have both historically been able to renew our concessions, our concessions may not be
renewed upon expiration on favorable terms or at all. Any failure to renew or obtain any such
concession could have a material adverse effect on our combined business or results of
operations and financial condition.
The concessions are also subject to revocation upon the occurrence of certain events, which are
different for each concession. Under certain circumstances, a concession could be revoked upon a
change of control or if they are determined to be against the public interest. Concessions may
also be revoked by ADM upon occurrence of certain events, which relate to failures by the
concessionaire to comply with certain obligations (the sport and horse race betting concession
agreement, for example, permits the revocation of the concession if a concession holder fails to
meet certain legal requirements set for sports and horse race betting concessionaires or if a
concession holder fails to deploy such concessions at new POS or pay the applicable fees to the
regulatory authority or, in certain cases, if the concession holder fails to communicate to the
regulatory authority certain changes in its corporate structure). In addition, failure by our or the
Cogemat Group’s directors, officers and employees and our and the Cogemat Group’s
shareholders and beneficial owners owning directly and indirectly more than two percent of our
shareholding (including their respective directors, officers and employees) to meet certain good
standing requirements (including anti-mafia requirements) could result in concessions or licenses
being revoked or not being renewed, or could prevent us from being able to bid for new
concessions or licenses and could have a negative effect on our reputation and a material adverse
effect on our business, results of operations and financial condition. For example, in 2011 certain
of our horse race betting concession rights were revoked when we decided not to deploy such
rights to open new horse race betting corners, requiring us to record a write-down of
€8.7 million on our income statement for the year ended December 31, 2011. See “Snai’s
Business—Legal proceedings—ADM proceedings—Administrative proceeding for the revocation
of certain sports and horse race betting rights awarded under the Bersani Invitation to Tender.”
Concession rights that are awarded but, for whatever reason, not deployed within the specified
period, are generally revoked by ADM, which therefore could impair our and the Cogemat
Group’s ability to realize gains from our respective upfront payments or investments. All our and
the Cogemat Group’s concessions provide that in case of early termination of the concessions due
to whatever reason, no indemnification is due to the concessionaire (except for the concession
relating to gaming machines, that allows indemnification within the limits set forth by Article 21quinquies of Law No. 241/1990 in case of revocation for unexpected reasons of public interests or
in the event of change of the factual situation or new assessment of the public interest
46
underlying the concession). Furthermore, not only would no indemnification be owed to either
us or the Cogemat Group, but we would also not be entitled to compensation for our initial
investments or losses of anticipated profits if termination were the result of a breach of terms.
Moreover, depending on the nature of the breach, ADM may redeem guarantees granted by us
and the Cogemat Group to secure our respective obligations under the concession agreement.
See “—We and the Cogemat Group are subject to substantial penalties for failure to perform
under our concessions and convenience payment agreements.” Any lack of renewal, revocation,
suspension or withdrawal of one or more of our or the Cogemat Group’s concessions, or a failure
to renew our concessions on commercially favorable terms, could have a material adverse effect
on our combined business, results of operations, and financial condition.
In addition, certain of the concessions set forth specific financial covenants and capital
requirements that must be complied with in order to obtain and maintain such concessions. For a
further description of the regulatory framework applicable to the gaming business, see
“Regulation—Gaming machines.”
Even after a concession is awarded, competitors may seek to challenge the validity of the
concession by raising claims regarding the eligibility of the concession holder to participate in the
relevant public tender or the procedural grounds by which ADM adjudicated such public tender.
In this case, we and the Cogemat Group may be required to spend additional capital and
management time defending such concessions even if the challenges are without merit.
Challenges to tender procedures or the award to us or the Cogemat Group of any concession or
other approval could result in the denial, termination or revocation of such concession or
approval, which could have a material adverse effect on our combined business, results of
operations and financial condition.
Acquiring or renewing a concession typically requires a significant upfront cash payment, and in
the future, we may not have sufficient cash on hand or adequate access to additional capital to
fund such payments.
In recent years, certain concessions in Italy have required a significant upfront payment. For
example, in 2009, the upfront fee for VLT concessions was €15,000 for each VLT, resulting in
upfront payments by us and the Cogemat Group of €75.8 million (5,052 machines) and €77.4
million (5,226 machines), respectively. The cost of renewing existing concessions or obtaining
new concessions may increase. Our ability to maintain existing concessions upon their renewal
and invest in new concession opportunities depends on our ability to have available cash on
statement of financial position or have access to new sources of capital to fund these
investments. Our and the Cogemat Group’s sports and horse race betting concessions expire in
June 2016. This multi-concession contains licenses pursuant to which we operate our betting
shops and betting corners and the renewal of such concessions will likely require significant cash
payments. We may not have available cash and may not be able to access sources of capital on
favorable or reasonable terms. Such occurrence could have a material adverse effect on our
results of operations, business and financial condition.
We may experience significant losses with respect to individual events or betting outcomes.
Our fixed-odds betting products involve betting where winnings are paid on the basis of the
stake placed and the odds quoted, rather than derived from a pool of stake money received from
all customers. Our fixed-odds betting products give rise to either a liability to make a certain
payment to a customer, or the retention by us of the stake placed by such customer. For the year
ended December 31, 2014, our fixed-odds products (offline and online) generated revenues of
€130.4 million, 66.8% of sports and horse race betting and virtual events revenues for such year
and 26.2% of total Concessions revenues for such year. For the same period, the Cogemat
Group’s fixed-odds products (offline and online) generated revenues of €13.6 million. However,
as a result of significant winnings or losses event by event and day by day, earnings in the betting
business can be volatile and we cannot guarantee positive returns. For example, 2012 was a year
47
that was particularly unfavorable to bookmakers, with fixed-odds betting products reaching an
average payout ratio of 82.7% for us and 80.8% for the Cogemat Group, the highest payout rate
in the last decade (as compared to, for example, 78.9% and 79.1% payout ratios in each of 2013
and 2014, respectively, for us, and 77.6% and 76.3% for the Cogetech Group for the same
periods). During the first three months of 2015, the average payout ratio returned to the
historically high levels we experienced in 2012 (82.4%, for us and 80.3%). A higher average
payout ratio creates a decline in fixed-odds betting revenues. In exceptional circumstances, the
payout ratio could even exceed 100%, as occurred in September 2012 (when our payout ratio
was 100.2% the Cogemat Group’s was 102.4% and that of the market as a whole was 102.9%),
resulting in significant cash outflows from the Group, particularly since such payout would be in
addition to taxes and IT and distribution network fees paid. As a result, in the short term, there is
less certainty of generating a positive result, and we may experience, and have from time to time
experienced, significant losses with respect to individual events or betting outcomes. Any
significant losses due to a high payout could have a material adverse effect on our cash flow and
therefore a material adverse effect on our business, results of operations, and financial condition.
In order to reduce the volatility of overall payouts in our betting business, we are currently
evaluating contractual arrangements and commission levels with our POS to increase
commissions for multiple bets which in the past have tended to generate lower payouts, thus
incentivizing our points of sale to offer and sell multiple bets to consumers. However, there can
be no assurance that customers’ propensity to place multiple bets will increase or that, regardless
of such increase, if any, the new compensation model will not result in an increase of payments
due by us, which could have a material adverse effect on our cash flow and therefore a material
adverse effect on our business, results of operations, and financial condition.
The failure to determine accurately the odds at which we will accept bets in relation to any
particular event or any failure of our risk management processes may adversely affect our
results.
Our odds as bookmaker are determined so as to provide an average return to us over a large
number of events and therefore, over the long term, to maintain payout percentage fairly
constant. Notwithstanding this, there is an inherently high level of variation in payout
percentage event by event and day by day. Although we have systems and controls in place that
seek to reduce the risk of daily losses occurring due to high payout, there can be no assurance
that these will be effective in reducing our exposure to this risk. We employ a team of
bookmakers who determine the odds at which we will accept bets in relation to any particular
event. There can be no assurance that errors of judgment or other mistakes will not be made in
relation to the compilation of odds or that the systems we have in place to limit risk will be
consistently successful. For example, due to an error that occurred on October 2, 2012, sporting
events and the relevant fixed-odds were offered, but with erroneous rates (only for a few
minutes) that involved the type of bet known as Under Over 2.5 and Under Over Second Half 0.5.
A few players took advantage of the error and placed a series of simple and systematic bets using
both the online channel and the offline channel. A few players have initiated legal proceedings
seeking payment of the winnings attained, equal to approximately €1.7 million. See “Snai’s
Business—Legal proceedings—Odds on October 2, 2012.”
Any significant misjudgments or mistakes made by us in relation to odds compilation or the
failure of our risk management systems could result in us incurring significant losses on a gross
win basis which could have a material adverse effect on our business, results of operations and
financial condition. See “Snai’s Business—Risk management.”
We may be subject to an unfavorable outcome with respect to pending litigation, which could
result in substantial monetary damages or losses or otherwise have a material adverse effect on
us.
We operate in a market with a high level of litigation and regulatory and judicial scrutiny. As of
the date of this Offering Memorandum, we and the Cogemat Group are party to several
48
administrative and civil proceedings, including proceedings against us brought by ADM and are
currently, and from time to time, subject to investigation by tax, regulatory or judicial
authorities. A negative outcome in one or more of these proceedings or investigations could
require us to pay substantial monetary damages or penalties or could have a significant impact
on our ability to operate our business or negatively impact our reputation. In addition,
proceedings against regulatory authorities challenging tender procedures or the award of any
contract, license, concession, permit or approval to us could result in the denial, termination or
revocation of such contract, license, concession, permit or approval, which could have a material
adverse effect on our business, results of operations, and financial condition or prospects.
We believe our most significant litigation relates to the malfunctioning of our Barcrest video
lottery platform on April 16, 2012. On such date, VLTs equipped with Barcrest software
experienced an anomalous peak of “jackpot” alleged winnings; approximately 242 jackpot
alleged winnings were displayed by the machines, in an aggregate total of approximately
€410 million, though we cannot exclude that there may have been more false jackpots displayed.
Based on our current knowledge of the malfunction, among the 242 alleged winnings displayed
by the machines, 183 were printed by players. We immediately deactivated all the Barcrest VLTs
in order to carry out the necessary verifications. On September 28, 2012, ADM revoked the
conformity certificate of the Barcrest gaming system and the affected terminals were removed,
causing us to lose the revenues that these machines would have generated if operative. We
subsequently entered into a supply agreement with a new supplier, the Novomatic Group. The
roll-out of the replacement VLTs began in mid-January 2013. As a result of this malfunctioning,
the number of devices on the market decreased and we suffered a significant contraction in
revenues. ADM also issued a ruling for sanctions against us in the amount equal to €1.5 million
for alleged mismanagement of the interconnecting telematics network, that we paid on July 31,
2013. In addition, certain holders of the allegedly winning tickets issued on April 16, 2012
initiated proceedings in order to obtain payment of the amounts indicated on the tickets issued
by the Barcrest terminals during such malfunctioning and/or compensation for damages suffered.
As of the date of this Offering Memorandum, there are 85 such proceedings in progress
requesting an aggregate total amount of approximately €215 million (pursuant to certain of such
proceedings, the relevant claimants obtained writs of attachments over current accounts held by
us). See “Snai’s Business—Legal proceedings” for further information on this litigation and other
pending matters. In addition to the specific cases mentioned above, horse racing is inherently
dangerous and injuries to participants and/or spectators are possible. Therefore, in connection
with our racecourse management activities, we may be subject to claims or liabilities which could
adversely affect our financial condition or reputation.
As of March 31, 2015, our provision for risks and charges, including provisions for litigation and
contingent liabilities amounted to €10.3 million. For further information regarding these legal
proceedings, see “Snai’s Business—Legal proceedings.”
The Cogemat Group is also exposed to significant litigation and is, currently, and from time to
time, subject to tax, regulatory, and judicial investigation. We believe the Cogemat Group’s most
significant litigation relates to an action brought against Cogetech Gaming by Prestige Potenza
S.r.l.s. on April 28, 2014. Prestige Potenza S.r.l.s. requested the termination of an asset transfer
agreement entered into with Cogetech Gaming in relation to a gaming center as a result of a
breach by Cogetech Gaming and the payment of damages arising from such breach for
approximately €18.6 million.
As of March 31, 2015, the Cogemat Group’s provision for risks and charges, including provisions
for litigation and contingent liabilities amounted to €2.0 million. For further information
regarding these legal proceedings, see “Cogemat Group Business—Legal proceedings.”
If the abovementioned or other legal proceedings were to be resolved unfavorably for us or for
the Cogetech Group, there may be material adverse effects on our or the Cogetech Group’s
business, results of operations and financial condition.
49
Although we and the Cogetech Group have made accounting provisions with respect to pending
proceedings, the provisions set aside may not be sufficient to cover losses arising from outcomes
in the existing proceedings that are not in favor of us or of the Cogetech Group. If future losses
arising from the pending proceedings are materially in excess of the provisions made, there may
be a material adverse effect on our and the Cogetech Group’s business, results of operations and
financial condition.
We are exposed to credit risk and may incur losses as a result of such exposure.
We rely on our partners and retailers to operate the majority of the POS in our distribution
network. See “—We depend on partners and retailers, as well as a number of third party
suppliers, for the operation of our business, and problems with such partners, retailers or
suppliers could adversely affect us.” These partners and retailers are responsible for, among other
things, collecting the cash at their respective point of sale and transferring to us such amounts,
net of their commission, on a weekly or semi-weekly basis. The obligations of partners and
retailers to pay us are not secured by collateral and therefore we bear the risk that our partners
and retailers will be unable to pay amounts due to us. Moreover, in the event that we do not
receive payment, we remain liable to the Republic of Italy for the payment of related betting and
gaming taxes. Though we monitor the credit of our partners and retailers, such partners and
retailers typically experience fluctuations in demand based on economic conditions, consumer
demand and other factors beyond our control, which in turn impacts their creditworthiness.
To protect us against the related financial liability we regularly record allowance for doubtful
accounts. For the year ended December 31, 2014, we recorded a combined allowance for doubtful
accounts in the amount of €15.7 million and had total provisions for allowance for doubtful
accounts as of December 31, 2014 of €53.6 million, representing 11.1% of our total revenues for
the year ended December 31, 2014. As of and for the same period, the Cogemat Group recorded a
combined allowance for doubtful accounts in the amount of €3.4 million and had total provisions
for allowance for doubtful accounts of €17.5 million, representing 4.0% of Cogemat Group total
revenues. The deteriorating macroeconomic conditions in Italy and the surging popularity of online
games have increased pressure on our partners and retailers. If some of our partners and retailers
are unable to pay amounts due to us on a timely basis, we could be required to record additional
allowances for doubtful accounts and/or suffer potential losses and disruptions to our network of
POS or we could be obliged to record additional bad debt write-downs, which could have a
material adverse effect on our business, results of operations and financial condition.
In addition, our business is cash intensive, with a significant portion of our revenues and
contribution margin generated through cash transactions. We invest the cash we generate with a
number of banks through commercial bank deposits and other short-term investments, and as
such we are dependent on the creditworthiness of such financial institutions. Any insolvency or
failure of one or more of the financial institutions with which we do business could result in any
deposits we have with such financial institutions being unavailable for an extended period of
time or lost altogether.
Our business may be affected by economic weakness and political uncertainty, particularly in
Italy.
Global economic activity underwent a sharp downturn in 2007 and recent recovery has been
inconsistent and slower than anticipated. Global credit and capital markets have experienced
volatility and disruption and business credit and liquidity have tightened. Credit has also
contracted in a number of major markets, including Italy, and national unemployment rates have
increased significantly. Economists, observers and market participants have expressed concern
regarding the sustainability of the EU and its common currency, the euro, in their current form.
Global economic conditions and conditions specific to Italy may affect our sales and profitability.
In December 2014, Standard and Poor’s downgraded Italy’s sovereign debt rating to just above
sub-investment grade, reflecting their views on Italy’s lower-than-expected economic growth and
its vulnerability to external financing risks and the negative implications these could have for
50
future economic growth and public finances as well as fragile market confidence and
deterioration in Italy’s near-term economic outlook. A further downgrade of the Italian
sovereign could create additional economic uncertainty and could have an adverse effect on our
credit ratings. Economic and political developments in Italy have had a negative effect on the
country’s growth, and continued uncertainty could lead to further deterioration of investor and
market confidence. The political uncertainty could also lead to delays in legislative or regulatory
initiatives in the betting and gaming industry.
In connection with our racecourse management activities, we have contracts with certain Italian
public entities, which expose the Group to credit risks and delays in trade receivables. Until 2014, as
a result of unstable economic conditions, we experienced significant delays in receiving public
entity payments. Overall, however, payment delays remain significant. According to Intrum Justitia,
in 2014 the average expected time for the payment of invoices by the Italian public administration
was 165 days, compared to 170 days in 2013, regardless of contractually agreed terms for payment.
We cannot guarantee that we will not suffer payment delays on receivables due from public
entities in the future as a result of deteriorating economic conditions or otherwise.
Our business may be sensitive to reductions in discretionary consumer spending, which is affected
by negative economic conditions. For example, economic contraction, economic uncertainty and
the perception by our customers of weak or weakening economic conditions could cause a
decline in the demand for entertainment in the forms of the betting and gaming services that we
offer. In addition, changes in discretionary consumer spending could be driven by factors such as
an unstable job market, an increase in personal taxes or perceived or actual decline in disposable
consumer income and wealth. Weakening economic conditions and declining interest in horse
race betting also impact our points of sale, increasing risks relating to the creditworthiness of our
POS, increasing the risk of us having to record additional bad debt write-downs, and we have in
the past, and may in the future need to, reduce the POS fees paid to us by POS owners or
increase the commissions we pay to POS owners in order to maintain their retail affiliation in
difficult economic periods. We may also selectively consider acquiring controlling interests in
certain POS to ensure the continuity of their presence in key markets.
We only have operations in Italy and therefore we may be more affected by economic weakness
or uncertainty in Italy than some of our competitors with international operations. It is difficult
to determine the breadth and duration of the economic and financial market problems and their
potential effects on demand for our products and our suppliers. Continuation or further
worsening of these difficult financial and macroeconomic conditions could materially adversely
affect our business, results of operations and financial condition.
Our business requires routine maintenance and extraordinary capital expenditures which may
be costly or otherwise may divert resources from growing our business or debt servicing.
As of March 31, 2015, pro forma for the Cogemat Acquisition, we managed a network of
approximately 60,000 AWPs and 10,000 VLTs and as of such date our distribution network
included 717 sports and horse race betting shops, 917 sports betting corners and 670 horse race
betting corners. We are required to make capital expenditures, sometimes significant, when
beginning or renewing our concessions. For example, we expect that significant capital
expenditures will be necessary when renewing our sports and horse race betting concessions in
2016. Further, while we do not own—and do not intend to own in the future—the majority of
our AWP machines, we may consider the selective purchase of certain state-of-the-art machines
in order to enhance the customer experience in our betting shops. In addition, expansion of our
shop network and/or upgrades to our existing betting shops may also involve capital
expenditures. For the year ended December 31, 2014, our pro forma combined capital
expenditures for recurring fixed assets for our distribution network were €20.9 million. Though
we believe our business model has limited capital expenditure requirements, we can provide no
assurance that our capital expenditure will not increase, and such increases may divert cash flows
from other investments or uses, including debt servicing, which could have a material adverse
effect on our business, financial condition and results of operations.
51
We and the Cogemat Group are subject to substantial penalties for failure to perform under our
concessions and convenience payment agreements.
Our and the Cogemat Group’s concessions often require us to post substantial guarantees,
primarily to guarantee the payment of tax revenues to the Republic of Italy, and require us to
pay substantial monetary liquidated damages in the event we do not comply with our
obligations in respect of a concession. As of March 31, 2015, and pro forma for the Cogemat
Acquisition, we would have had outstanding off-balance sheet guarantees in the aggregate
amount of €264.5 million. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of Snai—Off-balance sheet arrangements” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations of the Cogemat Group—Financial
indebtedness—Off-balance sheet arrangements.” The terms of these guarantees generally allow
the guarantee provider, under certain circumstances, including but not limited to in connection
with the calling of the guarantee by the relevant beneficiary or the occurrence of a material
adverse change in respect of the beneficiary or at the discretion of the guarantee provider, to
require the beneficiary to secure through a pledge over certain securities or a cash deposit into a
pledge escrow account, any payment that is has to make to the beneficiary under the relevant
guarantee. While neither we nor the Cogemat Group have been subject to claims under
guarantees or otherwise had them called, these guarantees and potential penalties therefrom
present an ongoing potential for substantial cash out-flows. In the case of a material breach of
obligations under concessions, claims on guarantees and the payment of liquidated damages
could individually or in the aggregate have a material adverse effect on our business, results of
operations and financial condition. In addition, either we or the Cogemat Group may not be able
to renew our outstanding guarantees on commercially favorable terms, or at all. As a result, it
could be significantly more expensive to extend the maturity of existing guarantees in the future
and, if either we or the Cogemat Group are unable to obtain such bonds, it could be impossible
to renew our respective expiring concessions. See also “Description of Certain Financing and
Guarantee Arrangements—Snai—Bank guarantees in favor of ADM and UNIRE on behalf of Snai”
and “Description of Certain Financing and Guarantee Arrangements—The Cogemat
Group—Bank guarantees in favor of ADM and UNIRE on behalf of Cogetech.”
We could be obligated to transfer certain assets upon the termination of our gaming machine
concessions, which could have an adverse effect on our business.
Upon the termination or non-renewal of gaming machine concessions, the concession holder
could be required, at the request of ADM, to transfer to ADM, at our expense, ownership of
certain assets that are part of the central system used to operate the concession. For example,
with respect to our gaming machine concessions, we must return to ADM, at our expense, all
related software and data communication network technology. As of March 31, 2015, and pro
forma for the Transactions, the carrying amount of these assets, net of depreciation and
amortization, totaled approximately €18.3 million. While ADM did not exercise its right to
require us to transfer the assets when our prior gaming machine concessions expired and were
replaced with the existing concessions, ADM could in the future require such transfer, and we
would need to replace such assets, requiring additional capital expenditures which could be
significant.
The technological solutions we have in place to block access to our online services by players in
certain jurisdictions may prove inadequate, which may harm our business and expose us to
liability.
Historically, the regulation of the betting and gaming industry has been arranged at a national
level and, currently, there is no international betting and gaming regulatory regime. Although we
seek to comply with and monitor the relevant laws and regulations, we are exposed to the risk that
jurisdictions from which our advertisements may be accessed via the internet may have conflicting
laws and regulations (or interpretations of such laws and regulations) with regard to the legality or
appropriate regulatory compliance of our activities. Accordingly, we may be subject to the
52
application of existing or potential laws and regulations, and/or fees or levies in jurisdictions in
which our advertisements can be accessed via the internet. Any such laws, regulations, fees or levies
may have a material adverse effect on our business, financial condition and results of operations.
Our exposure to this risk will increase with the expected growth of our online operations.
Although the regulatory regime for offline betting and gaming operations is well established in
many countries, the betting and gaming laws in such countries may not necessarily have been
amended to take account of the internet and the ability to offer betting and gaming and services
online. As a result, there is uncertainty as to the legality of online betting and gaming in a number of
countries. In the United States, the offer of betting and gaming products and services online is illegal
in most states. We and the Cogemat Group have systems and controls in place seeking to ensure that
we offer betting and gaming products via the internet to Italian residents only and that we exclude
access to our system from certain jurisdictions (such as the United States). The systems and controls
include monitoring and analyzing information provided by potential customers’ registered addresses
methods and of customers’ payment, specific registration procedures (for example, access to our
online betting system is permitted only to customers who have completed a registration process and
can provide an Italian residence address and an Italian fiscal code) against a registry maintained by
SOGEI and ADM, as well as a geo-locator filtering technology that identifies the location of users
logging onto our website. In addition, we do not currently accept bets or wagers from customers that
we determine are located in the United States. Despite the adoption of these measures, our
procedures may not be effective. A court or other governmental authority in any jurisdiction could
take the position that our systems and controls are inadequate, either currently or as the result of
technological developments affecting the internet, or that our current or past business practices in
relation to such jurisdiction violated applicable law. If any such actions were brought against us or
our management, whether successful or not, we may incur considerable legal and other costs,
management’s time and resources may be diverted, and any resulting dispute may damage our
reputation and brand image and have a material adverse effect on our business, financial condition
and results of operations.
Our success is dependent on maintaining and enhancing our brand.
Our success is dependent in part on the strength of our brand. We believe that we have a
long-established, trusted, and widely recognized brand and reputation in Italy and that our
brand represents a competitive advantage in the development of our betting and gaming
activities and our convenience payment services. We also believe that, as the betting and gaming
industry becomes increasingly competitive, our success will be dependent on maintaining and
enhancing our brand strength. There is no assurance that this program, or any of our other
marketing initiatives, will be successful. If we are unable to maintain and enhance the strength
of our brand, then our ability to retain and expand our customer base may be impaired, and our
business, results of operations, and financial condition may be adversely affected. If we fail to
maintain and enhance our brand successfully, our business, results of operations, and financial
condition may be adversely affected.
Our business may be adversely affected by competition from other betting and gaming
operators, in particular from online offerings.
The Italian betting and gaming market is dynamic and competitive. We face competition from
domestic betting and gaming providers operating in the offline channel such as both independentlyowned and network-branded betting shops and corners (including vertically-integrated operators)
and from providers operating in the online channel offering such products and services via the
Internet or through mobile phone and/or tablet apps. Increasingly, we are encountering competition
from betting shops run by foreign providers (CTDs) certain of which, pursuant to the Italian Stability
Law of 2015, became officially-licensed gaming providers in Italy. One or more of the following
developments, or a combination thereof, could intensify competition:
• if new operators were to enter the market;
53
• if the Italian government were to continue to enact regulations that make it easier for foreign
providers to obtain CTDs or that permit CTDs to obtain licenses to operate in Italy;
• if existing operators were to improve and expand their product offerings, their distribution
network(s) or their distribution channel(s), including online and mobile phone platforms;
• the continuing rollout of VLTs by our competitors;
• if competitors were to adopt more increased advertising and welcome and loyalty bonuses; or
• if new or existing competitors are able to capitalize more swiftly or fully on changes in
consumer preferences, technology or regulations applicable to our business.
Intensified competition and aggressive commercial policies due to any of the above or due to
other factors could reduce turnover and revenues received from operating existing and/or future
concessions. In September 2012, ADM granted definitive licenses to three gaming machines
concessionaires that had been operating pursuant to temporary licenses contingent upon the
installation of a certain number of AWP machines; one such concessionaire had previously
participated in the SNAI Concessionaire Network. As a result of the loss of this participant, our
distribution network experienced a net loss of approximately 2,000 machines effective as of the
first quarter, 2013 which affected the revenues and contribution margin of our gaming machine
business line for the year ended December 31, 2013.
Betting and gaming products are also susceptible to consumer trends, and the improvement and
expansion of product offerings by our competitors may attract customers away from those
products we offer and reduce our market share. Moreover, new product offerings, such as virtual
horse races and other “virtual events,” could reduce the appeal and profitability of certain
existing platforms, including those of our sports and horse race betting business lines. In
addition, certain of our former key managers have entered into non-competition agreements
with us which, if breached, could compromise our competitive position and/or results of
operations. Increased competition from other bookmakers and other online operators, as well as
from suppliers of other betting and gaming products, in any segment of the betting and gaming
industry, including the online betting and gaming market, may have a material adverse effect on
our business, results of operations, and financial condition. See also “—Liberalization or other
changes in the regulatory framework may increase the number of competitors in the betting and
gaming sector, including competitors who are not required to comply with all the requirements
of the Italian regulatory framework.”
Changes in consumer preferences and behavior could harm our business.
Our betting and gaming business is dependent on the appeal of our betting and gaming
offerings to our customers. Our betting and gaming offerings compete with various other forms
of betting and gaming venues and opportunities, as well as other forms of entertainment such as
television, the Internet, social media and live events, and may lose popularity as new leisure
activities arise or as other leisure activities become more popular. The popularity and acceptance
of betting and gaming is also influenced by the prevailing social mores, and changes in social
mores could result in reduced acceptance of betting and gaming as a leisure activity. We believe
that the betting and gaming market in Italy is now mature and is likely to stabilize or may
slightly decline over the next few years; it is therefore critical that we are able to offer products
that continue to appeal to consumers. The declining interest in horse race betting and rapid
expansion of Internet betting and gaming may render our offline products less desirable or
oblige us to incur significant capital expenditures to meet customer demand. In addition, we
intend to launch and develop virtual horse races and other “virtual events” which may not be
successful when adopted and/or which could reduce the appeal and profitability of certain
existing platforms, including those of our sports and horse race betting and virtual events
business lines. Even if we are able to satisfy changing consumer preferences, we may experience
cannibalization in relation to some of our other product offerings; for example, the introduction
of betting and gaming products with a higher payout may attract customers that previously
54
played games with a lower payout and therefore generated more revenues and contribution
margin. Moreover, the convenience payment services we will offer upon the consummation of
the Cogemat Acquisition are dependent on the cultural appeal of making payments through
“local” channels such as bars and newsagents. If consumer preferences change and we fail to
anticipate or address such changes with new offerings, we could experience reduced demand.
For example, a shift in consumer preference towards online top-ups of mobile phone and prepaid
telephone cards could reduce demand for our convenience payment services offerings.
If consumer preferences change and we fail to anticipate or address such changes with new
offerings and/or our competitors are able to adapt faster than we are, we could experience
reduced turnover and revenues. To the extent that the popularity of our betting and gaming
products declines, the demand for our offerings will decline and our business, results of
operations and financial condition may be adversely affected.
We may incur liability and costs in connection with asbestos-containing materials present at
certain of our facilities.
Asbestos-containing materials (“ACM”) were formerly commonly used as building materials such
as insulation or tiling in industrial buildings. The use of ACM was standard practice throughout
the world until the late 1970s when it began to be phased out. Given the varying ages of our
facilities, we have identified ACM as being present at certain of our facilities which could subject
the Group to certain risks and costs. As a result, we could be subject to personal injury claims
relating to damages certain of our employees or third parties may allege to have suffered.
Should we face any such claims, we could incur significant costs defending against such claims
and could be required to pay potentially significant damage awards.
We may be unable to achieve our operating and strategic objectives.
Our business prospects and future success depend, in part, upon our ability to further develop
our online offer and technological operating platforms for mobile devices, increase our market
share in the betting and gaming sector and achieve the operating and economic objectives set
forth in the business plan approved by our directors and discussed in the explanatory notes to
our financial statements contained elsewhere in this Offering Memorandum and mentioned as
an emphasis of matter paragraph in our independent auditors’ opinion. Our business plan is
based on a series of projections and estimates relating to the occurrence of future events and
market conditions which may or may not take place. As of March 31, 2015, pro forma for the
Cogemat Acquisition, we hold concessions rights for approximately 10,000 VLTs, which have been
deployed in over 1,298 premises, and we have a network of approximately 60,000 AWPs,
deployed in 18,127 locations throughout Italy. Increasing our number of concessions, reallocating
our VLTs from low to high-performing POS, continuing to develop our online channel and
building on the initial success of our “virtual events” are key aspects of our strategy, and we are
devoting substantial resources to each endeavor. If we fail in implementing our strategies or we
underestimate the risks deriving therefrom, our business, financial condition and results of
operations could be adversely affected.
In addition, as discussed in the explanatory notes to our financial statements and mentioned as
an emphasis of matter paragraph in our auditors’ opinions contained elsewhere in this Offering
Memorandum, the financial condition and operating results of our Group are characterized by
negative results in previous years, partly due to outside factors, as well as significant
amortization and depreciation charges and financial expenses. Achievement of operating and
financial results substantially consistent with expected growth in revenue and margins is
necessary to preserve our net assets. Our results may differ, including significantly, from the
expected operating and economic-financial results set out in our business plan, which could have
a material adverse effect on our business, financial condition or results of operations.
55
Our business is subject to seasonality and may suffer from disruptions in sports and horse race
schedules.
The volumes of bets we collect over the course of the year are affected by the schedule of sports
events on which we accept bets. The professional football season in Italy usually runs from late
August to mid-May. As a result, we have historically recorded higher revenues in these months.
The volumes of bets we collect are also affected by the schedules of other significant sporting
events that occur at regular but infrequent intervals, such as the FIFA Football World Cup, UEFA
European Championship, and the Olympic Games. As a result of the seasonality for the sporting
season, our income from offline and online betting activities can vary significantly throughout
the year, and on a year-to-year basis.
Additionally, extraordinary events may affect our betting activities. For example, although the
horse race schedule in Italy runs for the full year, strikes in the horse race industry in Italy, such as
a strike by the owners of horse race tracks in January and February 2012 which reduced the
number of horse race events held in 2012 to 19,920 as compared to 21,266 in 2011, can have an
adverse impact on our revenues from horse race betting. Cancellation or curtailment of
significant sporting events, for example, due to adverse weather conditions, terrorist acts, other
acts of war or hostility, outbreak of infectious diseases or the failure of certain sporting teams to
qualify for sporting events, would adversely impact our business, results of operations, and
financial condition.
Because our results of operations are closely tied to our distribution network, the failure or loss
of one or more members of our distribution network operating a significant number of POS
could negatively impact our business, results of operations and financial condition.
Our results of operations are dependent in part on the size and breadth of our distribution
network which drives turnover to “Punto SNAI” betting shops and corners and generates the
majority of our revenues, and maintains brand awareness with consumers. We do not own a
majority of our gaming machines and many of our POS are operated by third parties who have
signed agreements to conduct betting and gaming activities using our concessions, some of
whom operate a significant number of gaming machines. These third parties are remunerated
through POS fees based on a percentage of turnover or gaming revenues that the POS generates
for us. In addition, in 2014 we implemented a bonus/penalty system with our third party
providers under which they receive a varying percentage of monthly gross gaming revenues
generated by their POS if their payout ratio is below an agreed-upon amount, but are required
to forfeit a varying percentage of the POS fees we pay them if the payout ratio exceeds an
agreed-upon amount over the course of the year. If one or more of the third parties participating
in our network fails due to bankruptcy or discontinues its relationship with us, our turnover and,
therefore, our revenues could suffer. See “Snai’s Business—Distribution network.” For example,
in March 2013, a former participant in the SNAI Concessionaire Network discontinued its
relationship with us resulting in the net loss of approximately 2,000 AWP machines to our
distribution network as such operator received its own concession from ADM to operate VLTs. As
a result, the revenues and contribution margin of our gaming machine business line was
adversely affected for the year ended December 31, 2013. The effects of losing third parties from
our distribution network would be particularly pronounced if they were purchased or otherwise
take over by our competitors.
In addition, the SNAI Independent Concessionaire Network includes third parties who hold their
own concessions and use our services for the collection of betting and gaming data and
transmission of such data to the ADM network and related technical support for the collection of
bets. If one or more of the members participating in the SNAI Independent Concessionaire
Network fails due to bankruptcy or discontinues its relationship with us, the results of our
Betting Collection segment could be negatively affected.
56
Our failure to keep up with technological developments in the online channel and convenience
payment services market, or to continually develop our technological expertise, could negatively
impact our business, results of operations and financial condition.
The markets for online betting and gaming products and convenience payment services are
characterized by rapid technological developments, frequent new product and service offerings
and evolving industry standards. The emerging character of these products and services and their
evolution requires us to use technologies effectively, enhance our current products and services
and continue to improve the performance, features and reliability of our technology and
information systems. In addition, the widespread adoption of new Internet technologies or
standards could require substantial expenditure to replace, upgrade, modify or adapt our
technology and systems, which could negatively impact our business, results of operations and
financial condition. From time to time we also need to replace certain of our IT, which can be
costly.
The technology we are currently using may be rendered obsolete by new technologies and more
advanced systems introduced in the industry. In addition, new technology we use may contain
design flaws or other defects and require modifications or result in a loss of confidence in our
products and services by our customers. Moreover, we depend on third-party technology
providers for the development and maintenance of certain of our systems, and any failure to
maintain relationships with such providers would negatively impact our business, results of
operations and financial condition.
Negative perceptions and negative publicity surrounding the betting and gaming industry could
damage our reputation or lead to increased regulation or taxation thereof, which could
adversely affect our business.
The Italian betting and gaming industry is exposed to negative publicity and attention generated
by, inter alia, citizen’s groups, non-governmental organizations, investigative journalism, local
authorities and state agencies. In particular, in recent years, Italian public attention has been
drawn to findings or allegations of the following: underground betting and gaming,
participation or alleged participation in betting and gaming activities by minors, the perception
that gaming machines are too ubiquitous, risks related to social ills such as addiction to betting
and gaming, risks related to data protection and payment security in connection with online
betting and gaming and alleged association with organized crime. For example, in 2010 and
2013, the Direzione Investigativa Antimafia (Anti-Mafia Investigation Department) published
reports alleging ties between organized crime and the betting and gaming industry which
generated much public debate. In addition, publicity regarding social issues related to betting
and gaming and other concerns with industry, even if not directly connected to us and our
products, could materially adversely impact our business, financial condition and results of
operations. For example, if the perception develops that the betting and gaming industry is
failing to address such concerns adequately, the resulting political pressure may result in the
industry becoming subject to increased regulation or taxation. Such an increase in regulation or
taxation could materially adversely impact our reputation, business, results of operations and
financial condition.
Illegal betting and gaming may drain significant portions of gaming volumes away from the
regulated industry and adversely affect our business.
A significant threat for the entire betting and gaming industry arises from illegal activities such
as underground betting and gaming, illegal gaming machines and, more generally, all forms of
gaming that circumvent public regulation, including offshore gaming, web based gaming, and
interactive gaming channels. Such illegal activities may drain significant gaming volumes away
from the regulated industry. In particular, illegal betting could take away a portion of those
players that are the focus of our business. The loss of such players could have an adverse effect
on our business, results of operations and financial condition and thus our ability to service our
indebtedness.
57
We may fail to detect money laundering or fraudulent activities of our customers or third
parties.
We are exposed to the risk of money laundering and fraudulent activities by our customers and
third parties, including collusion between online customers and the use of sophisticated
computer programs that play poker and other skill games automatically. In connection with our
online betting activities, we have implemented internal control systems that monitor unusual
transaction volumes or unusual transaction patterns and screen the personal details of the
customer, in order to minimize opportunities for money laundering and fraud, but may not
always be successful in protecting ourselves and our customers from such activities. In addition,
we could be targeted by third parties, including criminal organizations, for fraudulent activities,
such as attempts to compromise our system that processes and collects payment information or
attempts to use our betting services to engage in money laundering.
Our distribution network partners are required to abide by applicable laws, including by
identifying customers placing bets. Through we have controls in place, we may fail to detect
non-compliance with applicable laws or with our policies by our distribution network partners.
To the extent we are not successful in protecting ourselves or our customer from money
laundering and fraud activities, we could be subject to criminal sanctions and administrative fines
and could directly suffer loss or lose the confidence of our customer base, which could have a
material adverse effect on our business, results of operations, and financial condition. Further,
we are subject to Italian Legislative Decree No. 231 of June 8, 2001, as amended, on corporate
crimes, including breaches of anti-money laundering provisions. Failure by us (including our
directors, officers, employees or agents) to comply with such provisions could result in the
imposition of criminal sanctions on our directors and/or administrative and civil fines on us,
penalties, revocation of concessions and licenses and operational bans, and therefore have a
material adverse effect on our financial condition and results of operations.
Our information technology system and network are subject to damage and interruption caused
by human error, problems relating to the telecommunications network, natural disasters,
sabotage, viruses and similar events.
The betting and games offered at our points of sale depend to a great extent on the reliability
and security of our IT system, software and network, which are subject to damage and
interruption caused by human error, problems relating to the telecommunications network,
software failure, natural disasters, sabotage, viruses and similar events. Any interruption in our
system could have a negative effect on the quality of services offered and, as a result, on
consumer demand and therefore volume of sales.
As we also offer online access to games and betting, such services may be subject to attack by
hackers or experience other network interruptions that interfere with provision of service and
thereby subject us to liability for losses by players or to fines from the applicable governmental
authorities for failure to provide the required level of service under our concessions. Finally, a
technical error in our gaming systems could lead to significant litigation, lost revenues and/or
administrative sanctions, as occurred in the case of the Barcrest VLT malfunction. See “—We may
be subject to an unfavorable outcome with respect to pending litigation, which could result in
substantial monetary damages or losses or otherwise have a material adverse effect on us.”
Our business increasingly relies on our ability to successfully attract and retain customers that
access our online betting and gaming entertainment on apps or via mobile devices.
As mobile device penetration increases, we expect that an increasing percentage of our
customers will access the internet through mobile devices and we expect mobile applications
(“apps”) to generate an increasing percentage of traffic to our websites and consequently,
positively affect our revenues and contribution margin. As of the date of this Offering
Memorandum, we have developed apps for iPhone, iPad, and Android devices. There is no
guarantee that customers will access our websites as much via mobile devices as they have via
personal computers, or that they will prefer our mobile interface to that of our competitors. If
58
we are unable to successfully adapt our websites to attract mobile users and keep up with
competitors’ efforts to do the same, we could lose customers and see a reduction in turnover. We
must frequently improve and update our mobile apps in order to keep up with rapidly evolving
mobile device technology and platform hardware. These changes could lead to undetected
programming errors that only become apparent after the apps are accessed by customers, and
these errors could harm our reputation and jeopardize our ability to protect proprietary data.
The frequent release of new mobile devices and platforms puts pressure on us to develop new
apps and optimize our websites to accommodate the new technology. If we fall behind our
competition in making our apps user-friendly and optimizing our websites, our share of an
increasingly important portion of the e-gaming market may decline. We are dependent on the
interoperability of our apps with popular mobile operating systems that we do not control and
any changes in such systems that degrade our products’ functionality or give preferential
treatment to competitive products could adversely affect usage of our mobile apps. Any decrease
in website traffic or turnover due to insufficient adaptation to increased mobile device use could
have a material adverse effect on our business, results of operations and financial condition.
We depend on partners and retailers, as well as a number of third party suppliers, for the
operation of our business, and problems with such partners, retailers or suppliers could
adversely affect us.
We rely on our partners and retailers to operate the majority of the points of sale in our
distribution network, and at certain partner-owned betting shops, betting corners and points of
sale, the partner or retailer, as applicable, operates under the SNAI brand. We also rely on a
number of third party suppliers who provide us with products and services, including with software
utilize for running the gaming machines deployed by the Group. We do not control these partners,
retailers and third party suppliers, and we rely on them to perform their services in accordance with
the terms of their contracts, which increases our vulnerability to problems with the products and
services they provide. We may not be successful in recovering any losses which result from the
failure of the partner, retailer or third party supplier to comply with their contractual obligations to
us, and where a partner or retailer is operating under our brand, such failure may also negatively
impact our reputation and consumer loyalty. Partners, retailers and third party suppliers may also
seek to recover losses from us under indemnities or in respect of breaches of obligations or
warranties under their agreements with us. In addition, our partners and retailers may suffer from
weakening economic conditions which may adversely impact the creditworthiness of our points of
sale. See “—Our business may be affected by economic weakness and political uncertainty,
particularly in Italy.” Our partners and retailers could also choose to terminate the contractual
relationship with us and/or join our competitors. Such events could have a material adverse effect
on our reputation, business, results of operations and financial condition.
Our and the Cogemat Group’s business prospects and future success rely heavily upon the
integrity of our directors, employees and executives, the security of our respective systems and
the good-standing of our respective material shareholders and their directors, employees and
executives.
The real and perceived integrity and security of our and the Cogemat Group’s systems is critical
to our respective ability to attract players. We and the Cogemat Group strive to set exacting
standards of personal integrity for our respective directors, officers, employees or agents and
system security for the games that we provide to our respective customers. Our reputation in this
regard are important factors in our business dealings with governmental agencies. For this
reason, an allegation or a finding of improper conduct on our or the Cogemat Group’s part, or
on the part of one or more of our respective current or former directors, officers, employees or
agents that is attributable to us or the Cogemat Group, or an actual or alleged system security
defect or failure attributable to us or the Cogemat Group, could have a material adverse effect
upon our respective results of operations, business, financial condition or prospects, including our
or the Cogemat Group’s ability to retain or renew existing concessions and licenses or obtain new
concessions and licenses.
59
The tender process and the award of concessions and licenses by public authorities involve risks
associated with fraud, bribery of officials involved in the tender process and corruption or
allegations thereof. Although we and the Cogemat Group maintain internal monitoring systems
(including the Italian Legislative Decree No. 231 of June 8, 2001 internal control model), we may
be unable to detect or prevent every instance of fraud, bribery and corruption involving our
directors, officers, employees or agents in the future. In particular, Azzurro, which will become
our indirect subsidiary following the completion of the Cogemat Acquisition, has not yet adopted
the Italian Legislative Decree No. 231 of June 8, 2001 internal control model. We may therefore
be subject to civil and criminal penalties (including pursuant to Legislative Decree No. 231 of
June 8, 2001) and to reputational damage as a result of such occurrences. Proceedings and
convictions even if not definitive (i.e., subject to further appeal), with regard to certain crimes
including, inter alia, bribery, corruption, environmental violations and crimes against the person
or workplace safety violations may expose us or the Cogemat Group to sanctions and penalties,
civil and administrative fines, operational bans and render us or the Cogemat Group ineligible to
maintain our awarded concessions and licenses or to participate in future public tenders to
acquire or renew concessions or licenses. The involvement or association of our or the Cogemat
Group’s directors, officers, employees or agents with fraud, bribery or corruption and other
crimes committed in relation to our activities, or allegations or rumors relating thereto, could
have a material adverse effect on our or the Cogemat Group’s business, results of operations and
financial condition.
In June 2014 a criminal proceeding was commenced against the CEO of two of the companies in
the chain of ownership holding a controlling stake in our share capital in connection with an
alleged involvement in a bribery case unrelated to our activities. The defendant, through his
ownership in such chain, was also one of our former indirect material shareholders. In August
2014, he transferred his controlling stake in the companies through which he held shares in us to
his son and also resigned from his CEO positions in such companies, while continuing to serve as
a non-executive director of both companies. In November 2014, he entered into a plea bargain
with the Italian authorities for 2 years and 6 months incarceration, which, according to Italian
criminal law, could be replaced with community service. He has subsequently appealed the plea
bargain on procedural grounds and the appeal is pending before the Italian Supreme Court.
The involvement or association of our directors, officers and employees or our shareholders and
beneficial owners owning directly and indirectly more than two percent of our share capital and
their respective directors, officers or employees in the abovementioned or any similar litigation
or investigation regarding corruption, bribery or other similar claims could result in the
revocation or non-renewal of our concessions or licenses or prevent us from being able to bid for
new concessions or licenses and could have a negative effect on our reputation and a material
adverse effect on our business, results of operations and financial condition.
Our intellectual property could be subject to infringement by third parties or claims of
infringement of rights of third parties.
We regard our copyright, trademarks, domain names, trade secrets, customer databases and
similar intellectual property as critical to our success. We rely on a combination of copyright and
trademark laws, trade secret protection, confidentiality and non-disclosure agreements and other
contractual provisions in order to protect our intellectual property. There can be no assurance
that these efforts will be adequate, or that third parties will not infringe upon or misappropriate
our proprietary rights. For example, consultants, vendors, former employees and current
employees may breach their obligations regarding non-disclosure and restrictions on use. In
addition, intellectual property laws in Italy and other jurisdictions may afford differing and
limited protection, may not permit us to gain or maintain a competitive advantage, and may not
prevent our competitors from duplicating our products or gaining access to our proprietary
information and technology.
We may also be the subject of claims of infringement of the rights of others or party to claims to
determine the scope and validity of the intellectual property rights of others. Such claims,
60
whether or not valid could require us to spend significant sums in litigation, pay damages, rebrand or re-engineer services, acquire licenses to third party intellectual property and distract
management attention from the business, which may have a material adverse effect on our
business, results of operations, and financial condition.
In addition, we license intellectual property rights from third parties. If such third parties do not
properly maintain or enforce the intellectual property rights subject to such licenses, or if such
licenses are terminated, we could lose the right to use the licensed intellectual property, which
could adversely affect our respective competitive position or our ability to commercialize certain
of our technologies, products or services.
Our failure to comply with regulations regarding the use of personal customer data could
subject us to lawsuits or result in the loss of goodwill of our customers and adversely affect our
business and financial condition.
We process sensitive personal data on customers and retail shop owners (including name,
address, age, bank details and betting and gaming history) as part of our online business and,
following the Cogemat Acquisition, as part of the convenience payment services business and
therefore must comply with strict data protection and privacy laws in Italy. Such laws restrict our
ability to collect and use personal information relating to customers and potential customers,
including the marketing use of that information. Notwithstanding such efforts, we are exposed
to the risk that data could be wrongfully appropriated, lost or disclosed, or processed in breach
of data protection regulation, by us or on our behalf. If we fail to transmit customer information
in a secure manner, or if any such loss of personal customer data were otherwise to occur, we
could face liability under data protection laws. This could also result in the loss of the goodwill of
our existing customers and deter new customers from using our services, which would have a
material adverse effect on our business, results of operations and financial condition.
We are dependent on credit card payment service providers and other financial institutions to
process payments and handle cash generated by our business.
We currently accept credit and debit card payments from customers. Certain U.S.-based card
schemes and card-issuing institutions currently restrict the use of their credit cards for online
betting and gaming transactions. Should all or an additional number of the major card programs
or card issuing companies stop accepting payment transactions for betting and gaming
operations, our business, results of operations and financial condition could be materially
adversely affected.
Our business is dependent on banks, credit card companies, payment processors and other
financial institutions, networks and suppliers to enable funds to be paid in and withdrawn by our
customers. Each of these entities depends upon an intricate network to facilitate international
and multi-currency fund transfers. Any disruption in those systems or relationships could have a
material adverse effect on our business, results of operations and financial condition. As a result,
our business, results of operations and financial condition could be materially adversely affected.
We are exposed to the risk of strikes, work stoppages and other industrial actions, which may
adversely affect our business and results of operations.
We are subject to applicable laws relating to employment matters. We estimate that
approximately 25% of our employees as of March 31, 2015 were members of labor unions. In the
future we may experience lengthy consultations with labor unions or strikes, work stoppages or
other industrial actions. We are subject to national collective bargaining agreements for the
services industry as well as a supplementary bargaining agreement directly between us and our
employees. Although we believe that we have good relations with our employees, strikes called
by employees or unions could disrupt our operations. In particular, during the last three years,
the Cogemat Group has experienced labor stoppages for a total of 30 days. Strikes and other
industrial actions, as well as the negotiation of new collective bargaining agreements or salary
61
increases in the future, could disrupt our operations and make it more costly to operate our
facilities, which in turn could have a material adverse effect on our business, results of operations
and financial condition. See “Snai’s Business—Employees and Cogemat Group Business—
Employees.”
Our business prospects and future success depend upon our ability to attract and retain
qualified employees.
Our business prospects and future success depend, in part, upon our ability to attract and to
retain qualified managerial, marketing and technical employees. Competition for such employees
is sometimes intense, and we may not succeed in hiring and retaining the executives and other
employees that we need. Our loss of, or inability to hire, key employees could be adversely
affected if, for any reason, a number of these officers or key employees do not remain with us or
we cannot attract qualified candidates. In the event that such key personnel choose not to
remain with us, there is a risk that they may join a competing business. In particular, the loss of
key executives and managers, may impair our ability to execute our business plan. Furthermore,
we may not be able to replace them on a timely basis with other professionals capable of making
comparable contributions to our business, particularly in view of the intense competition for
skilled professionals in our industry. Our ability to recruit, motivate and retain personnel is
important to our success and there can be no assurance that we will be able to do so given the
market in which we operate.
Changes to taxation or the interpretation or application of tax laws could have an adverse
impact on our results of operations and financial condition.
Our and the Cogemat Group’s business operations are subject to a number of taxes and fees,
including value-added-tax (“VAT”) and specific gaming-related taxes calculated with reference to
turnover. VAT taxes increased from 20% to 21% in 2012, and as of October 1, 2013, from 21% to
22%. Furthermore, the Italian Stability Law of 2015 provides that if the Italian government does
not respect certain budgetary restrictions and spending cuts as agreed with the European Union,
VAT will increase from 22% to 24% in 2016, to 25% in 2017 and to 25.5% in 2018.
With respect to sports betting, we and the Cogemat Group pay a percentage of sports betting
turnover to ADM, with the applicable tax rate percentage payable determined with reference to
the number of events on which a customer has placed a bet. The levels or methods of taxation
could increase in the future. For example, taxation on VLTs increased from 2% to 4% in 2012 and
a further scheduled increase to 5% went into effect as of January 1, 2013. Furthermore, the
Italian Stability Law of 2015 imposed the Stability Fee on gaming machines concessionaries,
which functions as an additional tax. See “Regulation—Gaming machines—Stability fee owed
pursuant to the Italian Stability law of 2015.” In addition, based on preliminary drafts of
proposed new gaming regulations that could come into effect in some form or another as of
January 1, 2016, the Italian government may implement changes to the taxation scheme of
betting and gaming operators. Under these proposed reforms, taxes would be calculated as a
percentage of gross gaming revenues as opposed to a percentage of turnover and the absolute
percentage at which the tax is levied would increase. Depending on where the reforms set the
absolute taxation percentage, these reforms could result in increases in the level of actual
taxation. See “Summary—Recent developments—Potential change in Italian gaming industry
regulation.” These or other changes in tax law or other laws supersede the terms of our
concessions and we and the Cogemat Group are not entitled to additional compensation to
offset such changes during the life of a concession. Any such future increases in the levels of
taxation, or the implementation of any new taxes to which our and the Cogemat Group’s
operations will be subject, could have a material adverse effect on the business, financial
condition and results of operations. We and the Cogemat Group are also subject to intercompany
pricing laws, including those relating to the flow of funds among our respective group
companies pursuant to, for example, loan agreements, purchase agreements, licensing
agreements or other arrangements. Adverse developments in these laws or regulations, or any
62
change in position by the relevant Italian tax authorities regarding the application,
administration or interpretation of these laws or regulations, could have a material adverse
effect on our businesses, financial condition and results of operations.
In addition, tax law and administration is complex and often requires us and the Cogemat Group
to make subjective determinations. For example, tax authorities may not agree with our
determinations with respect to the application of intercompany pricing, income tax or VAT law.
We and the Cogemat Group are from time to time subject to tax audits and investigations by the
tax authorities, which include investigations with respect to the direct tax and indirect tax regime
of our transactions. For example, on June 8, 2015, the Italian Tax Authority notified Cogetech
Gaming of the commencement of a tax audit related to their reporting of direct taxes (imposte
dirette), VAT and IRAP for the year ending December 31, 2012. In addition, the relevant tax
authorities may disagree with the positions we and the Cogemat Group have taken or intend to
take regarding the tax treatment or characterization of any of our transactions, including the tax
treatment or characterization of our existing as well as previously incurred and subsequently
refinanced indebtedness, including the Notes, existing and future intercompany loans and
guarantees or the deduction of interest expenses. Such disagreements could result in lengthy
legal disputes and, ultimately, in the payment of substantial amounts of tax, interest and
penalties, which could have a material effect on our results of operations, business and financial
condition. We and the Cogemat Group could also fail, whether inadvertently or through reasons
beyond our control, to comply with tax laws and regulations relating to the tax treatment of
several of our transactions or financing arrangements, which could result in unfavorable tax
treatment for such transactions or arrangements, and possibly lead to significant fines or
penalties. It may be necessary to defend our respective tax filings in court if a reasonable
settlement cannot be reached with the relevant tax authorities and such ensuing litigation could
be costly and distract management from the other affairs of our business. Tax audits and
investigations by the competent tax authorities may generate negative publicity which could
harm our reputations with customers, suppliers and counterparties. An adverse tax adjustment in
connection with our businesses could have a material adverse effect on our businesses, financial
condition and results of operations.
Risks related to the Cogemat Acquisition
We face risks and expenses due to the need to integrate the Cogemat Group, and the Cogemat
Group is subject to many of the same business, regulatory and other risks that we currently face.
On July 11, 2015, we signed the Investment Agreement to acquire the Cogemat Contributed
Shares. We believe the Cogemat Acquisition will strengthen our position in key market segments,
expand our distribution network and increase our operational efficiencies.
In addition, we expect synergies and procurement and cost savings can be achieved by combining
Snai and the Cogemat Group. Among the risks associated with the acquisition of Cogemat, and
to any further acquisition we may undertake, which could have a material adverse effect on our
business, financial condition and results of operations, are the following:
• we may incur substantial costs, delays or other operational or financial problems in integrating
the Cogemat Group, including with respect to the management of a significantly broader
organization;
• we may experience problems related to coordination and consolidation of corporate and
administrative functions (including internal controls, human resources and financial reporting);
• the integration of the Cogemat Group may divert management’s attention from the operation
of the business;
• we may not be able to retain key personnel of the Cogemat Group;
• the requirement under IFRS 3 to determine purchase price allocation of the acquired assets and
liabilities of the Cogemat Group may require us to make write-downs of intangible assets;
63
• we may not be able to achieve anticipated synergies; and
• we may encounter unanticipated events, circumstances, expenses, delays or legal liabilities
related to the acquired businesses.
In addition, there can be no assurance that, following integration with our Group, the Cogemat
Group will be able to maintain its customer base consistent with expectations or generate the
expected margins or cash flows. The assessments of any potential acquisition targets are subject
to a number of assumptions concerning profitability, growth, interest rates and company
valuations and there can be no assurance that our assessments of and assumptions regarding the
Cogemat Group and the Cogemat Acquisition will prove to be correct and actual developments
may differ significantly from our expectations. If we cannot successfully integrate the Cogemat
Group on a timely and efficient basis, we may incur higher than expected costs and not realize
the anticipated and potential benefits of the Cogemat Acquisition.
Furthermore, the Cogemat Group is subject to many of the same risks that we currently face and
that are described in this Offering Memorandum, and those same risks may have a material
adverse effect on the business, financial condition and results of operations of the Cogemat
Group. If we fail to adequately address any of these risks or problems, the business of the
Cogemat Group and our business as a whole may suffer.
We may not be able to satisfy, or may experience delays in satisfying, the conditions required to
consummate the Cogemat Acquisition.
Pursuant to the Investment Agreement, consummation of the Cogemat Acquisition is subject to a
number of conditions, many of which are outside of our control. These conditions include the
approval of the Cogemat Acquisition by ADM, compliance with antitrust laws, including a review
of the details of the Cogemat Acquisition and its effect on the market, and the Cogemat Group
obtaining certain amendments and/or waivers to the Cogemat Senior Facility, the 2011
Guarantee Facility Agreement and the 2013 Guarantee Facility Agreement. During the regulatory
and antitrust approval process, regulators can seek modification of the transaction to address any
regulatory and antitrust concerns, including the possible divestiture or relocation of certain of
our or the Cogemat Group’s assets. None of the pro forma financial data or combined
information takes into account the effect of divestures or relocation either on the reduction in
operations or on the proceeds from sale. We cannot assure you that ADM or the antitrust
regulators will approve the Cogemat Acquisition on a timely basis or at all and we will not incur
significant costs if the regulatory or antitrust regulators require us to modify the Cogemat
Acquisition, which could reduce the anticipated and potential benefits to us of the Cogemat
Acquisition such that we decided not to proceed with the Cogemat Acquisition. The Investment
Agreement also requires that the Issuer and Cogemat obtain any authorization that may be
required pursuant to the terms of their respective existing financing agreements and that the
Issuer’s shareholders approve the Capital Increase. See “Summary—The Transactions—The
Cogemat Acquisition.” Failure by either us or Cogemat to satisfy these conditions precedent, or
costs associated with complying with the requirements of regulators could prevent the Cogemat
Acquisition from being consummated and/or have a material adverse effect on our business,
financial condition and results of operations.
In addition, the effectiveness of the Cogemat Contribution is subject to the condition that, within
the established timeframe, our directors do not commence new appraisal procedures as a result
of, inter alia, new material facts having occurred since the original appraisal date and none of
our shareholders holding at least 5% of our pre-Capital Increase share capital request a new
appraisal. See “Summary—The Transactions—The Cogemat Acquisition.” If, for any reason, we
initiate the process of obtaining a new appraisal we could be required to follow the legallymandated appraisal rights procedures, including obtaining an additional valuation of the
Cogemat Contributed Shares, this process could cause us to suffer delays in consummating the
Cogemat Acquisition. Any delays in consummating the Cogemat Acquisition, whether as a result
of the exercise of appraisal rights or otherwise, would delay the release of the proceeds from the
64
Escrow Account and, therefore, the Cogemat Refinancing and could have a material adverse
effect on our business, financial condition and results of operations. See “—If consummation of
the Cogemat Acquisition is delayed beyond the Longstop Date, or if the other conditions to the
escrow are not satisfied, the Issuer will be required to redeem the Notes, which means that you
may not obtain the return you expect on the Notes” and “Summary—The Transactions—The
Cogemat Acquisition.”
We may be unable to integrate the Cogemat Group effectively and realize the expected
synergies and cost savings from the Cogemat Acquisition.
We cannot assure you that we will be able to integrate the Cogemat Group effectively or in the
timeframe we anticipate. If we cannot successfully integrate the Cogemat Group within a
reasonable time following the Cogemat Acquisition, we may not be able to realize the potential
and anticipated benefits from the Cogemat Acquisition. For example, we may be unable to retain
key Cogemat Group personnel or to integrate the management systems and procedures of Snai
and the Cogemat Group to effectively manage the combined Group. We may also experience
problems related to coordination and consolidation of corporate and administrative functions
(including internal controls, human resources and financial reporting). Furthermore, integration
of the Cogemat Group into Snai may divert management’s attention from the operation of the
business.
Additionally, we may be unable to achieve certain operational synergies and administration
optimizations or we may incur substantial costs to achieve these synergies and we cannot assure
you that we will be able to realize any of the anticipated synergies or cost or procurement
savings, or that the costs we incur in trying to realize these synergies may be substantially higher
than our current estimates and may outweigh the benefits. Anticipated synergies are based upon
assumptions about our ability to implement these measures in a timely fashion and within
certain cost parameters. Our ability to achieve the planned cost synergies is dependent upon a
significant number of factors, some of which may be beyond our control.
If one or more of our underlying assumptions regarding these initiatives proves to have been
incorrect, these efforts could lead to substantially higher costs than planned and we may not be
able to realize fully, or realize in the anticipated timeframe, the expected benefits from the
Cogemat Acquisition. Furthermore, pricing pressure from our customers or competitors or other
variables may deprive us of some of the benefits from the cost measures we have assumed that
we will be able to retain. See “Summary—The Transactions—The Cogemat Acquisition,”
“Unaudited Pro Forma Consolidated Financial Information” and “Forward-Looking Statements.”
Also, cost efficiencies from operational efficiencies and administration optimization may not be
able to be sustained due to our inability to integrate the acquired business, unforeseen legal,
regulatory, contractual, labor or other issues or other cost variables. Our new business initiatives
could result in unintended consequences, such as the loss of concessions, key customers and/or
suppliers.
In addition, there can be no assurance that, following integration with our Group, the Cogemat
Group will be able to maintain its customer base consistent with our expectations or generate
the expected margins or cash flows. The assessments of any potential acquisition targets are
subject to a number of assumptions concerning profitability, growth, interest rates and company
valuations and there can be no assurance that our assessments of and assumptions regarding the
Cogemat Group and the Cogemat Acquisition will prove to be correct and actual developments
may differ significantly from our expectations.
Our inability to effectively integrate the Cogemat Group into the Snai Group or to realize the
anticipated and potential benefits of the Cogemat Acquisition could have a material adverse
effect on our business, financial condition and results of operations.
65
We do not currently control the Cogemat Group or its subsidiaries, and we will not control them
until the consummation of the Cogemat Acquisition.
The Cogemat Group is currently controlled by the Cogemat Majority Shareholders. The Issuer will
not obtain control of Cogemat and its subsidiaries until the consummation of the Cogemat
Acquisition. We cannot assure you that the Cogemat Majority Shareholders will operate the
Cogemat Group’s business during the interim period in the same way that we would.
This Offering Memorandum includes certain information, including financial information, about
the Cogemat Group. Any information concerning the Cogemat Group is based on documents,
information and representations provided to us and our advisers by the Cogemat Group, and we
have relied on such information supplied to us in its preparation. Furthermore, the Cogemat
Acquisition has required, and will likely continue to require, substantial amounts of
management’s time and focus, which could adversely affect their ability to operate the business.
Likewise, other employees may be uncomfortable with the Cogemat Acquisition or feel
otherwise affected by it, which could reduce their productivity or cause them to quit or strike
which would have a negative effect on work quality and retention.
In addition, prior to the consummation of the Cogemat Acquisition, neither Cogemat nor any of
its subsidiaries will be subject to the covenants described in “Description of the Notes,” to be
included in the Indenture. As such, we cannot assure you that, prior to such date, Cogemat or any
of its subsidiaries will not take an action that would otherwise have been prohibited by the
Indenture had such covenants been applicable.
We may not identify all risks associated with the Cogemat Acquisition, and any indemnification
we receive from the Cogemat Contributing Shareholders may be insufficient to protect us from
such risks, which may result in expected liabilities and costs to us.
The success of an acquisition depends on our ability to perform adequate due diligence before
the acquisition and on our ability to integrate the acquisition after it is completed. While we
have committed significant resources to conducting comprehensive due diligence, we may have
not been able to, or may have failed to, identify all risks and liabilities associated with the
Cogemat Acquisition. This could lead to adverse accounting and financial consequences, such as
the need to make large provisions against the acquired assets or to write down acquired assets,
which could have a material adverse effect on our business, financial condition and results of
operations.
When conducting due diligence, we have relied on the resources available to us, including
information provided by the Cogemat Contributing Shareholders and, in some circumstances,
third-party investigations and analysis. To the extent we identify liabilities or problems and raise
claims under contractual protections or indemnities we have received from the Cogemat
Contributing Shareholders pursuant to the Investment Agreement, such indemnity may not be
fully enforceable or may be insufficient to compensate us for our costs, losses or liabilities and
such indemnity is dependent on the ongoing viability of the Cogemat Contributing Shareholders.
See “Summary—The Transactions—The Cogemat Acquisition.” Therefore, any indemnification we
receive from the Cogemat Contributing Shareholders may be insufficient to protect us from risks
related to hidden liabilities, which could have a material adverse effect on our business, financial
condition and results of operations.
We may be required to make write-downs of intangible assets. The Cogemat Group has
recorded a significant amount of goodwill and we may not realize the full value thereof.
Under IFRS 3 (revised), the purchase price allocation of the acquired assets and liabilities of the
Cogemat Group may require us to make write-downs of intangible assets.
As of March 31, 2015, the Cogemat Group had recorded goodwill amounting to €2.7 million,
representing 1.0% of its assets. Following the Cogemat Acquisition, in accordance with IFRS 3
(revised) “Business Combinations” at the date of acquisition, which is defined as the date on
66
which the Issuer will obtain control over the Cogemat Group, should the Cogemat Acquisition be
successful, the Issuer will recognize goodwill as the excess of the consideration transferred over
the net of the acquisition date amounts of the fair value of all identifiable assets acquired and
liabilities assumed. The completion of the Cogemat Acquisition will result in the recognition of
all identifiable assets acquired and the liabilities or contingent liabilities assumed of the Cogemat
Group at fair value. In subsequent years goodwill will be tested annually for impairment. The
amount of any impairment must be expensed immediately as a charge to our income statement.
The Cogemat Group recorded no goodwill impairment charges for the year ended December 31,
2014. Any future impairment of goodwill may result in material reductions of our income and
equity under IFRS.
If consummation of the Cogemat Acquisition is delayed beyond the Longstop Date, or if the
other conditions to the escrow are not satisfied, the Issuer will be required to redeem the Notes,
which means that you may not obtain the return you expect on the Notes.
The proceeds from the Offering will be held in the Escrow Account pending the satisfaction of
certain conditions, some of which are outside of our control. If, for any reason, the Cogemat
Acquisition is delayed and is not completed on or before the Escrow Longstop Date (December
31, 2015) or any other event triggers an escrow termination, the Notes will be subject to a special
mandatory redemption as described in “Description of the Notes—Escrow of Proceeds; Special
Mandatory Redemption” and you may not obtain the return you expect to receive on the Notes
and you may not be able to reinvest the proceeds from the redemption in an investment that
yields comparable returns.
The escrow funds will be initially limited to the proceeds of the Offering of the Notes, net of a
portion of the fees payable to the Initial Purchasers, and will not be sufficient to pay the special
mandatory redemption price, which is equal to 100% of the aggregate issue price of the Notes
plus accrued and unpaid interest and Additional Amounts, if any, from the Issue Date for the
Notes to the date of special mandatory redemption. Snai will be required to fund the accrued
and unpaid interest and Additional Amounts, if any, as well as the difference between the
proceeds of the Offering, net of a portion of the fees payable to the Initial Purchasers, and the
issue price owing to the holders of the Notes. There can be no assurance that Snai will have
sufficient funds to make these payments or that the relevant payment will be made in a timely
fashion. In the event that prior to the escrow release date, the Issuer were to be subject to
bankruptcy or insolvency proceedings, this would trigger the special mandatory redemption of
the Notes. The special mandatory redemption could be limited by the applicable insolvency laws
and there can be no assurances that the escrow funds could be applied to satisfy the special
mandatory redemption.
Your decision to invest in the Notes is made at the time of purchase. Changes in our business or
financial condition, or the terms of the Cogemat Acquisition, between the closing of this
Offering and the date on which the Cogemat Acquisition is consummated, will have no effect on
your rights as a purchaser of the Notes.
Our financial position and results of operations may differ materially from the unaudited pro
forma financial information included in this Offering Memorandum and it will be difficult to
compare our future financial information to the historical financial information of Snai.
The Unaudited Pro Forma Consolidated Financial Information contained in this Offering
Memorandum is presented for illustrative purposes only and may not be an accurate indication
of our financial position or results of operations if the Cogemat Acquisition and associated
financing transactions had been completed on the dates indicated.
In preparing the Unaudited Pro Forma Consolidated Financial Information included in this
Offering Memorandum, we have made adjustments to both our and the Cogemat Group’s
historical financial information based on currently available information and on assumptions that
our management believes are reasonable in order to reflect, on a pro forma basis, the impact of
the Cogemat Acquisition. The estimates and assumptions used in the calculation of the
67
Unaudited Pro Forma Consolidated Financial Information in this Offering Memorandum may be
materially different from our actual results. Accordingly, the Unaudited Pro Forma Consolidated
Financial Information included in this Offering Memorandum does not purport to indicate the
results that would have actually been achieved had the Cogemat Acquisition been completed on
the assumed date or for the periods presented, or that may be realized in the future, nor does it
give effect to any events other than those described in the Unaudited Pro Forma Consolidated
Financial Information and notes thereto.
Amendments made to the Investment Agreement may have adverse consequences for holders
of the Notes.
The Cogemat Acquisition is expected to be consummated in accordance with the terms of the
Investment Agreement. However, the Investment Agreement may be amended and the closing
conditions may be waived at any time by the parties thereto without the consent of the majority
of the holders of the Notes, provided, however, that such amendment and/or waiver will not
have a materially adverse effect on the interests of the holders of the Notes. Any such
amendment made to the Investment Agreement may make the Cogemat Acquisition less
attractive and may have an adverse effect on the return you expect to receive on the Notes. See
“Description of the Notes—Escrow of Proceeds; Special Mandatory Redemption” for a discussion
of the escrow release conditions.
Risks related to our capital structure and indebtedness
The interests of our principal shareholders may conflict with the interests of the holders of the
Notes.
We and the Cogemat Group are independently managed and our and the Cogemat Group’s
direct and indirect shareholders, including Global Games, led by the Cogemat Majority
Shareholders, do not manage our respective day-to-day operations. The interests of Global
Games or the Cogemat Majority Shareholders could conflict with the interests of the holders of
the Notes, particularly if we encounter financial difficulties or are unable to pay our liabilities
when due. Neither of Global Games or the Cogemat Majority Shareholders are under any
obligation to provide financing or assistance to us. Global Games and/or the Cogemat Majority
Shareholders could also have an interest in pursuing acquisitions, divestitures, financings,
dividend distributions or other transactions that, in their judgment could enhance their
investments, though such transactions may not enhance the value of the Notes. In addition, the
entities owning participations in Global Games, the Cogemat Majority Shareholders and their
affiliates are in the business of making investments in, and provide financing to, companies and
may from time to time acquire and hold interests in businesses that compete directly or indirectly
with us and/or act as lenders, suppliers and/or customers. In addition, InvestIndustrial IV L.P. and
its affiliates may take trading positions in the Notes or any other debt or equity securities of the
Issuer at any time, whether by buying or selling on its own account or for third parties. In
addition, any investigation or proceeding affecting our and/or the Cogemat Group’s direct or
indirect shareholders (including Global Games and/or the Cogemat Majority Shareholders), or
their respective directors, officers and employees could negatively affect Snai’s and the Cogemat
Group’s operations or beneficial owners (including from a regulatory perspective), result in the
revocation or non-renewal of existing concessions and licenses or prevent us or the Cogemat
Group from being able to bid for new concessions or licenses and have a negative effect on the
reputation of the combined Group. See “Risk Factors—Risks related to our business—Our
business prospects and future success rely heavily upon the integrity of our employees and
executives, the security of our systems and the good-standing of our material shareholders.”
As of the date of this Offering Memorandum, an affiliate of InvestIndustrial IV L.P. (which
participates in the share capital of Global Games, our largest shareholder), International
Entertainment S.A. owns an indirect non-controlling interest (through OI Games 2, which in turn
holds the controlling interest of Cogemat) in Cogemat. Although we have had the fairness of the
68
Cogemat Acquisition reviewed and approved by our Related Party Transactions Committee, we
cannot guarantee that the interests of Investindustrial IV L.P. in consummating the Cogemat
Acquisition will not conflict with those of the holders of the Notes. See “Principal Shareholders.”
We have recorded a significant amount of goodwill and we may not realize the full value
thereof.
We have recorded a significant amount of goodwill. Total goodwill, which represents the excess
of the cost of acquisitions over our interest in the net fair value of the assets acquired and
liabilities and contingent liabilities assumed, was €231.5 million as of March 31, 2015, or 29.3% of
our total assets. Goodwill is recorded on the date of acquisition and, in accordance with IFRS, is
tested for impairment annually and whenever there is any indication of impairment. Impairment
may result from, among other things, deterioration in our performance, a decline in expected
future cash flows, adverse market conditions, adverse changes in applicable laws and regulations
(including changes that restrict or otherwise affect our betting and gaming activities) and a
variety of other factors. The amount of any impairment must be expensed immediately as a
charge to our income statement. We recorded no goodwill impairment charges for the years
ended December 31, 2012, 2013 or 2014 or for the first three months of 2015. For the
preparation of our audited consolidated financial statements as of and for the year ended
December 31, 2014, we performed our annual impairment test based on our Directors’ forecasts
that show an improvement of our results of operations and as result no impairment was recorded
at such time. However, in the disclosure notes of our audited consolidated financial statements as
of and for the years ended December 31, 2012, 2013 and 2014, in connection with the assessment
of going-concern assumption, our Directors pointed out that the Group’s forecasts present
inevitable elements of uncertainty due to the unpredictability related to the occurrence of future
events and the characteristics of the relevant market; therefore, the Group’s ability to meet our
Directors’ forecasts may affect future evaluations, including goodwill assessment. Furthermore,
any future impairment of goodwill may result in material reductions of our income and equity
under IFRS.
Italian tax legislation may restrict the deductibility of all or a portion of the interest expense on
our indebtedness, including interest expense in respect of the Notes.
Current tax legislation in Italy (Article 96 of Presidential Decree No. 917 of December 22, 1986, as
amended and restated) allows for the full tax deductibility of interest expense incurred by a
company in each fiscal year up to the amount of the interest income of the same fiscal year, as
evidenced by the relevant annual financial statements. A further deduction of interest expense
in excess of this amount is allowed up to a threshold of 30% of the EBITDA of a company
(i.e., risultato operativo lordo della gestione caratteristica) (“ROL”) as recorded in such company’s
profit and loss account. The amount of ROL not used for the deduction of the amount of interest
expense that exceeds interest income can be carried forward, increasing the amount of ROL for
the following fiscal years. Interest expense not deducted in a relevant fiscal year can be carried
forward to the following fiscal years, provided that, in such fiscal years, the amount of interest
expense that exceeds interest income is lower than 30% of ROL. In the case of a tax group,
interest expense not deducted by an entity in the tax group due to lack of ROL can be deducted
at the tax unity level, within the limit of the excess of ROL of the other companies within the tax
group. Subject to certain limitations the 30% of the foreign controlled entities’ ROL may be used
to offset any excess interest expenses of Italian companies participating in the tax group.
Based on the above rules, we may not be able to deduct all interest expenses borne in each
relevant fiscal year in Italy, even if we would be able to carry forward over the following fiscal
years the amounts that may not be deducted in a given fiscal year. Furthermore, any future
changes in Italian tax laws or in their interpretation or application, including any future
limitation on the use the ROL of the Issuer and its subsidiaries or the tax treatment of interest
expense arising from any indebtedness, including the Notes, the failure to satisfy the applicable
legal requirements relating to the deductibility of interest expense or the application by Italian
69
tax authorities of certain existing interpretations of Italian tax law may result in our inability to
fully deduct our interest expense, which may have an adverse impact on our financial condition
and results of operation.
Our significant leverage may make it difficult for us to service our debt, including the Notes, and
operate our business.
Upon consummation of the Transactions, we will have a substantial amount of outstanding
indebtedness with significant debt service requirements. As of March 31, 2015, pro forma for the
Transactions and after giving effect to the repayment of the Series B Notes, our total outstanding
indebtedness would have been €590.0 million. See “Capitalization.” As of the same date, giving
effect to the Transactions and assuming effectiveness of the increase of the Revolving Credit
Facility, we also would have had approximately €55.0 million available for borrowing under our
Revolving Credit Facility. See “Description of Certain Financing and Guarantee Arrangements”
and “Description of the Notes.”
Our significant leverage could have important consequences for a holder of the Notes, including:
• making it more difficult for us to satisfy our obligations with respect to the Notes and our
other debt and liabilities;
• requiring us to dedicate a substantial portion of our cash flow from operations to payments on
our debt, thus reducing the availability of our cash flow to fund internal growth through
working capital and capital expenditures and for other general corporate purposes;
• increasing our vulnerability to a downturn in our business or economic or industry conditions;
• placing us at a competitive disadvantage compared to our competitors that have less debt in
relation to cash flow;
• limiting our flexibility in planning for or reacting to changes in our business and our industry;
• restricting us from investing in customer acquisitions, growing our business, pursuing strategic
acquisitions and exploiting certain business opportunities; and
• limiting, among other things, our and our subsidiaries’ ability to borrow additional funds or
raise equity capital in the future and increasing the costs of such additional financings.
Our ability to service our indebtedness will depend on our future performance, which will be
affected by prevailing economic conditions and financial, business, regulatory and other factors.
Many of these factors are beyond our control. As discussed by our Board of Directors in the
explanatory notes to our financial statements and mentioned as an emphasis of matter
paragraph in our independent auditors’ opinions contained elsewhere in this Offering
Memorandum, we may not be able to generate the cash necessary to repay the Notes, the
Existing Senior Secured Notes and the Senior Subordinated Notes in 2018 without obtaining new
financing. If we cannot service our indebtedness and meet our other obligations and
commitments, we might be required to refinance our debt, including the Notes, obtain
additional financing, delay planned capital expenditures or to dispose of assets to obtain funds
for such purpose. We cannot assure you that refinancings or asset dispositions could be effected
on a timely basis or on satisfactory terms, if at all, or would be permitted by the terms of our
debt instruments. In addition, if ADM where to amend minimum requirements for the financial
position, debt levels or other financial covenants of its concessionaires or introduce such
requirements for concessions that currently do not include financial covenants, our indebtedness
could affect our ability to renew or retain our concessions or bid for new concessions.
We may incur additional indebtedness, including at the level of our non-Guarantor subsidiaries,
which could increase our risk exposure from debt and could decrease your share in any
proceeds.
Subject to restrictions in the Indenture and restrictions in the Revolving Credit Facility
Agreement, we may incur additional indebtedness, which could increase the risks associated with
70
our already substantial indebtedness. Assuming effectiveness of the increase of the Revolving
Credit Facility, we have the ability to borrow up to €55.0 million under our Revolving Credit
Facility, which borrowings and indebtedness are secured with the same Collateral that secures
the Existing Senior Secured Notes. The terms of the Indenture permit us to incur additional debt.
Our non-Guarantor subsidiaries may also be able to incur substantial additional indebtedness in
the future, further increasing the risks associated with our substantial leverage. If any of our nonGuarantor subsidiaries of the incur additional indebtedness, the holders of that debt will be
entitled to share ahead of you in any proceeds distributed in connection with any insolvency,
liquidation, reorganization, dissolution or other winding-up of such subsidiaries. See “Description
of Certain Financing and Guarantee Arrangements.” If we incur additional indebtedness, the
related risks that we now face, as described above and elsewhere in these “Risk Factors,” could
intensify.
We are subject to restrictive covenants under the Revolving Credit Facility Agreement and the
Indentures, which could impair our ability to run our business.
Restrictive covenants under the Revolving Credit Facility Agreement and the Indentures may
restrict our ability to operate our business. Our failure to comply with these covenants, including
as a result of events beyond our control, could result in an event of default that could materially
and adversely affect our financial condition and results of operations.
The Revolving Credit Facility Agreement and the Indenture contain negative covenants
restricting, among other things, our ability to:
• make certain loans or investments;
• incur indebtedness or issue guarantees;
• create security;
• sell, lease, transfer or dispose of assets;
• merge or consolidate with other companies;
• transfer all or substantially all of our assets;
• make a substantial change to the general nature of our business;
• pay dividends and make other restricted payments;
• create or incur liens;
• agree to limitations on the ability of our subsidiaries to pay dividends or make other
distributions;
• engage in sales of assets and subsidiary stock; and
• enter into transactions with affiliates.
The restrictions contained in the Revolving Credit Facility Agreement and the Indentures could
affect our ability to operate our business and may limit our ability to react to market conditions
or take advantage of potential business opportunities as they arise. For example, such restrictions
could adversely affect our ability to finance our operations, make strategic acquisitions,
investments or alliances, restructure our organization or finance our capital needs. Additionally,
our ability to comply with these covenants and restrictions may be affected by events beyond our
control. These include prevailing economic, financial and industry conditions. If we breach any of
these covenants or restrictions, we could be in default under the Revolving Credit Facility
Agreement or the Indentures.
If there were an event of default under any of our debt instruments that is not cured or waived,
the holders of the defaulted debt could terminate their commitments thereunder and cause all
71
amounts outstanding with respect to such indebtedness to be due and payable immediately,
which in turn could result in cross defaults under our other debt instruments, including the
Notes. Any such actions could force us into bankruptcy or liquidation, and we may not be able to
repay our obligations under the Notes in such an event.
We may not be able to generate sufficient cash to meet our debt service obligations, or our
obligations under other financing agreements, in which case our creditors could declare all
amounts owed to them due and payable, leading to liquidity constraints.
Our ability to make interest payments on the Notes and to meet our other debt service
obligations, including under the Revolving Credit Facility Agreement and the Indentures, or to
refinance our debt, depends on our future operating and financial performance, which in turn
depends on our ability to successfully implement our business strategies including the business
plan approved by our Board of Directors and discussed by our Board of Directors in the
explanatory notes to our financial statements and mentioned as an emphasis of matter
paragraph in our independent auditors opinions and contained elsewhere in this Offering
Memorandum as well as general economic, financial, competitive, regulatory and other factors
that are beyond our control. If we cannot generate sufficient cash to meet our debt service
requirements, we may, among other things, need to refinance all or a portion of our debt,
including the Notes, obtain additional financing, delay planned capital expenditures or
investments or sell material assets.
If we are not able to refinance any of our debt, obtain additional financing or sell assets on
commercially reasonable terms or at all, we may not be able to satisfy our debt obligations,
including the Notes. If we are also unable to satisfy our obligations on other financing
arrangements, we could be in default under the Revolving Credit Facility Agreement, the
Indentures or other relevant financing agreements which we may enter into in the future. In the
event of a default under the Revolving Credit Facility Agreement or certain other defaults under
any other agreement, the lenders under the respective facilities or financing instruments could
take certain actions, including terminating their commitments and declaring all amounts that we
have borrowed under our credit facilities and other indebtedness to be due and payable,
together with accrued and unpaid interest. Such a default, or a failure to make interest payments
on the Notes, could mean that borrowings under other debt instruments that contain crossacceleration or cross-default provisions, including the Notes and the Revolving Credit Facility,
may as a result also be accelerated and become due and payable. If the debt under the Revolving
Credit Facility or the Notes or any other material financing arrangement that we have entered
into or will subsequently enter into were to be accelerated, our assets may be insufficient to
repay the Notes in full. Any such actions could force us into bankruptcy or liquidation, and we
might not be able to repay our obligations under the Notes in such an event. See “Presentation
of Financial Information—Snai,” “Description of Certain Financing and Guarantee
Arrangements” and “Description of the Notes.”
Risks related to the Notes, the Guarantees and the Collateral
The value of the assets securing the Notes may not be sufficient to satisfy our obligations under
the Notes.
No appraisal of the value of the Collateral has been prepared by us or on our behalf in
connection with the Offering. The value of the Collateral and the amount to be received upon a
sale of such Collateral will depend on many factors, including the ability to sell the Collateral in
an orderly sale, prevailing market and other economic conditions and the availability of suitable
buyers at the time of any such sale. By its nature, the Collateral may be illiquid and have no
ascertainable market value. Similarly, we cannot assure you that there will be a market for the
sale of the Collateral, or, if such a market exists, that there will not be a substantial delay in the
liquidation of the Collateral. The book value of the Collateral should not be relied on as a
measure of the realizable value for such assets. The fair market value of the Collateral as of the
72
date of this Offering Memorandum may not exceed the principal amount of the debt secured
thereby. The value of the Collateral, and in particular, the pledged capital stock, could be
impaired in the future as a result of changing economic conditions, failure to implement our
business strategy, competition and other future trends and may be without any value if that
entity is subject to an insolvency or bankruptcy proceeding. If the proceeds of Collateral were not
sufficient to repay amounts outstanding under the Notes and other indebtedness secured by the
Collateral, then holders of the Notes (to the extent not repaid from the proceeds of the sale of
the Collateral) would only have an unsecured claim against our remaining assets.
Creditors under the Revolving Credit Facility, certain hedging obligations and certain debt that
we incur in the future may be entitled to be repaid with the proceeds of the Collateral securing
the Notes in priority to the Notes.
Under the terms of the Intercreditor Agreement, proceeds from enforcement of the Collateral
securing the Notes must first be applied in satisfaction in full of obligations under the Revolving
Credit Facility and only thereafter to repay the obligations of the Issuer and the Guarantors
under the Notes and the Existing Senior Secured Notes (on a pro rata basis). Nonetheless, we may
decide to enter into other hedging in the future, some or all of which may be entitled to super
priority status in respect of the application of proceeds from the enforcement of the Collateral.
The Indentures and the Intercreditor Agreement will permit, under certain conditions, additional
“super priority debt” to be incurred. As such, in the event of enforcement of the Collateral
securing the Notes, holders of the Notes may not be able to recover on the Collateral if the thenoutstanding liabilities under such “super priority” debt, including the Revolving Credit Facility
and certain hedging obligations, if any, is greater than the proceeds realized in the event of
enforcement of the Collateral securing the Notes. See “Description of Certain Financing and
Guarantee Arrangements—Intercreditor Agreement” and “Description of the Notes.”
You will not have a security interest in any of the Collateral on the Issue Date (other than in
respect of the charge over the Escrow Account) and you will not have the benefit of the
Guarantees from the Guarantors on the Issue Date, and the Escrow Account will not be funded
to cover any accrued interest expense on the Notes.
Given the structure of the financing in connection with the Cogemat Acquisition, you will not
have a security interest in any of the Collateral (other than in respect of the charge over the
Escrow Account) in place on the Issue Date and the Guarantees will also not be in effect until
after the consummation of the Cogemat Acquisition. Within 30 business days following the
Completion Date, subject to the Agreed Security Principles, Cogemat and Cogetech will accede to
the Indenture as Guarantors. Prior to the Completion Date, the obligations of the Issuer under
the Notes will be secured by a charge over the Escrow Account. See also “—Risk Related to the
Cogemat Acquisition—If the conditions to the escrow are not satisfied, the Issuer will be required
to redeem the Notes, which means that you will not obtain the return you expect on the Notes.”
On or about the Completion Date, subject to the Agreed Security Principles, the Notes will be
secured on a first-ranking basis by the Completion Date Collateral. In addition, the Indenture will
require that, subject to the Agreed Security Principles, within 30 business days following the
Completion Date, the Notes be also secured on a first-ranking basis by the Cogemat Collateral.
See “Description of the Notes—Security.” See also “Limitations on Validity and Enforceability of
the Guarantees and Security Interests and Certain Insolvency Law Considerations.” There can,
however, be no assurance that we will be successful in procuring such liens within the time
period specified, the failure of which would result in an Event of Default under the Indenture.
In addition, the amount held in escrow upon the issuance of the Notes (equal to the proceeds
from the sale of the Notes offered hereby), net of a portion of the fees payable to the Initial
Purchasers, will not include any interest on the Notes from the Issue Date until the
consummation of the Cogemat Acquisition. The Issuer’s obligation to pay interest on the Notes
will be an unsecured obligation during this period and will rank behind its secured obligations to
the extent such amount is insufficient to pay the interest on the Notes.
73
It is not a condition to the release of the amounts held in escrow that the Guarantees or security
interests in the Collateral be in place. Any issues that we are not able to resolve in connection
with the delivery of Collateral may negatively affect the value of the Collateral. To the extent a
lien in certain Collateral is perfected following the Issue Date, it might be voidable in bankruptcy
or create new hardening periods. See “—The granting of the security interests in the Collateral
may create hardening periods for such security interests in accordance with Italian law.”
The Collateral will secure obligations under the Existing Senior Secured Notes and the Revolving
Credit Facility.
The Collateral will also secure the obligations under the Existing Senior Secured Notes and the
Revolving Credit Facility. In the event of an enforcement action against the Collateral, the
holders of the Notes will receive proceeds from the Collateral on a pari passu basis with the
holders of the Existing Senior Secured Notes in each case after amounts outstanding under the
Revolving Credit Facility and any super senior hedging have been satisfied in full. If the thenoutstanding debt under the Notes, the Existing Senior Secured Notes and the Revolving Credit
Facility is greater than the proceeds realized in the event of an enforcement of the Collateral, the
holders of the Notes may not be able to recover all amounts then-outstanding under the Notes.
Although the Guarantors will not guarantee the obligations under the Existing Senior Secured
Notes, following an acceleration under the Revolving Credit Facility, the Indenture governing
the Notes or the Existing Indentures, the Guarantors are not permitted to make any payments in
respect of the Notes other than pursuant to the application of the proceeds waterfall in the
Intercreditor Agreement.
As a result of applicable Italian law, the Guarantors will not guarantee the obligations under the
Existing Senior Secured Notes. However, following an acceleration under the Revolving Credit
Facility, the Indenture governing the Notes or the Existing Indentures, the Guarantors are not
permitted to make any payments in respect of the Notes other than pursuant to the application
of the proceeds waterfall in the Intercreditor Agreement. Accordingly, no amounts in respect of
the enforcement of the guarantees of the Notes by the Guarantors in such circumstances will be
available for satisfaction of the Guarantors’ obligations in respect of the Notes until all amounts,
if any, outstanding under the Revolving Credit Facility and any super senior hedging have been
satisfied in full. In addition, any recoveries available subsequent to the satisfaction of amounts
outstanding under the Revolving Credit Facility and any super senior hedging will be shared on a
pari passu basis with the Existing Senior Secured Notes and any future pari passu indebtedness.
As a consequence of the foregoing, any recoveries in favor of the holders of the Notes pursuant
to the Guarantees of the Notes may be diminished. See “Description of Certain Financing and
Guarantee Arrangements—Intercreditor Agreement.”
The claims of the holders of the Notes will be effectively subordinated to the rights of our
future secured creditors to the extent of the value of the assets securing such indebtedness
which does not constitute Collateral.
Upon release of the proceeds of the Offering from the Escrow Account and satisfaction of other
conditions, the Notes will be senior secured obligations of the Issuer and, subject to the Agreed
Security Principles, will be secured on a first-ranking basis by (i) a pledge over 50% plus one share
of the share capital of the Issuer, (ii) a pledge over 100.00% of the quotas of Teleippica S.r.l. and
(iii) a pledge over certain intellectual property rights of the Issuer. In addition, the Indenture will
require that, subject to the Agreed Security Principles, within 30 business days following the
Completion Date (subject only to registration formalities (where applicable) that will be
completed promptly following the Completion Date), the Notes will be secured on a first-ranking
basis by (i) a pledge over the Cogemat Contributed Shares and (ii) an assignment of the
receivables in respect of the Proceeds Loan. See also “—Creditors under the Revolving Credit
Facility, certain hedging obligations and certain debt that we incur in the future may be entitled
to be repaid with the proceeds of the Collateral securing the Notes in priority to the Notes.” The
74
Indenture will also provide for a negative pledge but will allow us and our restricted subsidiaries,
subject to specified limitations, to incur secured indebtedness that will be effectively senior to
the Notes to the extent of the value of the assets that secure that indebtedness. In the event of
any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation,
administration, reorganization, or other insolvency or bankruptcy proceeding, the proceeds from
the sale of assets securing any secured indebtedness will be available to pay obligations on the
Notes only after all such secured indebtedness (including claims preferred by operation of law)
has been paid in full. As a result, holders of Notes may receive less, ratably, than holders of
secured indebtedness. As of March 31, 2015, pro forma for the Transactions and after giving
effect to the repayment of the Series B Notes and the Azzurro Repayment, we would have had
€2.1 million of total financial indebtedness outstanding which was secured by assets other than
the Collateral.
An active trading market may not develop for the Notes, and the Notes will trade separately
from the Existing Senior Secured Notes.
The Notes are new securities for which there is currently no existing market. Although we will
apply to list the Notes on the Official List of the Luxembourg Stock Exchange for trading on the
Euro MTF Market within a reasonable period after the Issue Date, we cannot assure you that the
Notes will become or will remain listed. In addition, we cannot assure you as to the liquidity of
any market that may develop for the Notes, the ability of holders of the Notes to sell them or the
price at which the holders of the Notes may be able to sell them. The liquidity of any market for
the Notes will depend on the number of holders of the Notes, prevailing interest rates, the
market for similar securities and other factors, including general economic conditions and our
own financial condition, performance and prospects, as well as recommendations by securities
analysts. Historically, the market for non-investment grade debt, such as the Notes, has been
subject to disruptions that have caused substantial price volatility. If a market for the Notes were
to develop, such a market may be subject to similar disruptions. We have been informed by the
Initial Purchasers that they intend to make a market for the Notes after this Offering is
completed. Nevertheless, the Initial Purchasers are not obligated to do so and may cease their
market-making activity at any time without notice. In addition, such market-making activity will
be subject to limitations imposed by the U.S. Securities Act and other applicable laws and
regulations.
In addition, although the terms of the Notes will be substantially similar to those of the Existing
Senior Secured Notes, the Notes will trade separately under different ISIN/Common Code
numbers than the Existing Senior Secured Notes, will not be fungible with the Existing Senior
Secured Notes and the principal amount of the Notes that we issue will be much lower than the
principal amount of the Existing Senior Secured Notes currently outstanding. As a result, we
cannot assure you that an active trading market for the Notes will develop or, if one does
develop, that it will be maintained. As a result of these factors, a liquid trading market may not
develop for the Notes, and you may not be able to sell your Notes at a particular time or the
price that you receive when you sell the Notes may not be favorable.
It may be difficult to realize the value of the Collateral, and an enforcement action may result in
the termination of concessions.
The Collateral will be subject to exceptions, defects, encumbrances, liens and other imperfections
permitted under the Indenture, including other than in respect of the charge of the Escrow
Account, whether on or after the Completion Date. The existence of such exceptions, defects,
encumbrances, liens and other imperfections could adversely affect the value of the Collateral, as
well as the ability of the Security Agent to realize or foreclose on such Collateral. Furthermore,
the first-priority ranking of security interests can be affected by a variety of factors, including the
timely satisfaction of perfection requirements, statutory liens or re-characterization under Italian
law.
75
The Collateral may be subject to practical problems generally associated with the realization of
security interests in collateral. The Security Agent may also need to obtain the consent of a third
party to enforce a security interest. The Security Agent may not be able to obtain any such
consents. In addition, the consents of any third parties may not be given when required to
facilitate a foreclosure on such assets. Accordingly, the Security Agent may not have the ability to
foreclose upon those assets, and the value of the Collateral may significantly decrease.
In addition, our business requires a variety of concessions and licenses. The continued operation
of the Issuer and Cogemat, each of whose shares are, or will be, pledged as part of the Collateral,
depend on the maintenance of such concessions and licenses. Under some of our concessions and
licenses, public authorities impose restrictions on the transfers of the ownership of the
concessionaire or license holder, including a change of control clause, which prohibits the
transfer of the ownership of the concessionaire or license holder without the prior approval of
the authority. In the event of an enforcement action under the terms of the Notes which resulted
in the transfer of ownership of the Issuer or its subsidiaries, including, following the Cogemat
Acquisition, Cogemat, or a change in the shareholding of the Group for other reasons, the
authorities may attempt to cancel our concessions or licenses. In addition, the uncertainty
concerning the transferability of such concessions or licenses themselves could significantly
reduce the value placed on the concessions and licenses by third parties and ultimately reduce
the amount recovered in the event of an enforcement action. The applicable governmental
authorities may not consent to the transfer of any of such concessions or licenses. If the
regulatory approvals required for such transfers are not obtained, are delayed or are
economically prevented, the foreclosure may be delayed, a temporary or lasting shutdown of
operations may result, and the value of the Collateral may be significantly decreased.
The recovery from the enforcement of the share pledges forming part of the Collateral may be
complicated, involve long recovery times and a low recovery rate.
In connection with the enforcement of share pledges over shares of entities with outstanding
debt obligations, any sale of such entities is likely to involve a release of some or all of the debt
of such entity, which could result in a taxable capital gain to such entities. As the Notes will be
issued by the Issuer, an enforcement over the shares of the Issuer would involve the enforcement
over the share pledge of an entity with outstanding debt claims. In addition, the Indenture does
not prohibit the Issuer from incurring additional debt claims in the future. Consequently, the
enforcement of the share pledge over the Issuer’s shares may result in the release of the debt
obligations of the Issuer. Such release is permitted by the Intercreditor Agreement and could
result in a taxable capital gain. This taxable capital gain is likely to reduce the proceeds of any
recovery from the enforcement of such share pledge. Therefore, the value of the pledge over the
shares of the Issuer is limited.
The Guarantees and the Collateral will be subject to certain limitations on enforcement and may
be limited by applicable laws or subject to certain defenses that may limit its validity and
enforceability.
The obligations of the Guarantors and the enforcement of the Guarantees, and the obligations
of grantors of security and enforcement of the Collateral will be limited to the maximum amount
that can be guaranteed by such grantor of security under the applicable laws of Italy, including a
limitation to the extent that the grant of such pledge of security is not in the relevant pledgor’s
corporate interests, or otherwise would result in violations of laws related to corporate benefit,
capitalization, capital preservation, financial assistance or transactions under value.
Accordingly, enforcement of the Guarantees against the Guarantors or enforcement of the
Collateral against the relevant pledgor would be subject to certain defenses available to
guarantors generally or to limitations contained in the terms of the Guarantees designed to
ensure compliance with statutory requirements applicable to the Guarantors, or in some cases, to
limitations contained in the terms of the pledge designed to ensure compliance with statutory
requirements applicable to the relevant pledgors. These laws and defenses include those that
76
relate to fraudulent conveyances or transfers, insolvency, voidable preferences, financial
assistance, corporate purpose or benefit, preservation of share capital, thin capitalization and
defenses affecting the rights of creditors generally. As a result, the Guarantors’ liability under
their Guarantees or the liability of a pledgor of security of could be materially reduced or
eliminated, depending on the law applicable to it.
It is possible that a Guarantor or a grantor of security, or a creditor of a grantor of security, or
the bankruptcy trustee in the case of a bankruptcy of a grantor of security, may contest the
validity and enforceability of a Guarantee or the pledgor’s on any of the aforementioned
grounds and that the applicable court may determine that the Guarantee or the security should
be limited or voided. To the extent such limitations on the security obligation apply, the Notes
would be effectively subordinated to all liabilities of the applicable Guarantor or grantor of
security, including trade payables of such pledgor to the extent of such limitations. Future
guarantees or security may be subject to similar limitations.
Additionally, the grant of Collateral to secure the Notes may be voidable by the grantor or by an
insolvency trustee, liquidator, receiver or administrator or by other creditors, or may otherwise
be set aside by a court, or be unenforceable if certain events or circumstances exist or occur,
including, among others, if the grantor is deemed to be insolvent at the time of the grant, or if
the grant permits the secured parties to receive a greater recovery than if the grant had not been
given and an insolvency proceeding in respect of the grantor is commenced within a legally
specified “clawback” period following the grant. To the extent that the grant of any security
interest is voided, holders of the Notes would lose the benefit of the relevant security interest.
Moreover, under Italian law, claims of certain categories of creditors (creditori privilegiati) are
given statutory priority in relation to the proceeds of a debtor’s property in respect to the claims
of other creditors, even if such claims are secured claims. For a more detailed description of
various limitations on the security under Italian law and certain Italian insolvency law
considerations, see “Limitations on Validity and Enforceability of the Guarantees and Security
Interests and Certain Insolvency Law Considerations.”
Cogemat is a holding company and would be dependent on its subsidiaries to make payments
under its Guarantee.
Cogemat is a holding company and all of its revenue-generating activities are carried out by its
subsidiaries. As a result, in order to make payments under its Guarantee, Cogemat will be
dependent upon receiving payments from its subsidiaries in the form of dividends, share
reductions and/or the making, or repayment, of loans and, where permitted by applicable law,
advances. The ability of Cogemat’s subsidiaries to make payments to Cogemat will depend upon
their cash flows or earnings, which, in turn, will be affected by all of the factors discussed in
these “Risk Factors.” In addition, each of Cogemat’s subsidiaries is a separate and distinct legal
entity and their ability to make payments to Cogemat, including in the form of dividends, share
reductions and/or making, or repayment, of loans and advances, may be restricted under
applicable corporate and other laws. Furthermore, certain of Cogemat’s operating subsidiaries
have other debt and guarantee agreements which may restrict their ability to make distributions
or other payments to Cogemat. See “Description of Certain Financing and Guarantee
Arrangements.” We cannot assure you that arrangements with Cogemat’s subsidiaries will
provide Cogemat with sufficient dividends, distributions or loans to fund payments under its
Guarantee.
Holders of the Notes may not control certain decisions regarding the Collateral.
To the extent permitted under applicable law, and subject to the Agreed Security Principles, the
Notes will be secured on a first-ranking basis by substantially the same rights, property and assets
securing the obligations under the Revolving Credit Facility and the Existing Senior Secured Notes
but will not benefit from a perfected mortgage (ipoteca) over the real estate assets of the Issuer.
In addition, under the terms of the Indentures, we will be permitted to incur significant
additional indebtedness and other obligations that may be secured by the same Collateral.
77
Pursuant to the Intercreditor Agreement, the Indenture and the Existing Senior Secured Notes
Indenture a common security agent will serve as the Security Agent for the secured parties under
the Revolving Credit Facility, the Notes, the Existing Senior Secured Notes and the hedging
arrangements (if any), respectively, with regard to the shared Collateral (as applicable). The
Intercreditor Agreement will provide that the Security Agent will, subject to certain limited
exceptions, act to enforce the security interests in the Collateral and take instructions from the
relevant secured creditors in respect of the Collateral only at the direction of an “instructing
group.”
Generally, if there are conflicting enforcement instructions received by the Security Agent from
the different classes of creditors which are secured by the Collateral and who can constitute
either “majority super senior creditors” (generally, creditors representing 66 2⁄ 3% of the
aggregate of all unpaid and undrawn commitments under the Revolving Credit Facility
Agreement and the termination value or assumed termination value of certain future “super
priority” hedging obligations, if any) or “majority senior secured creditors” (generally, creditors
representing the majority of the outstanding principal amount under the Notes, any pari passu
secured indebtedness, including the Existing Senior Secured Notes, and the termination value or
assumed termination value of certain future “non super priority” hedging obligations, if any), as
the case may be, the representatives of the creditors sharing in the Collateral are required to first
consult in good faith with each other (in each case, including the Trustee on behalf of the
holders of the Notes and the trustee on behalf of the holders of the Existing Senior Secured
Notes, the agent on behalf of the lenders under the Revolving Credit Facility and certain
counterparties to hedging arrangements entered into by the Group, if any) and the Security
Agent, for a period of 30 days (or such shorter period as may be agreed) with a view to
coordinating the instructions to be given by an instructing group and agreeing an enforcement
strategy (a “joint enforcement strategy”). Upon conclusion of this “consultation period,” if the
relevant creditor representatives are unable to agree on a joint enforcement strategy or if
conflicting enforcement instructions are received by the Security Agent from the different classes
of creditors which are secured by the Collateral and who can constitute an instructing group, and
provided that the “security enforcement principles” set out in the Intercreditor Agreement have
been complied with, then the majority senior secured creditors shall constitute an instructing
group and shall have the right to instruct the Security Agent as to the enforcement of the
Collateral. Notwithstanding the foregoing, no consultation period shall be required if either
(i) any of the Collateral becomes enforceable because of an insolvency event in respect of the
Issuer or certain members of the Group, (ii) the majority super senior creditors or the majority
senior secured creditors determine in good faith that entering into consultation could reasonably
be expected to have a material adverse effect on the Security Agent’s ability to enforce any of
the Collateral or to reduce the amount likely to be realized upon enforcement of the Collateral
in any material respect, (iii) a period of no less than three months has elapsed since the date on
which the first enforcement instruction was received by the Security Agent or the super senior
liabilities have not been fully discharged within six months of the date on which the first
enforcement instruction was received by the Security Agent or (iv) the relevant creditor
representatives agree that no consultation period is required, in which case, the Security Agent
shall act in accordance with the instructions provided by the majority senior secured creditors
(provided that such instructions are consistent with the security enforcement principles set forth
in the Intercreditor Agreement). If the Security Agent is obliged to follow the enforcement
instructions of the majority senior secured creditors as discussed above and either (i) the super
senior creditors have not been repaid or prepaid in full within six months of the end of the
consultation period, (ii) the Security Agent has not commenced any enforcement action in
respect of the relevant Collateral within three months of the end of the consultation period or
(iii) an insolvency event has occurred in respect of Issuer or certain members of the Group and
the Security Agent has not commenced enforcement of the relevant Collateral or taken any other
enforcement action at that time, then the Security Agent shall, provided that the security
enforcement principles set out in the Intercreditor Agreement have been complied with, instead
78
follow the instructions that are given by the majority super senior creditors (and the terms of the
relevant previous enforcement instructions of the majority senior secured creditors which conflict
with the instructions of the majority super senior creditors shall be deemed revoked).
The foregoing security enforcement arrangements could be disadvantageous to the holders of
the Notes in a number of respects.
Disputes may occur between the holders of the Notes, creditors under our Revolving Credit
Facility, counterparties to certain hedging arrangements, if any, and/or holders of any permitted
pari passu secured indebtedness, including the Existing Senior Secured Notes, as to the
appropriate manner of pursuing enforcement remedies and strategies with respect to the
Collateral securing such obligations. In such an event, the holders of the Notes will be bound by
any decisions of the relevant instructing group, which may result in enforcement action in
respect of the relevant Collateral, whether or not such action is approved by the holders of the
Notes or may be adverse to such holders of the Notes. The creditors under the Revolving Credit
Facility, counterparties to certain hedging arrangements, if any, or the holders of any permitted
pari passu secured indebtedness, including the Existing Senior Secured Notes, may have interests
that are different from the interest of holders of the Notes and they may elect to pursue their
remedies under the relevant Security Documents at a time when it would otherwise be
disadvantageous for the holders of the Notes to do so.
Other creditors not party to the Intercreditor Agreement could commence enforcement action
against the Issuer or one or more of its subsidiaries during the consultation period, the Issuer or
one or more of its subsidiaries could seek protection under applicable bankruptcy laws, or the
value of certain Collateral could otherwise be impaired or reduced in value. In addition, if we
incur substantial additional indebtedness which may be secured on the Collateral, the holders of
the Notes may not comprise the requisite majority senior secured creditors for the purposes of
instructing the Security Agent. Further, if the super senior creditors have not been repaid in full
within six months of the end of the consultation period or in the event of the occurrence of
certain other circumstances described above, then control of the enforcement proceedings will
shift to the majority super senior creditors.
The holders of the Notes will also have no separate right to enforce the Collateral. In addition,
the holders of the Notes will not be able to instruct the Security Agent, force a sale of Collateral
or otherwise independently pursue the remedies of a secured creditor under the relevant Security
Documents, unless they comprise an instructing group which is entitled to give such instructions,
which, in turn, will depend on certain conditions and circumstances including those described
above.
In addition, if the Security Agent sells the shares of the Guarantors as a result of an enforcement
action in accordance with the Intercreditor Agreement, claims under the Notes and the
Guarantees and over any other assets securing the Notes may be released. See “Description of
Certain Financing and Guarantee Arrangements—Intercreditor Agreement” and “Description of
the Notes—Security—Release of liens.”
The ability of the Security Agent to enforce certain of the Collateral may be restricted by Italian
law.
The Indenture and the Intercreditor Agreement will provide that to the extent permitted by the
applicable laws, only the Security Agent has the right to enforce the Security Documents on
behalf of the Trustee and the holders of the Notes. As a consequence of such contractual
provisions, holders of the Notes will not be entitled to take enforcement action in respect of the
Collateral securing the Notes, except through the Trustee, who will (subject to the provisions of
the Indenture) provide instructions to the Security Agent in respect of the Collateral and in
accordance with the Intercreditor Agreement. See “Description of the Notes—Security.”
Furthermore, it is uncertain and untested in the Italian courts whether, under Italian law, security
can be created and perfected (i) in favor of creditors (such as the holders of the Notes) which are
79
neither directly parties to the relevant security documents nor are specifically identified therein
or in the relevant share certificates and corporate documents or public registries; and (ii) in favor
of The Law Debenture Trust Corporation p.l.c. as the Trustee of the holders of the Notes, since
there is no established concept of “trust” or “trustee” under Italian law and the precise nature,
effect and enforceability of the duties, rights and powers of the Trustee as agent or trustee for
holders of the Notes under security interests on Italian assets is debatable under Italian law.
To address the above potential issue, the Collateral will be created and perfected in favor of the
Trustee acting also in its capacity as legal representative (mandatario con rappresentanza) and
common representative (of the holders of the Notes pursuant to Articles 2417 and 2418 of the
Italian Civil Code. The Collateral will be granted in favor of the Trustee acting as legal
representative (mandatario con rappresentanza) and common representative (rappresentante
comune) of the holders of the Notes pursuant to the provisions above and Article 2414-bis,
paragraph 3, of the Italian Civil Code. Such paragraph 3 was recently added and expressly
provides that security interests and guarantees in favor of notes issued by Italian joint stock
companies may be granted in favor of a representative of the noteholders which shall be entitled
to exercise in the name and on behalf of the noteholders all their rights (including any rights
before any court and judicial proceedings) relating to the security interests and guarantees.
However, there is no guidance or case law available yet on the application of this new provision
to bond issuances made by Italian joint stock companies. Furthermore, to date, the Italian courts
have not considered whether a common representative (rappresentante comune) may be validly
appointed by means of a contractual arrangement (such as the Indenture) and the validity and
enforceability of such appointment may not be upheld by a court.
There are circumstances other than repayment or discharge of the Notes under which the
Collateral and/or the Guarantees may be released automatically, without your consent or the
consent of the Trustee.
Under various circumstances, the Collateral securing the Notes may be released automatically,
including, without limitation, the following:
• in connection with the disposition of Collateral (other than the pledge of the shares of the
Issuer) to (a) any person other than the Issuer or any restricted subsidiary, other than a
receivables subsidiary and excluding any transaction subject to the “consolidation and merger”
covenant, that is not prohibited by the Indenture or (b) the Issuer or any restricted subsidiary,
provided the relevant Collateral remains subject to, or otherwise becomes subject to, a lien in
favor of the holders of the Notes;
• if a restricted subsidiary is designated to be an unrestricted subsidiary, the release of the
property, assets and capital stock of such restricted subsidiary;
• upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture;
• as described under “Description of the Notes—Amendments and waivers” and “Description of
the Notes—Impairment of security interest”; and
• if the lien granted in favor of the Revolving Credit Facility, “public debt” (as defined in the
Indenture) or such other indebtedness that gave rise to the obligation to grant the lien over
such Collateral is released (other than pursuant to the repayment and discharge thereof).
The Indenture will also provide that the Collateral securing the Notes may also be released and
retaken in several circumstances, including in connection with the refinancing of certain
indebtedness, including the Notes. In Italy, such a release and retaking of Collateral may give rise
to the start of a new “hardening period” in respect of such Collateral. Under certain
circumstances, other creditors, insolvency administrators or representatives or courts could
challenge the validity and enforceability of the grant of such Collateral. Any such challenge, if
successful, could potentially limit your recovery in respect of such Collateral and thus reduce your
recovery under the Notes. See “Description of the Notes—Security—Release of liens.”
80
In addition, there are circumstances under which the Guarantees may be released automatically,
including, without limitation, the following:
• upon a sale or other disposition of ownership interests in the Guarantors (directly or through a
parent company) such that (a) the Guarantors do not remain a restricted subsidiary or (b) the
sale or disposition of all or substantially all the assets of the Guarantors, in each case other
than to the Issuer or a restricted subsidiary and otherwise not prohibited by the Indenture;
• if the Issuer designates the Guarantors as unrestricted subsidiaries in accordance with the
applicable provisions of the Indenture;
• upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture;
and
• in accordance with certain enforcement actions pursuant to any Intercreditor Agreement.
The rights of holders of Notes in the Collateral securing the Notes may be adversely affected by
the failure to perfect security interests in the Collateral.
Under Italian law, a security interest in certain property, plant and equipment and intangible
assets can only be properly perfected and thus retain its priority if certain actions are undertaken
by the secured party and/or the grantor of the security interest. The security interests in the
Collateral may not be perfected with respect to the claims of the Notes if we fail or are unable to
take the actions required to perfect any of these security interests. The Security Agent will not
have any obligation to take any steps or actions necessary to perfect any such security interests.
Such failure may result in the invalidity of the relevant security interest in the Collateral or
adversely affect the priority of such security interest in favor of third parties, including a trustee
in bankruptcy and other creditors who claim a security interest in the same Collateral which may
have a material adverse effect on the ability of the holders of Notes to receive proceeds from any
enforcement of the Collateral.
The Security Agent will not monitor, or we may not comply with our obligations to inform the
Security Agent of, any future acquisition of property and rights by us, and the necessary action
may not be taken to properly perfect the security interest in such after-acquired property or
rights. Such failure may result in the invalidity of the security interest in the Collateral or
adversely affect the priority of the security interest in favor of holders of Notes against third
parties. The Security Agent has no obligation to monitor the acquisition of additional property or
rights by us or the perfection of any security interest.
The granting of the security interests in the Collateral may create hardening periods for such
security interests in accordance with Italian law.
The granting of new security interests in connection with the issuance of the Notes, assuming
satisfaction of the condition regarding certain changes in Italian tax law as described in this
Offering Memorandum, may create hardening periods for such security interests in Italy and the
relevant regime for hardening periods may be less favorable if the secured debt (or part thereof)
is pre-existing to the granting of the security interest. In addition, the granting of shared security
interests to secure future permitted debt may restart or reopen such hardening periods. The
applicable hardening period for these new security interests will run from the moment each new
security interest has been granted, perfected or recreated. In each instance, if the security
interest granted, perfected or recreated were to be enforced before the end of the relevant
hardening period applicable in Italy, such security interest may be declared void and/or it may
not be possible to enforce it. “Limitations on Validity and Enforceability of the Guarantees and
Security Interests and Certain Insolvency Law Considerations.”
81
Part of the Cogemat Collateral is the receivables in respect of the Proceeds Loan, and the
principal amount of the Proceeds Loan may be less than anticipated as a result of prepayment
prior to the maturity date of the Notes.
The receivables in respect of the Proceeds Loan will be pledged to secure the Notes and form part
of the Collateral. Repayments prior to the maturity dates of the Notes of amounts due under the
Proceeds Loan would result in a reduction in the principal amount of the Proceeds Loan. We
cannot assure you that these amounts will not be reduced by payments prior to the maturity date
of the Notes. Any reduction in the principal amount of the Proceeds Loan could reduce the value
of your security on the receivables from the Proceeds Loan during the period prior to the
maturity date of the Notes.
The contractual subordination of the Existing Senior Subordinated Notes may not be
enforceable under Italian law.
The insolvency laws of Italy may not be as favorable to holders of the Notes as insolvency laws of
jurisdictions with which investors may be familiar. In particular, the statutory priority given to
creditors under the insolvency laws of the Republic of Italy may be different from that
established in the United States, the United Kingdom and certain other EU jurisdictions. In Italy,
neither a debtor nor the court can deviate from the rules of statutory priority by proposing their
own priorities of claims or by subordinating one claim to another based on the equitable
subordination principle. The rules of statutory priority apply irrespective of whether the proceeds
are derived from the sale of the entire bankrupt’s estate or part thereof, or from a single asset.
As a consequence, among other things, contractual priority of payments, subordination
arrangements and standstill/non-petition provisions such as those provided in the Intercreditor
Agreement and the Indenture to benefit the Notes by establishing the priority of indebtedness
between senior creditors, including holders of the Notes, and subordinated creditors, including
the holders of the Existing Senior Subordinated Notes, may not be enforceable against the
bankruptcy estate and/or the bankruptcy receiver of an Italian company, including the Issuer, in
the context of Italian insolvency proceedings. Accordingly, there can be no assurance that the
contractual priority afforded to the Notes in respect of the Existing Senior Subordinated Notes
will be enforceable by an Italian court, and the failure to enforce such provisions could materially
and adversely affect the holders of the Notes.
Fraudulent conveyance and similar laws may adversely affect the validity and enforceability of
the Guarantees and the Collateral.
Under Italian law, in the event that a Guarantor or a grantor enters into insolvency proceedings,
the Guarantees and security interests in the Collateral could be subject to potential challenges by
an insolvency administrator or by other creditors under the rules of avoidance or clawback of
Italian Bankruptcy Law and the relevant law on the non-insolvency avoidance or clawback of
transactions made by the debtor during a certain legally specified period (the “suspect period”).
The avoidance may relate to (i) transactions made by the debtor within a suspect period of one
year prior to the declaration of the insolvency at below market value (i.e., to the extent the asset
or obligation given or undertaken exceeds by one-quarter the value of the consideration
received by the debtor), or involving unusual means of payment (e.g., payment in kind) or new
security granted with respect to pre-existing debts not yet due at the time the new security is
granted, unless the creditor proves that it had no knowledge of the debtor’s insolvency at the
time the transaction was entered into, (ii) security granted within six months prior to the
declaration of insolvency with respect to the pre-existing debt already due and payable, unless
the creditor proves he had no knowledge of the debtor’s insolvency at the time the transaction
was entered into, and (iii) payments of due and payable obligations, transactions at arm’s length
or security granted simultaneously to the creation of the secured obligations during the suspect
period of six months prior to the declaration of the insolvency, provided that the bankruptcy
receiver proves that the creditor had no knowledge of the debtor’s insolvency at the time the
transaction was entered into. See “Limitations on Validity and Enforceability of the Guarantees
and Security Interests and Certain Insolvency Law Considerations” for further information.
82
Further, under Article 64 of the Italian Bankruptcy Law, subject to certain limited exceptions, all
transactions without consideration are ineffective vis-à-vis the bankruptcy estate if entered into
by the debtor in the two-year period prior to the declaration of insolvency. In addition, under
Article 65 of the Italian Bankruptcy Law, payments of receivables falling due on the day of the
declaration of insolvency or thereafter are ineffective vis-à-vis creditors, if made by the bankrupt
entity in the two-year period prior to insolvency. In addition, the EU Insolvency Regulation
contains conflicts of law rules which may determine which Member State has jurisdiction with
respect to cross-border insolvency proceedings.
If challenged successfully, the Guarantees and security interests in the Collateral may become
unenforceable and any amounts received must be refunded to the insolvent estate. To the extent
that the grant of the Guarantees or any security interest is voided, the holders of the Notes could
lose the benefit of the Guarantees and/or the security interest and may not be able to recover
any amounts under the related security documents.
The Notes will be structurally subordinated to the liabilities of the Issuer’s non-Guarantor
subsidiaries.
For the twelve months ended March 31, 2015, after giving pro forma effect to the Transactions,
the Issuer’s non-Guarantor subsidiaries represented approximately 4.1% of our pro forma
combined total revenues and 4.5% of our pro forma combined Adjusted EBITDA during such
period. As of March 31, 2015, pro forma for the Transactions, the Issuer’s non-Guarantor
subsidiaries represented 6.3% of our aggregated combined total assets. As of March 31, 2015,
after giving pro forma effect to the Transactions, our non-Guarantor subsidiaries would have had
certain trade payables and other liabilities outstanding but no financial indebtedness. The
Indenture governing the Notes will, however, permit non-Guarantor subsidiaries to incur certain
indebtedness in the future.
Our non-Guarantor subsidiaries will not have any obligations to pay amounts due under the
Notes or to make funds available for that purpose. Generally, holders of indebtedness of, and
trade creditors of, such subsidiaries, including lenders under bank financing agreements, are
entitled to payments of their claims from the assets of such subsidiaries before these assets are
made available for distribution to the Issuer, as a direct or indirect shareholder and the creditors
of the Issuer (including the holders of the Notes) will have no right to proceed against the assets
of such subsidiary. As such, the Notes will be structurally subordinated to the creditors (including
trade creditors) and any holders of preferred stock of our non-Guarantor subsidiaries.
Future liquidity and cash flow difficulties could prevent us from repaying the Notes when due or
repurchasing the Notes when we are required to do so pursuant to certain events constituting a
change of control or otherwise, and the change of control provision contained in the Indenture
may not necessarily afford you protection in the event of certain important corporate events.
At final maturity of the Notes, or in the event of acceleration of the Notes following an event of
default, the entire outstanding principal amount of the Notes will become due and payable. In
addition, upon the occurrence of certain events constituting a change of control, holders of the
Notes may in certain circumstances require the Issuer to make an offer to purchase the Notes at a
purchase price equal to 101% of the principal amount, plus accrued but unpaid interest and
additional amounts, if any, to the purchase date. See “Description of the Notes—Change of
Control.” The Issuer may not have sufficient funds or may be unable to arrange for additional
financing to pay these amounts when they become due.
The Issuer’s failure to repay holders tendering Notes upon the occurrence of a change of control
event would result in an event of default under the Notes. If a change of control event were to
occur, we cannot assure you that we would have sufficient funds to repay our outstanding
indebtedness which we would be required to prepay or offer to purchase or that became
immediately due and payable as a result. We may require additional financing from third parties
to fund any such purchases and we cannot assure you that we would be able to obtain financing
83
on satisfactory terms or at all. Restrictions in the Revolving Credit Facility Agreement or our other
then-existing contractual obligations, may also restrict us from making such required
repurchases. See “Description of Certain Financing and Guarantee Arrangements—Revolving
Credit Facility—Repayments and Prepayments.” A change of control is a mandatory prepayment
event under our Revolving Credit Facility Agreement and a change of control may result in an
event of default under, or acceleration of, our other indebtedness. The repurchase of the Notes
pursuant to such an offer could cause a default under such indebtedness, even if the change of
control itself does not.
The change of control provision contained in the Indenture may not necessarily afford you
protection in the event of certain important corporate events, including reorganization,
restructuring, merger or other similar transaction involving us that may adversely affect you,
because such corporate events may not involve a shift in voting power or beneficial ownership.
The definition of “change of control” contained in the Indenture, includes a disposition of all or
substantially all the assets of the Issuer and its restricted subsidiaries taken as whole. Although
there is a limited body of case law interpreting the phrase “all or substantially all,” there is no
precise established definition of the phrase under applicable law. Accordingly, in certain
circumstances there may be a degree of uncertainty as to whether a particular transaction would
involve a disposition of “all or substantially all” the assets of the Issuer and its restricted
subsidiaries taken as a whole. As a result, it may be unclear as to whether a change of control has
occurred and whether the Issuer is required to make an offer to repurchase the Notes.
We are exposed to interest rate risks. Shifts in such rates may adversely affect our debt service
obligations.
The Revolving Credit Facility bears interest at floating rates of interest equal to the applicable
EURIBOR for the relevant interest period plus a margin adjusted at regular intervals. These
interest rates could rise significantly in the future reducing cash flow available for capital
expenditures and hindering our ability to make payments on the Notes.
The Indenture will not contain a covenant requiring us to hedge all or any portion of our floating
rate debt. We may, however, elect to enter into certain hedging arrangements designed to fix a
portion of these rates, although there can be no assurance that we will enter into hedging or
that hedging will be available on commercially reasonable terms. In addition, hedging carries
certain risks, including that we may need to pay significant amounts (including costs) to
terminate any hedging arrangements. To the extent that interest rates were to increase
significantly, our interest expense would correspondingly increase, reducing our cash flow.
We may be unable to raise the funds necessary to refinance indebtedness maturing on or prior
to the stated maturity of the Notes or to repay the Notes at maturity.
The Notes offered hereby will mature on June 15, 2018, the same date on which the Existing
Senior Secured Notes mature. The Senior Subordinated Notes mature on June 15, 2018. The
Revolving Credit Facility will mature on the date falling six months prior to the maturity date of
the Notes. In addition, certain of our and the Cogemat Group’s other indebtedness that will
remain outstanding following the Transactions may be terminated or repayable prior to the
respective maturities of the Notes, the Existing Senior Secured Notes and the Senior Subordinated
Notes. As a result, we may not have sufficient cash to repay all amounts owing on the Notes,
since the simultaneous or prior maturity of such other indebtedness may make it difficult to
refinance the Notes offered hereby. In addition, if our access to capital markets or our ability to
enter new financing arrangements is reduced for any reason, we may not be able to refinance
our Revolving Credit Facility on satisfactory terms or at all, which could have a material adverse
effect on our business, financial position and results of operations.
84
The Issuer may amend the economic terms and conditions of the Notes with the vote of either
75% or 50% of the aggregate principal amount of the outstanding Notes.
The Indenture will contain provisions for calling meetings of the holders of the Notes to consider
matters affecting their interests. As set forth in “Description of the Notes—Meeting of holders of
notes” the majority required to pass an extraordinary resolution at any meeting of holders of the
relevant series of Notes will be one or more persons holding or representing at least 75% of the
aggregate principal amount of such outstanding Notes. These provisions permit defined
majorities (50% or 75%), depending on the nature of the resolution to bind all holders of the
relevant series of Notes, including holders of the relevant series of Notes who did not attend and
vote at the relevant meeting, and holders of the relevant series of Notes who voted in a manner
contrary to the relevant majority. In particular, under the Indenture, an extraordinary resolution
may include, among other things, proposals to reduce the rate or change the time for payment
of principal or interest in respect of the relevant series of Notes, to change the date on which any
Note may be subject to redemption or reduce the redemption price, to change the currency of
payments under the relevant series of Notes or to change the majority required to pass a
resolution, and change the amendment provisions. These and other changes may adversely
impact rights of holders of Notes and may have a material adverse effect on the market value of
the Notes. Under Italian law, the approval of an extraordinary resolution amending the terms
and conditions of the Notes typically requires the consent of more than one half of the
aggregate principal amount of the outstanding Notes. Our decision to increase the majority
requirement is untested under Italian law, may be challenged by holders of the Notes, the Issuer
and others, and if challenged, may not be upheld by an Italian court, with the consequence being
that the majority voting threshold may be reduced from 75% to 50%.
In addition, the Notes will not vote as a single class with the Existing Senior Secured Notes for
purposes of the Indenture or the indenture governing the Existing Senior Secured Notes and
accordingly any consent or waiver obtained in respect of the Notes will not be applicable to the
Existing Senior Secured Notes and vice-versa.
The insolvency laws of Italy may not be as favorable to you as U.S. bankruptcy laws.
The Issuer and the Guarantors are organized under the laws of Italy. The insolvency laws of Italy
may not be as favorable to your interests as the laws of the United States or other jurisdictions
with which you are familiar, including in respect of creditors’ reorganization, priority of creditors,
the ability to obtain post-petition interest and the duration of the insolvency proceedings, and
thus may limit your ability to recover payments due on the Notes to the extent exceeding the
limitations arising under other insolvency laws. In the event that the Issuer or any future
subsidiary of the Issuer experiences financial difficulty, it is not possible to predict with certainty
the outcome of such proceedings. In particular, the insolvency and other laws of Italy may be
materially different from, or in conflict with, each other, including in the areas of rights of
secured and other creditors, the ability to void preferential transfer, priority of governmental
and other creditors, the ability to obtain post-petition interest and the duration of the
proceeding. The application of these laws could call into question whether any particular
jurisdiction’s laws should apply, adversely affect your ability to enforce your rights against the
Collateral in Italy and limit any amounts that you may receive. For an overview of certain
insolvency laws and enforceability issues as they relate to the Issuer, see “Limitations on Validity
and Enforceability of the Guarantees and Security Interests and Certain Insolvency Law
Considerations.”
You may be unable to recover in civil proceedings for U.S. securities laws violations.
The Issuer is incorporated under the laws of Italy. None of the members of the Issuer’s
management are residents of the United States and substantially all their assets are located
outside the United States. As a result, it may not be possible for investors to effect service of
process within the United States upon us or the members of management, or to enforce against
85
the Issuer or them judgments obtained in U.S. courts predicated upon civil liability provisions of
the U.S. securities laws. See “Service of Process and Enforcement of Civil Liabilities.”
The transferability of the Notes may be limited under applicable securities laws.
The Notes have not been, and will not be, registered under the U.S. Securities Act or the
securities laws of any state or any other jurisdiction and, unless so registered, may not be offered
or sold in the United States, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the U.S. Securities Act and the applicable securities
laws of any state or any other jurisdiction. See “Notice to Investors.” It is the obligation of
holders of the Notes to ensure that their purchase and any subsequent transfer of the Notes
within the United States and other countries comply with applicable securities laws.
Payments in respect of the Notes may in certain circumstances be made subject to withholding
or deduction of tax.
The Issuer is not liable to pay any additional amounts in relation to any withholding or deduction
required pursuant to Decree No. 239 where the Notes are held by a person resident in a country
that does not allow for satisfactory exchange of information with Italy (as per Article 168-bis,
Italian Presidential Decree No. 917 of December 22, 1986) and otherwise in the circumstances as
described in “Description of the Notes—Additional amounts.” Investors resident in such countries
or investors that are resident in a country allowing for the satisfactory exchange of information
with Italy (as per Article 168-bis, Italian Presidential Decree No. 917 of December 22, 1986) but
that do not satisfy the conditions set forth by Decree No. 239 will only receive the net proceeds
of their investment in the Notes. See “Tax Considerations—Italian tax considerations” and
“Description of the Notes—Additional amounts.”
Investors may face foreign exchange risks by investing in the Notes.
The Notes offered hereby are denominated and payable in euros. If you measure your investment
returns by reference to a currency other than euros, an investment in the Notes will entail
foreign exchange risks related to, among other factors, possible significant changes in the value
of the euro relative to the currency by reference to which you measure the return on your
investments because of economic, political and other factors over which we have no control.
Depreciation of the euro against the currency by reference to which you measure the return on
your investments could cause a decrease in the effective yield of the Notes below the stated
coupon rate and could result in a loss to you when the return on the offered Notes is translated
into the currency by reference to which you measure the return on your investments. There may
be tax consequences for you as a result of any foreign exchange gains or losses resulting from an
investment in the Notes.
Credit ratings may not reflect all risks, are not recommendations to buy or hold securities and
may be subject to revision, suspension or withdrawal at any time.
One or more independent credit rating agencies are expected to assign credit ratings to the
Notes. The credit ratings address our ability to perform our obligations under the terms of the
Notes and credit risks in determining the likelihood that payments will be made when due under
the Notes. The ratings may not reflect the potential impact of all risks related to the structure,
market, additional risk factors discussed above and other factors that may affect the value of the
Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject
to revision, suspension or withdrawal by the rating agency at any time. No assurance can be
given that a credit rating will remain constant for any given period of time or that a credit rating
will not be lowered or withdrawn entirely by the credit rating agency in the future if in its
judgment circumstances so warrant. A suspension, reduction or withdrawal at any time of the
credit rating assigned to the Notes by one or more of the credit rating agencies may adversely
affect the cost and terms and conditions of our financings and could adversely affect the value
and trading of the Notes.
86
Market perceptions concerning the instability of the euro, the potential reintroduction of
individual currencies within the Eurozone or the potential dissolution of the euro entirely, could
negatively impact our business or our ability to refinance our liabilities, including the Notes.
Recent economic events affecting European economies (including, in particular the potential
default by Greece and its potential exit from the Euro) have raised a number of questions
regarding the stability and overall standing of the European Monetary Union. Credit risk in these
countries and in other Eurozone countries could have a negative impact on our business.
Concerns also remain regarding the overall stability of the euro and the suitability of the euro as
a single currency given the diverse economic and political circumstances in individual euro
member states. The departure or risk of departure from the euro by one or more Eurozone
countries (such as Greece) could have major negative effects on our existing contractual relations
with our customers, and could adversely affect the Italian economy, where we generate all of our
revenues. Any of these developments could affect our ability to refinance our liabilities, including
the Notes, and have a significant negative impact on our business, financial condition and results
of operations.
The Notes will initially be held in book-entry form and therefore you must rely on the
procedures of the relevant clearing systems to exercise any rights and remedies.
Unless and until definitive Notes are issued in exchange for book-entry interests in the Notes
(which will only occur in very limited circumstances), owners of the book-entry interests will not
be considered owners or holders of Notes. The common depositary (or its nominee) for the
accounts of Euroclear and Clearstream will be the registered holder of the Notes. Payments of
principal, interest and other amounts owing on or in respect of the global notes representing the
Notes will be made to Deutsche Bank AG, London Branch, as Paying Agent, which will make
payments to Euroclear and Clearstream. Thereafter, these payments will be credited to
participants’ accounts that hold book-entry interests in the global notes representing the Notes
and credited by such participants to indirect participants. After payment to the common
depositary, we and the Trustee will have no responsibility or liability for the payment of interest,
principal or other amounts to the owners of book-entry interests. Accordingly, if you own a
book-entry interest, you must rely on the procedures of Euroclear or Clearstream, as applicable,
and if you are not a participant in Euroclear or Clearstream, on the procedures of the participant
through which you own your interest, to exercise any rights and obligations of a holder under
the Indenture. See “Book-Entry, Delivery and Form.”
Unlike holders of the Notes themselves, owners of book-entry interests will not have the direct
right to act upon our solicitations for consents or other actions from holders of the Notes.
Instead, if you own a book-entry interest, you will be permitted to act only to the extent you
have received appropriate proxies to do so from Euroclear or Clearstream or, if applicable, from a
participant. We cannot assure you that procedures implemented for the granting of such proxies
will be sufficient to enable you to vote on any requested actions on a timely basis.
Similarly, upon the occurrence of an event of default under the Indenture, unless and until
definitive registered Notes are issued in respect of all book-entry interests, if you own a bookentry interest, you will be restricted to acting through Euroclear or Clearstream. We cannot
assure you that the procedures to be implemented through Euroclear or Clearstream will be
adequate to ensure the timely exercise of rights under the Notes.
87
Use of Proceeds
Use of proceeds
We expect the gross proceeds from the Offering of the Notes will be approximately
€110.0 million. We expect to pay approximately €3.0 million of fees and expenses, including the
Initial Purchasers’ commission and the estimated fees and expenses in respect of the Transactions.
The net proceeds from the Offering of the Notes together with Cogemat Group cash will be used
to refinance the Cogemat Existing Debt and for general corporate purposes. See “Capitalization”
and “Description of Other Financing and Guarantee Arrangements.”
Sources and uses
We expect the gross proceeds from the Offering will be approximately €110.0 million. We intend
to use the net proceeds from the Offering and Cogemat Group cash to refinance the Cogemat
Existing Debt (the “Cogemat Refinancing”) and for general corporate purposes. As of the Issue
Date, the Revolving Credit Facility is expected to be undrawn. The estimated sources and uses of
the funds are shown in the table below. Actual amounts will vary from estimated amounts
depending on several factors, including estimated costs, fees and expenses, differences from our
estimates of existing cash in the business, differences from our estimates of the cost of repaying
the Cogemat Existing Debt and the ultimate timing of the Completion Date.
Sources of funds
Uses of funds
(millions of €)
Notes offered hereby(1) . . . . . . . . . . . . . . . . . 110.0 Refinancing of Cogemat Existing
Debt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115.5
Cogemat Group cash(2) . . . . . . . . . . . . . . . . . . 36.1 General corporate purposes . . . . . . . . . . . 27.6
Transaction fees and expenses . . . . . . . . .
3.0
Total sources . . . . . . . . . . . . . . . . . . . . . . . . . . 146.1 Total uses . . . . . . . . . . . . . . . . . . . . . . . . . . . 146.1
(1) Assumes issuance of the Notes offered hereby at par.
(2) Cogemat Group cash includes approximately €10.0 million in restricted cash as of March 31, 2015, that, in connection with
amending the 2011 Guarantee Facility Agreement and the 2013 Guarantee Facility Agreement, will be released and become
freely available to the Group. Restricted cash refers to Cogetech’s accounts or deposits that have been pledged to secure
guarantee facility agreements of Cogetech. See “Description of Certain Financing and Guarantee Arrangements—The
Cogemat Group—Bank guarantees in favor of ADM and UNIRE on behalf of Cogetech.” Cogemat Group cash includes €4.6
million of cash used for the Azzurro Repayment made on June 30, 2015. Cogemat Group cash excludes deposits made to
ADM, equal to €26.4 million as of March 31, 2015, which are periodically returned to the Cogemat Group by ADM provided
they honor the commitments of their gaming machine concessions. The amount the Cogemat Group’s deposit with ADM for
2015 was reduced by €6.6 million in May 2015 to satisfy the first installment of their portion of the Stability Fee. See
“Cogemat Group Business—Legal Proceedings—Pending litigation regarding the Italian Stability Law of 2015—Administrative
proceeding against the Italian Stability Law of 2015.” The actual amount of cash received from the Cogemat Group may vary
as a result of certain adjustments related to changes in the Cogemat Group’s working capital, closing cash and debt and
certain other items, including tax liabilities and this could affect the cash reflected hereunder.
(3) Following the Completion Date we intend to use the net proceeds from the Notes offered hereby, together with cash on
hand, to refinance the Cogetech Senior Facility and the Cogemat Notes.
Pending the consummation of the Cogemat Acquisition, the proceeds of the Offering, net of a
portion of the fees payable to the Initial Purchasers, will be deposited into the Escrow Account in
the name of the Issuer but controlled by the Escrow Agent and charged on a first-ranking basis in
favor of the Trustee on behalf of the holders of the Notes pursuant to the Escrow Agreement.
The release of the escrow proceeds will be subject to the satisfaction of certain conditions,
including conditions relating to the Cogemat Acquisition on the terms set forth in the Investment
Agreement, except for changes or other modifications or waivers that will not, individually or
when taken as a whole, have a materially adverse effect on the holders of the Notes. The
consummation of the Cogemat Acquisition is subject to certain conditions, including regulatory
and antitrust approvals and the effectiveness of the Cogemat Contribution. If the Cogemat
Acquisition is not consummated on or prior to the Escrow Longstop Date, or upon the occurrence
of certain other events, then all of the Notes will be subject to a special mandatory redemption.
88
The special mandatory redemption will be at a price equal to 100% of the issue price of the
Notes, plus accrued and unpaid interest and Additional Amounts, if any, from the Issue Date to
the date of the special mandatory redemption. See “Description of the Notes—Escrow of
Proceeds; Special Mandatory Redemption” and “Risk Factors—Risks related to the Cogemat
Acquisition—If consummation of the Cogemat Acquisition is delayed beyond the Longstop Date,
or if the other conditions to the escrow are not satisfied, the Issuer will be required to redeem
the Notes, which means that you may not obtain the return you expect on the Notes.”
Upon consummation of the Cogemat Acquisition and release of the escrow proceeds to the
Issuer, the Issuer will loan the net proceeds of the Offering to Cogetech (the “Proceeds Loan”) to
be used by Cogetech and Cogemat to refinance the Cogemat Existing Debt. See “Description of
Certain Financing and Guarantee Arrangements—The combined Group—Proceeds Loan.” The
Cogemat Senior Facility will be repaid and extinguished and the associated hedging
arrangements will be terminated on the Completion Date. If the Completion Date occurs prior to
November 16, 2015, funds necessary to repay the Cogemat Notes on November 16, 2015,
including the principal amount thereof and all accrued and unpaid interest up to and including
November 16, 2015 (the “Cogemat Notes Cash Collateral”), will be deposited into a bank account
of Cogemat charged in favor of the holders of the Cogemat Notes (the “Cogemat Notes
Account”). Upon deposit of the Cogemat Notes Cash Collateral into the Cogemat Notes Account,
all security and guarantees in respect of the Cogemat Notes will be released (other than the
Cogemat Notes Cash Collateral) and certain covenants relating to the Cogemat Notes will cease
to apply to Cogemat and none of the covenants or other provisions will apply to Cogetech or its
subsidiaries. Certain events of default, including but not limited to non-payment, breach of other
obligations, cross default and insolvency matters set forth in the conditions governing the
Cogemat Notes would continue to apply to Cogemat up through the date on which the Cogemat
Notes are redeemed. In this circumstance, the Cogemat Notes Cash Collateral will be released
from the Cogemat Notes Account to the holders of the Cogemat Notes on November 16, 2015,
completing the redemption of the Cogemat Notes and satisfying Cogemat’s obligations in
respect thereof. The holders of the Cogemat Notes may request and receive an advance payment
of the Cogemat Notes Cash Collateral (the “Advance”) prior to November 16, 2015 in certain
circumstances. Cogemat may not withdraw funds from the Cogemat Notes Account other than to
pay interest on the Cogemat Notes and to fund the Advance or redeem the Cogemat Notes on
November 16, 2015. If, however, the Completion Date occurs on or after November 16, 2015, the
Cogemat Notes, including all accrued and unpaid interest up to and including the date of
repayment, will be redeemed by Cogemat on or about the Completion Date.
89
Capitalization
The following table sets forth consolidated cash and cash equivalents and consolidated
capitalization (consisting of total financial debt and shareholders’ equity) of the Issuer and the
Cogemat Group as of March 31, 2015 on a historical basis and pro forma for the Transactions, the
repayment of the Series B Notes, the Azzurro Repayment and the release of certain restricted
cash of the Cogemat Group as if such events had occurred on March 31, 2015 (assuming that the
Cogemat Acquisition is completed on the terms and in accordance with the assumptions set forth
under “Unaudited Pro Forma Consolidated Financial Information”). The historical consolidated
financial information has been derived from our and the Cogemat Group’s unaudited interim
condensed consolidated financial statements as of and for the three months ended March 31,
2015 prepared in accordance with IFRS and included elsewhere in this Offering Memorandum.
This table should be read in conjunction with “Presentation of Financial Information,” “Risk
Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of Snai,” “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of the Cogemat Group,” “Unaudited Pro Forma Consolidated Financial
Information,” “Description of Certain Financing and Guarantee Arrangements” and the financial
statements and the accompanying notes appearing elsewhere in this Offering Memorandum.
Except as set forth below, there have been no other material changes to the Issuer’s
capitalization since March 31, 2015.
90
Pro forma Adjustments
As of March 31,
as of March 31, 2015
2015
Series B Notes
repayment
The The Offering
and the
The Cogemat
Cogemat
and use of
Azzurro
Snai
Group Acquisition
proceeds
Repayment
Pro Forma(1)
(unaudited)
As of March 31, 2015
(thousands of €)
Cash and cash equivalents . . . . . . . 93,939(2)
Snai total financial debt:
Notes offered hereby . . . . . . . . . .
Amortized cost of Notes offered
hereby(6) . . . . . . . . . . . . . . . . . . .
Existing Senior Secured Notes . . .
Senior Subordinated Notes . . . . .
Series B Notes(7) . . . . . . . . . . . . . . .
Amortized cost of Existing
Senior Secured Notes, Senior
Subordinated Notes and
Revolving Credit Facility . . . . . .
Interest expense on Existing
Senior Secured Notes, Senior
Subordinated Notes and
Revolving Credit Facility . . . . . .
Revolving Credit Facility(8) . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
Cogemat total financial debt:
Cogemat Notes . . . . . . . . . . . . . . .
Cogemat Senior Facility . . . . . . . .
Amortized Cost of Cogemat
Notes and Cogemat Senior
Facility . . . . . . . . . . . . . . . . . . . . .
Fair value embedded derivative
(Bond Euribor Floor) . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
Total
1,524(4)
–
320,000
160,000
20,000
–
–
–
–
–
–
–
–
(16,140)
–
–
–
267
(15,873)
13,053
–
2,171
–
–
–
–
–
–
–
–
–
(336)
–
–
12,717
–
2,171
–
–
53,999
60,959
–
–
(53,999)
(60,959)
–
–
–
–
–
(9,471)
–
9,471
–
–
–
–
–
(4,180)
(519)
–
–
–
(4,598)
–
–
66
114,851
–
(3,186)
(24,667)
586,081
. . . . . 60,068
40,447
99,894
(3,836)
(267)
196,306
. . . . . . . . . . . 559,152
155,298
99,894
(7,022)
(24,934)
782,387
–
4,180
519
4,664(9)
(3,000)
–
–
–
–
96,653(5)
–
–
110,000
(24,934)
–
equity(10)
capitalization(11)
–
–
Total financial debt . . . . . . . . . . . . . 499,084
Total shareholders’
26,124(3)
–
–
–
(20,000)
110,000
(3,000)
320,000
160,000
–
(1) We have prepared the information presented in the “pro forma” column for illustrative purposes only. Such information
addresses a hypothetical situation and therefore, does not represent our actual financial position or results. Consequently,
such information may not be indicative of our total capitalization as of the date of this Offering Memorandum or any prior
date. Investors are cautioned not to place undue reliance on this hypothetical information.
(2) Snai cash and cash equivalents excludes €17.9 million in deposits made to ADM as of March 31, 2015, which ADM is required
to return to us next year provided we honor the commitments of our gaming machine concession. The amount of our deposit
with ADM was reduced by €4.1 million in May 2015 to satisfy the first installment of our portion of the Stability Fee. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of Snai—Net financial
indebtedness.”
(3) Cogemat Group cash and cash equivalents excludes €26.4 million in deposits made to ADM as of March 31, 2015 which ADM
is required to return to the Cogemat Group next year provided they honor the commitments of their gaming machine
concession. The amount of the Cogemat Group’s deposit with ADM was reduced by €6.6 million in May 2015 to satisfy the
first installment of their portion of the Stability Fee. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of the Cogemat Group—Financial indebtedness.” The actual amount of Cogemat Group cash may vary
subject to certain adjustments as a result of changes in the Cogemat Group’s working capital, closing cash and debt and
certain other items, including tax liabilities and this could impact the cash reflected hereunder.
(4) Includes the proceeds from the Offering and the use of the proceeds therefrom for the Cogemat Refinancing. Also includes
the release of approximately €10.0 million in restricted cash of the Cogemat Group that have been pledged to secure
guarantee facility agreements of Cogetech, but that will be released and freely available to the Cogemat Group in
connection with amending the 2011 Guarantee Facility Agreement and the 2013 Guarantee Facility Agreement. See
“Description of Certain Financing and Guarantee Arrangements—The Cogemat Group—Bank guarantees in favor of ADM
and UNIRE on behalf of Cogetech.”
(5) Pro forma cash and cash equivalents has not been adjusted to give effect to the following events occurring after March 31,
2015: (i) our €11.1 million cash payment of the first installment of the Stability Fee on April 30, 2015 (see “Summary—Recent
developments—Stability Fee payments” and “Snai’s Business—Legal proceedings—Pending litigation regarding the Italian
Stability Law of 2015—Administrative proceeding against the Italian Stability Law of 2015”) and (ii) the Cogemat Group’s
€12.2 million cash payment of the first installment of the Stability Fee on April 30, 2015 (see “Summary—Recent
developments—Stability Fee payments” and “Cogemat Group Business—Legal proceedings—Pending litigation regarding the
91
Italian Stability Law of 2015—Administrative proceeding against the Italian Stability Law of 2015”). If these events had been
taken into account, the total adjustment to cash and cash equivalents would have been negative €42.1 million and pro forma
cash and cash equivalents would have been €78.0 million.
(6) Assumes issuance of the Notes at par.
(7) The Series B Notes matured on May 5, 2015, and the Issuer repaid the outstanding principal amount plus accrued and unpaid
interest from cash on hand.
(8) In addition, in connection with, the Cogemat Acquisition, and subject to the satisfaction of certain conditions set out in the
Commitment Letter, the amount available under the Revolving Credit Facility will be increased by €25.0 million to an
aggregate amount of €55.0 million pursuant to the terms of the Revolving Credit Facility Agreement. See “Summary—The
Transactions.” The Revolving Credit Facility is secured by first-ranking security over the same Completion Date Collateral that
will secure the Notes offered hereby and also benefits from a perfected mortgage (ipoteca) over certain real estate assets of
the Issuer and will also be secured by the Cogemat Collateral. See “Description of Certain Financing and Guarantee
Arrangements—The combined Group—Revolving Credit Facility.”
(9) Includes €4.6 million owed by Cogetech for the final deferred payment of the acquisition of the entire share capital of
Azzurro, which was made on June 30, 2015.
(10) The amount of total pro forma shareholders’ equity includes changes in Snai’s shareholders’ equity resulting from the Capital
Increase and the Cogemat Contribution as well as the repayment of the Series B Notes. See “Summary—The Transactions—
The Cogemat Acquisition.”
(11) Total capitalization is defined as the sum of total indebtedness and total shareholders’ equity.
92
Selected Historical Consolidated Financial Information
and Other Data
The following tables present selected historical consolidated financial information and other data
as of and for each of the years ended December 31, 2012, 2013 and 2014 and as of March 31,
2015 and for the three months ended March 31, 2014 and 2015 for the Issuer, as of December 31,
2013 and 2014 and for each of the years ended December 31, 2012, 2013 and 2014 and as of
March 31, 2015 and for the three months ended March 31, 2014 and 2015 for the Cogemat
Group, as well as pro forma financial information and other data for the Issuer after giving pro
forma effect to the Transactions for the periods ended and as of the dates indicated below. The
historical financial data presented in the following tables do not reflect changes as a result of the
Transactions. The following tables should be read in conjunction with the information contained
in “Presentation of Financial Information,” “Use of Proceeds,” “Capitalization,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of Snai,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of the
Cogemat Group,” “Unaudited Pro Forma Consolidated Financial Information” and the
consolidated financial information and related notes included elsewhere in this Offering
Memorandum.
Basis of presentation
Snai
The summary consolidated income statement, consolidated statement of financial position,
consolidated cash flow statement and other financial information of the Issuer as of
December 31, 2012, 2013 and 2014 and for each of the years then ended and as of March 31,
2015 and for the three months ended March 31, 2014 and 2015 have been derived from: (i) the
Snai Audited Consolidated Financial Statements and (ii) the Snai Unaudited Interim Condensed
Consolidated Financial Statements.
The audited consolidated financial statements of Snai and its consolidated subsidiaries as of and
for the years ended December 31, 2013 and 2014, and the unaudited interim condensed
consolidated financial statements of the Issuer and its consolidated subsidiaries as of March 31,
2015 and for the three months ended March 31, 2014 and 2015, are included in the F-Pages to
this Offering Memorandum.
The audited consolidated financial statements of Snai and its consolidated subsidiaries as of and
for the year ended December 31, 2012, are incorporated by reference herein and can be
examined on our website (www.snai.it).
The summary unaudited financial information for the twelve months ended March 31, 2015 has
been derived by subtracting from the audited consolidated financial statements of the Issuer for
the year ended December 31, 2014 the information from the unaudited interim condensed
consolidated financial statements for the three months ended March 31, 2014 and adding the
information from the unaudited interim condensed consolidated financial statements for the
three months ended March 31, 2015.
The Snai Audited Consolidated Financial Statements and the Snai Unaudited Interim Condensed
Consolidated Financial Statements contained in the F-Pages to this Offering Memorandum have
been prepared in accordance with IFRS and should be read in conjunction with the relevant notes
thereto. Prospective investors are advised to consult their professional advisors for an
understanding of: (i) the differences between IFRS and other systems of generally accepted
accounting principles and how those differences might affect the financial information included
in this Offering Memorandum and (ii) the impact that future additions to, or amendments of,
IFRS principles may have on Snai’s results of operations and/or financial condition, as well as on
the comparability of the prior periods and the comparability of the financial information of Snai
and the Cogemat Group.
93
The reports of our independent auditors on the Snai Audited Consolidated Financial Statements
for the years ended and as of December 31, 2012, 2013 and 2014 were unqualified but did
contain emphasis of matter paragraphs regarding disclosures made by our directors and
contained in the explanatory notes with respect to our ability to continue as a going concern and
provision for risks and charges. For further details, refer to our independent auditors’ opinion
contained elsewhere in this Offering Memorandum.
Historical audited consolidated financial information is not necessarily indicative of future
expected results. The financial information for the three and twelve months ended March 31,
2015 is not necessarily indicative of the results that may be expected for the year ended
December 31, 2015, and should not be used as the basis for or prediction of an annualized
calculation.
The Cogemat Group
The summary consolidated income statement, consolidated cash flow statement and other
financial information of the Cogemat Group for the years ended December 31, 2012, 2013 and
2014 and for the three months ended March 31, 2014 and 2015, and the consolidated statement
of financial position as of December 31, 2013 and 2014 and March 31, 2015 has been derived
from: (i) the Cogemat Audited Consolidated Financial Statements and (ii) the Cogemat Unaudited
Interim Condensed Consolidated Financial Statements.
The summary unaudited financial information for the twelve months ended March 31, 2015 has
been derived by subtracting from the audited consolidated financial statements of the Cogemat
Group for the year ended December 31, 2014 the information from the unaudited interim
condensed consolidated financial statements for the three months ended March 31, 2014 and
adding the information from the unaudited interim condensed consolidated financial statements
for the three months ended March 31, 2015.
The Cogemat Audited Consolidated Financial Statements and Cogemat Unaudited Interim
Condensed Consolidated Financial Statements contained in the F-Pages to this Offering
Memorandum have been prepared in accordance with IFRS and should be read in conjunction
with the relevant notes thereto. Prospective investors are advised to consult their professional
advisors for an understanding of: (i) the differences between IFRS and other systems of generally
accepted accounting principles and how those differences might affect the financial information
included in this Offering Memorandum and (ii) the impact that future additions to, or
amendments of, IFRS principles may have on the Cogemat Group’s results of operations and/or
financial condition, as well as on the comparability of the prior periods and the comparability of
the financial information of Snai and the Cogemat Group.
Historical audited consolidated financial information is not necessarily indicative of future
expected results. The financial information for the three and twelve months ended March 31,
2015 is not necessarily indicative of the results that may be expected for the year ended
December 31, 2015, and should not be used as the basis for or prediction of an annualized
calculation.
94
Snai
Snai summary consolidated income statement:
(thousands of €)
For the
12 months
For the year ended
For the three months
ended
December 31,
ended March 31, March 31,
2012
2013
2014
2014
2015
2015
(audited)
(unaudited)
Revenues from sales and services . . . . . . . 512,683 477,535 526,203 142,255 128,456
Other revenues . . . . . . . . . . . . . . . . . . . . . .
1,689
1,228
1,278
183 27,667
512,404
28,762
Total revenues . . . . . . . . . . . . . . . . . . . . . . 514,372 478,763 527,481 142,438 156,123 541,166
Changes in inventory of finished and
semi-finished products . . . . . . . . . . . . . .
(3)
107
–
–
(16)
(16)
Cost of raw materials and
consumables . . . . . . . . . . . . . . . . . . . . . .
(1,206) (1,162)
(917)
(410)
(151)
(658)
Cost for services and use of third party
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (389,335) (324,470) (358,015) (89,330) (92,161) (360,846)
Cost of personnel . . . . . . . . . . . . . . . . . . . . (33,840) (36,891) (35,969) (8,826) (9,364) (36,507)
Other operating costs . . . . . . . . . . . . . . . . (33,697) (102,579) (40,468) (8,817) (8,338) (39,989)
Capitalized internal construction costs . .
1,096
1,337
1,539
225
225
1,539
Operating income before amortization,
depreciation, write-downs, interest
and taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization, depreciation and writedowns . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . . . . . . . .
(59,748) (54,867) (58,669) (14,810) (14,204)
(11,529) (2,039)
(72)
(424)
–
(58,063)
352
Operating income/(loss) . . . . . . . . . . . . . .
Share of net profit/(loss) of associates . . .
Financial income . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . .
(13,890) (41,801) 34,910 20,046 32,114
1,451
(398)
(548)
11
–
1,002
1,267
1,742
348
338
(45,027) (59,983) (60,138) (15,237) (14,144)
(46,978)
(559)
1,732
(59,045)
Net financial expenses . . . . . . . . . . . . . . . .
(42,574) (59,114) (58,944) (14,878) (13,806)
(57,872)
Income/(loss) before taxes . . . . . . . . . . . .
Income tax benefit/ (expense) . . . . . . . . . .
(56,464) (100,915) (24,034) 5,168 18,308
13,904
6,385
(2,048) (2,965) (6,872)
(10,894)
(5,955)
Net profit/(loss) for the period . . . . . . . . .
Other comprehensive profit/ (loss) net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42,560) (94,530) (26,082)
(16,849)
Total comprehensive profit/(loss) for
period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,387
(3,561)
15,105
2,648
93,651
1,836
(46,121) (91,882) (24,246)
95
35,280
46,318
2,203
11,436
531
531
2,734
11,967
104,689
1,836
(15,013)
Snai summary consolidated statement of financial position:
As of December 31,
2012
2013
2014
(audited)
As of
March 31,
2015
(unaudited)
Assets
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
604,583 600,017 563,891
152,844 168,533 171,773
549,539
241,926
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
757,427 768,550 735,664
791,465
Liabilities
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
424,863 559,690 541,138
168,335 136,513 146,425
542,010
189,387
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
593,198 696,203 687,563
731,397
Total net shareholders’ equity . . . . . . . . . . . . . . . . . . . . . .
164,229
48,101
60,068
Total liabilities and shareholders’ equity . . . . . . . . . . . . .
757,427 768,550 735,664
791,465
(thousands of €)
72,347
Snai summary consolidated statement of cash flow information:
(thousands of €)
Cash flow from/(used in) operating
activities excluding net financial
expenses(a) . . . . . . . . . . . . . . . . . . . . . . .
Cash flow used in investing activities . . .
Cash flow from/(used in) financing
activities including net financial
expenses(b) . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the
beginning of the period . . . . . . . . . . . .
Change in cash and cash equivalents . . .
Cash and cash equivalents at the end of
the period . . . . . . . . . . . . . . . . . . . . . . . .
For the three
For the year ended
months
December 31,
ended March 31,
2012
2013
2014
2014
2015
(unaudited)
For the
12 months
ended
March 31,
2015
63,267 30,558 100,302 20,624 30,977
(21,772) (39,601) (18,460) (2,784) (3,452)
110,655
(19,128)
(70,767)
43,532
(58,712) (4,651) (2,215)
(56,276)
40,282
(29,272)
11,010
34,489
45,499 45,499 68,629
23,130 13,189 25,310
58,688
35,251
11,010
45,499
68,629 58,688 93,939
93,939
(a) We define cash flow from/(used in) operating activities excluding net financial expenses as the sum of cash flow from/(used
in) operating activities, plus net financial expenses of the period. Cash flow from/(used in) operating activities excluding net
financial expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash
flows from operating, activities. We believe that cash flow from/(used in) operating activities excluding net financial expenses
is a useful indicators of our ability to generate cash flow and can assist securities analysts, investors and other parties to
evaluate us. The following is a calculation to reconcile cash flow from/(used in) operating activities to cash flow from/(used in)
operating activities excluding net financial expenses.
For the year ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
Cash flow from/(used in) operating activities . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . .
20,693 (28,556)
42,574 59,114
Cash flow from/(used in) operating activities
excluding net financial expenses . . . . . . . . . . . .
63,267
For the three
months ended
March 31,
2014
2015
(unaudited)
41,358
5,746 17,171
58,944 14,878 13,806
30,588 100,302 20,624 30,977
(b) We define cash flow from/(used in) financing activities including net financial expenses as the sum of cash flow from/(used in)
financing activities and the net financial expenses. Cash flow from/(used in) financing activities including net financial
expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash flows from
financing activities. We believe that cash flow from/(used in) financing activities including net financial expenses is a useful
96
indicators of our financing activity and can assist securities analysts, investors and other parties to evaluate us. The following
is a calculation to reconcile cash flow from/(used in) financing activities to cash flow from/(used in) financing activities
including net financial expenses.
For the year ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
For the three
months ended
March 31,
2014
2015
(unaudited)
Cash flow from/(used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . .
(28,193) 102,646
232 10,227 11,591
(42,574) (59,114) (58,944) (14,878) (13,806)
Cash flow from/(used in) financing activities
including interest net financial expenses . . .
(70,767)
43,532 (58,712)
(4,651)
(2,215)
The Cogemat Group
Cogemat Group summary consolidated income statement:
(thousands of €)
Revenues from sales and
services . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . .
Change in inventory of finished
and semi-finished products . . . .
Cost of materials and
consumables . . . . . . . . . . . . . . . . .
Cost of services and use of thirdparty assets . . . . . . . . . . . . . . . . . .
Cost of personnel . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . .
For the year ended
December 31,
2012
2013
(audited)
2014
For the
For the three
12 months
months ended
ended
March 31,
March 31,
2014
2015
2015
(unaudited)
444,373
2,481
415,684
4,161
434,017 108,430 110,634
2,571
1,191
278
436,221
1,658
446,854
419,845
436,588 109,621 110,912
437,879
15
46
(44)
0
0
(44)
(364)
(275)
(229)
(91)
(46)
(184)
(368,587) (352,233) (361,584) (90,582) (92,027)
(19,689) (18,739) (19,882) (4,482) (3,970)
(20,599) (96,803) (18,943) (4,595) (5,995)
(363,029)
(19,370)
(20,343)
Operating income / (loss) before
depreciation, amortization,
write-downs and other
provisions . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and
write-down . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . .
37,630
(48,159)
35,906
9,871
8,874
34,909
(15,646)
(580)
(21,473)
(1,027)
(17,182)
(440)
(4,274)
0
(3,847)
(85)
(16,755)
(525)
Operating income / (loss) . . . . . . . .
Net financial expenses . . . . . . . . . .
21,404
(3,898)
(70,659)
(8,017)
18,284
(13,391)
5,597
(3,502)
4,942
(2,976)
17,629
(12,865)
Income / (loss) before taxes . . . . .
Income tax benefit/(expense) . . . .
17,506
(4,665)
(78,676)
20,937
4,893
(646)
2,095
(1,431)
1,966
(1,017)
4,764
(232)
Net income for the period . . . . . . .
12,841
(57,739)
4,247
97
664
949
4,532
Cogemat Group summary consolidated statement of financial position:
As of December 31,
2013
2014
(audited)
As of
March 31,
2015
(unaudited)
Assets
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,348 107,059
100,634 118,827
103,662
166,353
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,982 225,886
270,015
Shareholders’ Equity and Liabilities
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,480 108,775
119,057
77,518
109,460
120,108
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
194,537 186,293
229,568
(thousands of €)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity and liabilities . . . . . . . . . . . . . . . . . . . . .
31,445
39,593
40,447
225,982 225,886
270,015
Cogemat Group summary consolidated statement of cash flows information:
(thousands of €)
Cash flow from/(used in)
operating activities excluding
net financial expenses(a) . . . . . .
Cash flow used in investing
activities . . . . . . . . . . . . . . . . . . .
Cash flow from/(used in)
financing activities including
net financial expenses(b) . . . . . .
Cash and cash equivalents at the
beginning of the period . . . . . .
Change in cash and cash
equivalents . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the
end of the period . . . . . . . . . . . .
For the
12 months
For the three months
ended
For the year ended December 31,
ended March 31,
March 31,
2012
2013
2014
2014
2015
2015
(audited)
(unaudited)
20,933
(75,268)
28,034
(9,580)
(5,675)
257
(17,106)
74,773
(5,628)
16,901
11,148
(5,753)
11,148
(4,031)
(1,864)
30,201
(1,172)
(1,180)
9,228
1,519
(13,337)
4,978
4,978
27,641
10,440
(6,170)
22,663
5,462
(1,517)
15,684
4,978
27,641
10,440
26,124
26,124
265
(a) The Cogemat Group defines cash flow from/(used in) operating activities excluding net financial expenses as the sum of cash
flow from/(used in) operating activities, plus net financial expenses of the period. Cash flow from/(used in) operating
activities excluding net financial expenses is not a measurement of performance under IFRS and you should not consider it as
alternatives to cash flows from operating, activities. We believe that cash flow from/(used in) operating activities excluding
net financial expenses is a useful indicators of our ability to generate cash flow and can assist securities analysts, investors and
other parties to evaluate the Cogemat Group. The following is a calculation to reconcile cash flow from/(used in) operating
activities to cash flow from/(used in) operating activities excluding net financial expenses. See “Presentation of Financial
Information—Non-IFRS financial measures.”
For the year ended
For the three months
December 31,
ended March 31,
2012
2013
2014
2014
2015
(unaudited)
(thousands of €)
Cash flow from/(used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . .
17,035
3,898
(83,285)
8,017
14,643
13,391
(7,533)
3,502
(4,840)
2,976
Cash flow from/(used in) operating
activities excluding net financial
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,933
(75,268)
28,034
(4,031)
(1,864)
98
(b) The Cogemat Group defines cash flow from/(used in) financing activities including net financial expenses as the sum of cash
flow from/(used in) financing activities and the net financial expenses. Cash flow from/(used in) financing activities including
net financial expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash
flows from financing activities. We believe that cash flow from/(used in) financing activities including net financial expenses is
a useful indicators of our financing activity and can assist securities analysts, investors and other parties to evaluate the
Cogemat Group. The following is a calculation to reconcile cash flow from/(used in) financing activities to cash flow from/
(used in) financing activities including net financial expenses. See “Presentation of Financial Information—Non-IFRS financial
measures.”
For the year ended
For the three months
December 31,
ended March 31,
2012
2013
2014
2014
2015
(unaudited)
(thousands of €)
Cash flow from/(used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . .
(13,208)
(3,898)
82,790
(8,017)
7,763
(13,391)
12,730
(3,502)
4,495
(2,976)
Cash flow from/(used in) financing
activities including interest net financial
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,106)
74,773
(5,628)
9,228
1,519
99
Unaudited Pro Forma Consolidated Financial Information
This section sets forth the unaudited pro forma consolidated financial information which
comprises a pro forma consolidated statement of financial position as of March 31, 2015 and pro
forma consolidated income statements for the year ended December 31, 2014, for the three
months ended March 31, 2015 and for the twelve months ended March 31, 2015, and related
explanatory notes (the “Unaudited Pro Forma Consolidated Financial Information”) prepared by
Snai in connection with the Cogemat Acquisition, the Offering, the repayment of the Series B
Notes and the Azzurro Repayment.
The Unaudited Pro Forma Consolidated Financial Information has been prepared to reflect
retroactively the main effects of (i) the Cogemat Acquisition and the proposed Offering,
including the application of the proceeds therefrom (assuming an issue price at par) on Snai’s
consolidated statement of financial position and consolidated income statement, (ii) the
repayment of the Series B Notes on May 5, 2015, (iii) the Azzurro Repayment on June 30, 2015
and (iv) the release approximately of €10.0 million of restricted cash of the Cogemat Group that
will occur in connection with amending the 2011 Guarantee Facility Agreement and the 2013
Guarantee Facility Agreement as each of (i) through (iv) had taken place on March 31, 2015 for
the purposes of the unaudited pro forma consolidated statement of financial position and on
January 1, 2014, January 1, 2015 and April 1, 2014, respectively for purposes of the unaudited pro
forma consolidated income statements.
The consolidated pro forma financial information included in this Offering Memorandum as of
March 31, 2015, for the year ended December 31, 2014 and for the twelve months ended
March 31, 2015 has been derived from the Unaudited Pro Forma Consolidated Financial
Information included in this Offering Memorandum in the section entitled “Unaudited Pro Forma
Consolidated Financial Information.” The explanatory notes to the Unaudited Pro Forma
Consolidated Financial Information includes an explanation of the basis of preparation.
The Unaudited Pro Forma Consolidated Financial Information presented in this Offering
Memorandum is based on available information and certain assumptions that we believe are
reasonable, including assumptions pursuant to the terms of the Cogemat Acquisition and the
proposed Offering. The Unaudited Pro Forma Consolidated Financial Information is presented for
illustrative purposes only and does not purport to represent what the financial condition or the
actual results of operations would have been if the events for which the pro forma adjustments
were made had occurred on the dates assumed, nor does it purport to project our results of
operations for any future period or our financial condition at any future date. Our future
operating results may differ materially from the pro forma amounts set out in this Offering
Memorandum due to various factors, including changes in operating results.
The pro forma financial information set forth elsewhere in this Offering Memorandum has not
been prepared in accordance with the requirements of Regulation S-X under the U.S. Securities
Exchange Act of 1934 or U.S. GAAP. Neither the adjustments nor the resulting pro forma
financial information have been audited or reviewed in accordance with International Standards
on Auditing (Italy) or U.S. GAAP.
For the basis of presentation and accounting principles used in the preparation of Unaudited Pro
Forma Consolidated Financial Information, see “Presentation of Financial Information—Pro
forma financial information.”
The Unaudited Pro Forma Financial Information should be read in conjunction with the
information under the captions “Presentation of Financial Information,” “Summary Pro Forma
and Historical Consolidated Financial Information and Other Data” and “Selected Historical
Consolidated Financial Information and Other Data” and with our financial statements and the
financial statements of Cogemat and, in each case, the related notes included elsewhere in this
Offering Memorandum.
100
Unaudited Pro Forma Consolidated Income Statement for the three months
ended March 31, 2015
For the three months ended
March 31, 2015
(thousands of €)
Revenue from sales and
services . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . .
Total revenues . . . . . . . . . . .
Changes in inventory of
finished and semifinished products . . . . . . .
Costs of raw materials and
consumables . . . . . . . . . . .
Costs for services and use
of third party assets . . . . .
Costs of personnel . . . . . . . .
Other operating costs . . . . .
Capitalized internal
construction costs . . . . . .
Operating income before
amortization,
depreciation, writedowns, interest and
taxes . . . . . . . . . . . . . . . . .
Amortization, depreciation
and write-downs . . . . . . .
Other provisions . . . . . . . . . .
Cogemat
Snai
Group
Consolidated Consolidated
Income
Income
Statement
Statement
(unaudited) (unaudited)
Column (1)
Column (2)
128,456
27,667
110,634
278
156,123
110,912
(16)
Unaudited Pro-forma
Pro-forma Adjustments
Consolidated Income
for the
Statement for the
three months ended
three months ended
March 31, 2015
March 31, 2015
Net financial
Net financial
expenses
expenses and and related
related income taxes
income taxes
effect of Acquisition
effect of the
Series B
NonCogemat
Notes controlling
Refinancing
repayment
Interests
Column (3)
Column (4) Column (5)
239,090
27,945
–
267,035
–
(16)
(151)
(46)
(197)
(92,161)
(9,364)
(8,338)
(92,027)
(3,970)
(5,995)
(184,188)
(13,334)
(14,333)
225
0
46,318
8,874
(14,204)
–
(3,847)
(85)
Operating income . . . . . . . .
Share of net profit/(loss) of
associates . . . . . . . . . . . . . .
Financial income . . . . . . . . .
Financial expenses . . . . . . . .
32,114
4,942
–
338
(14,144)
–
31
(3,007)
Net financial expenses . . . .
(13,806)
Income before income
taxes . . . . . . . . . . . . . . . . . .
Income taxes
Net profit for the period . .
Attributable to:
Equity holders of the
parent . . . . . . . . . . . . . .
Non-controlling
interests . . . . . . . . . . . . .
11,436
225
–
55,192
(18,051)
(85)
–
37,056
240
(65)
769
–
304
(16,142)
(2,976)
240
704
(15,838)
18,308
1,966
240
704
21,218
(6,872)
(1,017)
(66)
(194)
(8,149)
949
174
510
13,069
11,436
949
154
510
–
–
20
–
(109)
109
12,941
128
Explanatory notes
Column (1) represents the consolidated income statement of Snai for the three months ended
March 31, 2015, derived from the Snai Unaudited Consolidated Interim Financial Statements as of
March 31, 2015 and for the three months then ended, included elsewhere in this Offering
Memorandum.
Column (2) represents the consolidated income statement of Cogemat for the three months
ended March 31, 2015, derived from the Cogemat Unaudited Consolidated Interim Financial
Statements as of March 31, 2015 and for the three months then ended, included elsewhere in this
Offering Memorandum.
Column (3) represents the net effect on interest income and expense of the refinancing of the
Cogemat Existing Debt, including the related income tax effects. In detail the column includes, for the
three months ended March 31, 2015 (i) the elimination of the interest expense for the Cogemat
101
Senior Facility and the Cogemat Notes, and (ii) the recognition of the interest expense for the
issuance of the Notes at the rate of 7.625%, assuming issuance at par and issuance costs of
€3.0 million.
Column (4) represents the net effect on interest income and expense of the repayment of Series B
Notes on May 5, 2015, including the related income tax effects. The column includes, (i) the
elimination of the interest expenses for the Series B Notes and (ii) the elimination of the interest
income for the cash and cash equivalent used for the repayment, calculated based on the actual
interest rate obtained by Snai during the period.
Column (5) represents the attribution of 11.44% of net profit of the period to non-controlling
interests as a result of the Cogemat Acquisition.
Unaudited Pro Forma Consolidated Income Statement for the year ended
December 31, 2014
For the year ended as of
December 31, 2014
(thousands of €)
Revenue from sales and
services . . . . . . . . . . . . .
Other revenues . . . . . . . .
Total revenues . . . . . . . . .
Changes in inventory of
finished and semifinished products . . . . .
Costs of raw materials
and consumables . . . . .
Costs for services and use
of third party assets . .
Costs of personnel . . . . . .
Other operating costs . . .
Capitalized internal
construction costs . . . .
Operating income
before amortization,
depreciation, writedowns, interest and
taxes . . . . . . . . . . . . . . .
Amortization,
depreciation and
write-downs . . . . . . . . .
Other provisions . . . . . . .
Snai Cogemat Group
Consolidated
Consolidated
Income
Income
Statement
Statement
Column (1)
Column (2)
526,203
1,278
434,017
2,571
527,481
436,588
–
960,220
3,849
–
964,069
(44)
(44)
(917)
(229)
(1,146)
(358,015)
(35,969)
(40,468)
(361,584)
(19,882)
(18,943)
(719,599)
(55,851)
(59,411)
1,539
–
93,651
35,906
(58,669)
(72)
(17,182)
(440)
Operating income . . . . . .
Share of net profit/(loss)
of associates . . . . . . . . .
Financial income . . . . . . .
Financial expenses . . . . . .
34,910
18,284
(548)
1,742
(60,138)
–
296
(13,687)
Net financial
expenses . . . . . . . . . . . .
(58,944)
Income/(loss) before
income taxes . . . . . . . .
(24,034)
Income taxes . . . . . . . . . .
(2,048)
Net profit/(loss) for the
year . . . . . . . . . . . . . . . .
Attributable to:
Equity holders of the
parent . . . . . . . . . . . .
Non-controlling
interests . . . . . . . . . . .
Pro-forma Adjustments for the
year ended as of December 31, 2014
Net financial
expenses and
Net financial
related
expenses and income taxes
related income
effect of
taxes effect of
Series B
Acquisition
the Cogemat
Notes Non-controlling
Refinancing
repayment
Interests
Column (3)
Column (4)
Column (5)
Unaudited
Pro-forma
Consolidated
Income
Statement for
the year ended
December 31,
2014
1,539
–
129,557
(75,851)
(512)
–
53,194
1,755
(307)
2,987
(548)
1,731
(69,083)
(13,391)
1,755
2,680
(67,900)
4,893
1,755
2,680
(14,706)
(646)
(483)
(737)
(26,082)
4,247
1,272
1,943
(26,082)
4,247
1,126
1,943
–
146
–
–
102
(3,914)
(18,620)
(486)
486
(19,252)
632
Explanatory notes
Column (1) represents the consolidated income statement of Snai for the year ended
December 31, 2014, derived from the Snai Audited Consolidated Financial Statements as of
December 31, 2014 and for the year then ended, included elsewhere in this Offering
Memorandum.
Column (2) represents the consolidated income statement of Cogemat for the year ended
December 31,2014, derived from the Cogemat Audited Consolidated Interim Financial Statements
as of December 31, 2014 and for the year then ended, included elsewhere in this Offering
Memorandum.
Column (3) represents the net effect of Interest income and expense of the refinancing of the
Cogemat Existing Debt, including the related income tax effects. In detail the column includes,
for the year ended December 31, 2014, (i) the elimination of the interest expense for the
Cogemat Senior Facility and the Cogemat Notes, and (ii) the recognition of the interest expense
for the issuance of the Notes at the rate of 7.625%, assuming issuance at par value and issuance
costs of €3.0 million.
Column (4) represents the net effect on interest income and expense of the repayment of Series B
Notes on May 5, 2015, including the related income tax effects. The column includes, (i) the
elimination of the interest expenses for the Series B Notes and (ii) the elimination of the interest
income for the cash and cash equivalent used for the repayment, calculated based on the actual
interest rate obtained by Snai during the period.
Column (5) represents the attribution of 11.44% of net profit of the period to non-controlling
interests as a result of the Cogemat Acquisition.
103
Unaudited Pro Forma Consolidated Income Statement for the twelve months
ended March 31, 2015
For the twelve months ended
March 31, 2015
(thousands of €)
Revenue from sales
and services . . . . . . .
Other revenues . . . . . .
Total revenues . . . . . .
Changes in inventory
of finished and
semi-finished
products . . . . . . . . . .
Costs of raw materials
and consumables . .
Costs for services and
use of third party
assets . . . . . . . . . . . .
Costs of personnel . . .
Other operating
costs . . . . . . . . . . . . .
Capitalized internal
construction
costs . . . . . . . . . . . . .
Operating income
before
amortization,
depreciation, writedowns, interest and
taxes . . . . . . . . . . . . .
Amortization,
depreciation and
write-downs . . . . . .
Other provisions . . . . .
Snai Cogemat Group
Consolidated
Consolidated
Income
Income
Statement
Statement
(unaudited)
(unaudited)
Column (1)
Column (2)
512,404
28,762
436,221
1,658
541,166
437,879
948,625
30,420
–
979,045
(16)
(44)
(60)
(658)
(184)
(842)
(360,846)
(36,507)
(363,029)
(19,370)
(723,875)
(55,877)
(39,989)
(20,343)
(60,332)
1,539
–
104,689
34,909
(58,063)
352
(16,755)
(525)
Operating income . . .
Share of net profit/
(loss) of
associates . . . . . . . . .
Financial income . . . . .
Financial expenses . . .
46,978
17,629
(559)
1,732
(59,045)
–
217
(13,082)
Net financial
expenses . . . . . . . . .
(57,872)
Income/(loss) before
income taxes . . . . . .
(10,894)
Income taxes . . . . . . . .
(5,955)
Net profit/(loss) for
the twelve
months . . . . . . . . . . .
Attributable to:
Equity holders of
the parent . . . . . .
Non-controlling
interests . . . . . . . .
Pro-forma Adjustments for
the twelve months ended
March 31, 2015
Net financial
expenses and
Net financial
related
expenses and income taxes
related income
effect of
taxes effect of
Series B
Acquisition
the Cogemat
Notes Non-controlling
Refinancing
repayment
Interests
Column (3)
Column (4)
Column (5)
Unaudited
Pro-forma
Consolidated
Income
Statements for
the twelve
months ended
March 31, 2015
1,539
–
139,598
(74,818)
(173)
–
–
1,457
(343)
3,024
(559)
1,606
(67,645)
(12,865)
1,457
2,681
(66,598)
4,764
1,457
2,681
(1,991)
(232)
(401)
(737)
(16,849)
4,532
1,057
1,944
(16,849)
4,532
936
1,944
–
121
–
–
64,607
104
(7,325)
(9,316)
(518)
518
(9,956)
639
Explanatory notes
Column (1) represents the unaudited consolidated income statement of Snai for the twelve
months ended March 31,2015 obtained by subtracting from the audited consolidated income
statements of Snai for the year ended December 31, 2014 the amounts of the unaudited interim
condensed consolidated income for the three months ended March 31, 2014 and adding the
amounts of the unaudited interim condensed consolidated income statement for the three
months ended March 31, 2015.
Column (2) represents the unaudited consolidated income statement of Cogemat for the twelve
months ended March 31, 2015, obtained by subtracting from the audited consolidated financial
income of Cogemat for the year ended December 31, 2014 the amounts of the unaudited interim
condensed consolidated income statement for the three months ended March 31, 2014 and
adding the amount of the unaudited interim condensed consolidated income statement for the
three months ended March 31, 2015.
Column (3) represent the net effect on interest income and expense of the refinancing of the
Cogemat Existing Debt for the twelve months ended March 31, 2015, including the related
income tax effects. In detail the column includes, for the twelve months ended March 31, 2015,
(i) the elimination of the interest expense related for the Cogemat Senior Facility and Cogemat
Notes and (ii) the recognition of the interest expense for the issuance of the Notes at the rate of
7.625%, assuming issuance at par value and issuance costs of €3.0 million.
Column (4) represents the net effect on interest income and expense of the repayment of Series B
Notes on May 5, 2015 2015, including the related income tax effects. The column includes, (i) the
elimination of the interest expenses for the Series B Notes and (ii) the elimination of the interest
income for the cash and cash equivalent used for the repayment.
Column (5) represents the attribution of 11.44% of net profit of the period to non-controlling
interests as a result of the Cogemat Acquisition.
105
Unaudited Pro Forma Consolidated Statement of Financial Position as of
March 31, 2015
(thousands of €)
ASSETS
Non-current assets
Property, plant and
equipment . . . . . . . . . . .
Property, plant and
equipment under
financial lease . . . . . . . . .
As of March 31, 2015
Pro-forma Adjustments as of March 31, 2015
Pro-forma
Cogemat
Consolidated
Snai
Group
Repayment Statement of
Consolidated Consolidated
of Series B
financial
Statement of Statement of
Notes and
position as
financial
financial Acquisition
Use of
Azzurro of March 31,
position
position of Cogemat Bond issue proceeds Repayment
2015
Column (1)
Column (2) Column (3) Column (4) Column (5) Column (6)
139,236
15,079
–
154,315
3,159
74
–
3,233
142,395
231,531
93,607
15,153
2,749
58,247
–
99,894
–
–
–
–
157,548
334,174
151,854
Total intangible assets . . .
Investments accounted for
using the equity
method . . . . . . . . . . . . . .
Other investments . . . . . . .
325,138
60,996
99,894
–
–
–
486,028
2,318
46
–
4
Total investments . . . . . . .
Deferred tax assets . . . . . .
Other non-current
non-financial assets . . . .
Non-current financial
assets . . . . . . . . . . . . . . . .
2,364
76,366
4
27,509
1,532
–
1,532
1,744
–
1,744
549,539
103,662
451
91,680
36,160
19,696
133
90,723
39,266
10,107
93,939
26,124
Total current assets . . . . . .
241,926
166,353
TOTAL ASSETS . . . . . . . .
791,465
270,015
Total property, plant and
equipment . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . .
Other intangible assets . . .
Total non-current
assets . . . . . . . . . . . . . . . .
Current assets
Inventory . . . . . . . . . . . . . . .
Trade receivables . . . . . . . .
Other current assets . . . . .
Current financial assets . . .
Cash and cash
equivalents . . . . . . . . . . .
2,318
50
–
99,894
–
–
–
1,312
1,312
–
–
–
754,407
584
182,403
75,426
19,802
(10,001)
106
2,368
105,187
107,000
(105,476)
(24,934)
96,653
–
107,000
(115,477)
(24,934)
374,868
99,894
107,000
(114,165)
(24,934) 1,129,275
(thousands of €)
LIABILITIES AND NET
SHAREHOLDERS’
EQUITY
Shareholders’ equity
attributable to equity
holders of the parent
Share Capital . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . .
Pro-forma
As of March 31, 2015
Pro-forma Adjustments as of March 31, 2015
Consolidated
Snai
Cogemat
Repayment Statement of
Consolidated Consolidated
of Series B
financial
Statement
Statement
Notes and
position as
of financial
of financial Acquisition
Use of
Azzurro of March 31,
position
position of Cogemat Bond issue
proceeds Repayment
2015
Column (1)
Column (2) Column (3) Column (4) Column (5) Column (6)
60,749
(681)
35,176
5,271
(2,202)
86,041
60,068
40,447
83,839
–
–
16,055
60,068
40,447
99,894
4,598
3,411
465,157
98,829
59,861
–
59,861
10,304
1,982
12,286
2,090
5,238
7,328
542,010
109,460
25,279
12,316
130,181
91,770
(143)
14,194
16,022
(11,400)
19,733
–
33,927
16,022
–
–
Total current liabilities . .
189,387
120,108
–
TOTAL LIABILITIES AND
SHAREHOLDERS’
EQUITY . . . . . . . . . . . . . .
791,465
270,015
99,894
Total Shareholders’
equity attributable to
equity holders of the
parent . . . . . . . . . . . . . . .
Shareholders’ Equity
attributable to
non-controlling
interests . . . . . . . . . . . . .
Total Shareholders’
Equity . . . . . . . . . . . . . . .
Non-current liabilities
Employee termination
indemnities . . . . . . . . . .
Non-current financial
liabilities . . . . . . . . . . . . .
Deferred tax liabilities . . .
Provisions for risks and
charges . . . . . . . . . . . . . .
Other non-current
liabilities . . . . . . . . . . . . .
Total non-current
liabilities . . . . . . . . . . . . .
Current liabilities
Trade payables . . . . . . . . .
Other current
liabilities . . . . . . . . . . . . .
Current financial
liabilities . . . . . . . . . . . . .
Current portion of longterm loans . . . . . . . . . . .
Total current financial
liabilities . . . . . . . . . . . . .
–
(3,397)
(267)
93,723
86,867
(3,397)
(267)
180,690
(439)
–
(3,836)
15,616
(267)
196,306
8,009
107,000
–
107,000
(98,786)
(98,786)
572,200
–
659,684
37,595
221,808
(4,934)
13,882
(19,733)
–
(11,400)
(24,667)
13,882
–
(11,543)
(24,667)
273,285
107,000
(114,165)
(24,934) 1,129,275
Explanatory notes
Column (1) represents the consolidated statement of financial position of Snai as of March 31,
2015, derived from the Snai Unaudited Interim Condensed Consolidated Financial Statements as
of March 31, 2015 and for the three months then ended, included elsewhere in this Offering
Memorandum.
107
Column (2) represents the consolidated statement of financial position of Cogemat as of
March 31, 2015, derived from the Cogemat Unaudited Interim Condensed Consolidated Financial
Statements as of March 31, 2015 and for the three months then ended, included elsewhere in this
Offering Memorandum.
Column (3) represents the acquisition by the Issuer of 88.56% of the share capital of Cogemat. In
detail, represents the Capital Increase of Snai, with exclusion of the pre-emptive subscription
rights, assumed for an amount of €1.96 per share (as agreed in the Investment Agreement) for a
total amount of €124.3 million of which €33.0 million is allocated to the share capital of the
Issuer and the remaining portion is allocated to a share premium reserve with the issuance of
63,411,094 New Snai Shares, subscribed by the Cogemat Contributing Shareholders and Global
Games. This column also includes the attribution at the fair value of 11.44% of the total
shareholders’ as of March 31, 2015, to non-controlling interests as a result of the Cogemat
Acquisition. In addition this column includes, an allocation of €99.9 million of goodwill. It should
be noted that the purchase price allocation of the Cogemat acquisition has not yet been
performed by Snai management. Should such amount of €99.9 million be allocated to assets with
definite life in the purchase price allocation, the related amortization or depreciation would be
recognized in the income statement. The accompanying unaudited pro forma income statements
do not include any such amortization or depreciation.
Column (4) represents the issuance and sale of the Notes of €110 million at the rate of 7.625%,
assuming issuance at par value and issuance costs of €3.0 million.
Column (5) represents the use the net proceeds from the Offering to refinance the Cogemat
Existing Debt. In detail the column includes:
(i) the repayment of the Cogemat Notes for €54.0 million, resulting in the decrease of both
cash and cash equivalents (for the amount of the facility) and current and non-current
financial liabilities (for an amount of €46.6 million, net of the amortized cost of €7.3 million),
a pro forma effect decreasing the net equity of €5.3 million due to the net effect of the
reversal of such notes amortized cost and the related tax effect of €2.0 million, increasing the
deferred tax asset;
(ii) the repayment of the Cogemat Senior Facility for €61.0 million resulting in the decrease
of both cash and cash equivalents (for the amount of the facility) and current and noncurrent financial liabilities (for an amount of €58.9 million, net of the amortized cost of €2.1
million), a pro forma effect decreasing the net equity of €1.5 million due to the net effect of
the reversal of such loan amortized cost and the related tax effect of €0.6 million, increasing
the deferred tax asset;
(iii) the reversal of the Cogemat notes embedded derivatives for €4.2 million, decreasing
current and non-current financial liabilities for a total amount of €4.2 million, balanced by a
pro forma effect increasing the net equity for €3.0 million, net of a deferred tax asset of
€1.2 million;
(iv) the settlement of the Cogemat interest rates swap contracts for €0.5 million, including
the liquidity decrease for the same amount; and
(v) the release of approximately €10.0 million in restricted cash of the Cogemat Group that
will occur in connection with amending the 2011 Guarantee Facility Agreement and the 2013
Guarantee Facility Agreement.
Column (6) represents (i) the repayment of the Series B Notes on May 5, 2015, including a pro
forma effect on net equity of €0.27 million due to the reversal of the Series B Notes amortized
costs and (ii) the Azzurro Repayment on June 30, 2015.
108
Summary of pro forma assumptions
The Unaudited Pro Forma Consolidated Financial Information was calculated by adopting the
following specific assumptions:
Issuance of the Notes and the effects of the Cogemat Refinancing represents the computation of
the difference of interest expense between the expense incurred for the Cogemat Existing Debt
and the expense to be incurred for the issuance of the Notes, assuming:
• proceeds from the Notes of €110 million;
• issuance costs of €3.0 million;
• issuance at par value;
• interest rate at 7.625%;
• income taxes based on a tax rate of 27.5%; and
• Income tax effect on net financial expenses computed assuming the execution of Proceeds
Loan.
The effects of the repayment of the Series B Notes, which occurred on May 5, 2015, assuming:
• repayment through the use of cash and cash equivalents;
• computation of the lower interest expense as the net result of the elimination of interest
expense incurred for the Series B Notes and interest income on the cash used for the
repayment; and
• income taxes based on a rate of 27.5%.
The Unaudited Pro Forma Consolidated Statement of Financial Position as of March 31, 2015 was
calculated by adopting the following specific assumptions:
The pro forma effect of the Cogemat Acquisition has been determined by assuming:
• the issuance of 63,411,094 New Snai Shares for an amount of €1.96 per share (as agreed in the
Investment Agreement);
• the share capital increase costs allocated as amortized costs equal to zero;
• acquisition of 88.56% of the share capital of Cogemat;
• no purchase price allocation; and
• the difference between the given consideration and the fair value of the net assets acquired,
including the minority at fair value, assumed to be €99.9 million has been allocated to
goodwill.
The pro forma effect of the issuance of the Notes has been determined by assuming:
• the Notes proceeds for the entire nominal value of €110 million and their issuance at par value;
and
• the Notes issuance costs allocated as amortized costs are assumed to be €3.0 million.
The pro forma effect of the use of proceeds has been determined by assuming:
• the Cogemat Notes are repaid after November 14, 2015, thus no early repayment costs have to
be paid; and
• the cash out for the early closing of the interest rates swap contracts of Cogemat is equal to
their fair value as of March 31, 2015.
The pro forma effect of the repayment of the Series B Notes has been determined by assuming:
• repayment of the Series B Notes through the use of cash and cash equivalents; and
109
• no adjustment for the tax effect related to the reversal of the amortized cost as it is considered
not material.
The pro forma effect of the Azzurro Repayment on June 30, 2015 has been determined by
assuming the repayment was made through the use of cash and cash equivalents.
Reconciliation of Pro forma EBITDA and Adjusted EBITDA for the twelve months
ended March 31, 2015
The following table sets forth the reconciliation of consolidated pro forma EBITDA and Adjusted
EBITDA for the twelve months ended March 31, 2015.
For the 12 months ended
March 31, 2015
Cogemat
Snai
Group
Consolidated Consolidated
Income
Income
Statement
Statement
(thousands of €)
Pro-forma
Consolidated
Financial
Statements
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in inventory of finished and semi-finished
products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of raw materials and consumables . . . . . . . . . . . . . . . . .
Costs for services and use of third party assets . . . . . . . . . . . .
Costs of personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized internal construction costs . . . . . . . . . . . . . . . . . .
541,166
437,879
979,045
(16)
(658)
(360,846)
(36,507)
(39,989)
1,539
(44)
(184)
(363,029)
(19,370)
(20,343)
–
(60)
(842)
(723,875)
(55,877)
(60,332)
1,539
Operating income before amortization, depreciation,
write-downs, interest and taxes . . . . . . . . . . . . . . . . . . . . .
104,689
34,909
139,598
Non recurring cost and revenue(a) . . . . . . . . . . . . . . . . . . . . . . .
Non-cash income from joint ventures(b) . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts(c) . . . . . . . . . . . . . . . . . . . . . .
(15,034)
–
89,655
5,604
5,342
(901)
39,350
2,852
(9,692)
(901)
129,005
8,456
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,259
42,202
137,461
(a) Includes costs that are considered by management to be non-recurring in nature, such as advisory costs related to
acquisitions, non-recurring employee severance payments, costs related to the stock option plan granted to certain managers
and the allowance for doubtful accounts related to the revision of certain trade receivables in our portfolio that we believe
to be non-recurring. Non-recurring revenues include €27.4 million reimbursed to us in the first quarter of 2015 by Barcrest
Group Limited to settle the litigation commenced by us against them on October 4, 2012 in respect of a malfunction of our
Barcrest gaming system on April 16, 2012. See “Snai’s Business—Legal proceedings—Malfunctioning of Barcrest VLT
Platform.”
(b) Historically the Cogemat Group partially financed VLT operations through advance payments from its joint ventures Azzurro
and Jackpot S.p.A., and to a much smaller extent, from VLT operators, in exchange for the right for the joint venture or
operator to operate the related VLTs. There is no cash due to the joint venture or operator for these advances. However,
based on the Cogemat Group’s accounting principles, such advances are recorded as financial liabilities that reduce over time
as the Cogemat Group approaches the maturity of the related agreement, and the Cogemat Group records non-cash income
reflecting the equivalent of a fee due to it from the joint venture or operator for their right to operate the VLTs.
(c) Includes recurring provisions for allowance of doubtful accounts related to impairment of trade receivables where
recoverability is considered to be doubtful, net of the portion considered non-recurring as described in note (a) above.
Please refer to “Summary Pro Forma and Historical Consolidated Financial Information and Other
Data—Summary pro forma combined financial information” for the disclosure on adjustments
made on Snai EBITDA, Snai Adjusted EBITDA, Cogemat EBITDA and Cogemat Adjusted EBITDA.
110
Management’s Discussion and Analysis of Financial
Condition and Results of Operations of Snai
The following discussion of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements included in this Offering Memorandum.
Among other things, those financial statements include more detailed information regarding the
basis of presentation for the following information.
The following discussion contains certain forward-looking statements that reflect our plans,
estimates and beliefs. Our results could differ materially from those discussed in these forward
looking statements. Factors that could cause or contribute to such differences include, but are
not limited to, those discussed below and elsewhere in this Offering Memorandum, including the
section entitled “Risk Factors.”
This section should be read in conjunction with the Snai Audited Financial Statements contained
elsewhere herein, and the Snai Unaudited Interim Consolidated Financial Statements contained
elsewhere herein. See “Presentation of Financial Information,” “Summary Pro Forma and
Historical Consolidated Financial Information and Other Data,” “Selected Historical Consolidated
Financial Information and Other Data” and “Unaudited Pro Forma Consolidated Financial
Information.”
Unless the context indicates otherwise, in this section references to “we,” “us,” “our,” or the
“Snai Group” refer, to the Issuer and its consolidated group. Such references do not include the
Cogemat Group and do not take into account the effects of the Transactions, unless the context
otherwise requires. For more information on the Cogemat Group’s financial condition and results
of operation, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations of the Cogemat Group” and for more information on the Cogemat Acquisition, see
“Summary—The Transactions—The Cogemat Acquisition” and “Cogemat Group Business.”
The reports of our independent auditors on our Audited Financial Statements as of and for the
years ended of December 31, 2012, 2013 and 2014 were unqualified but did contain emphasis of
matter paragraphs regarding disclosures made by our directors and contained in the explanatory
notes with respect to our ability to continue as a going concern and provision for risks and
charges. For further details, refer to our independent auditors’ opinion contained elsewhere in
this Offering Memorandum. See “Presentation of Financial Information.”
Overview
We are a leader in the Italian betting and gaming entertainment market. We were founded in
1906 and are currently listed on the Italian Stock Exchange. We manage our business pursuant to
a broad portfolio of long-term concessions granted to us by ADM, the Italian gaming industry
regulator, and offer a broad spectrum of betting and gaming products, including (i) gaming
machines, (ii) sports and horse race betting and virtual events (including online betting) and
(iii) online skill and casino games. Operating multiple concessions mitigates our concession
renewal risk compared to mono-concession businesses such as Lotto and SuperEnalotto. Our
concessions have varying expiration dates and although we have consistently been able to renew
and increase all our concessions, we retain discretion as to how many individual shop or machine
concessions we choose to renew at each renewal date, providing us with flexibility to manage
our capital expenditures and liquidity.
On July 11, 2015, as further described under “—The Transactions—The Cogemat Acquisition,” we
entered into an agreement to acquire 88.56% (and up to 100.00%) of the outstanding share
capital of Cogemat, one of the leading gaming machine companies in Italy based on turnover.
The Cogemat Group operates in some of the same market segments that we do, and we believe
that the two companies have highly complementary networks and product offerings.
The Cogemat Acquisition strengthens our leading market positions across our primary business
lines. As of March 31, 2015, and pro forma for the Cogemat Acquisition, we would have had a
111
gaming machines network of approximately 60,000 active AWPs and 10,000 active VLTs,
establishing us as one of the market leaders in gaming machines. The charts below illustrate our
combined market position in respect of our competitor concessionaires based on numbers of
authorized AWPs (left) and VLTs (right).
Source: ADM, 2014
Pro forma for the Cogemat Acquisition we would have had a market share, by 2014 turnover, of
15.1% in the gaming machines market segment. In addition, pro forma for the Cogemat
Acquisition, we would have had market shares, by 2014 turnover, of 19.4%, 40.9% and 33.5% in
the sports betting, horse race betting and virtual events market segments, respectively, and a
market share of 6.3% in the online skill and casino games market segment.
Our acquisition of the Cogemat Group expands our existing physical betting and gaming
network in a market that remains primarily a “brick and mortar” industry, with approximately
83% of the total turnover of the Italian market in 2014 coming from the offline channel. As of
March 31, 2015, pro forma for the Cogemat Acquisition, our distribution network included
717 sports and horse race betting shops, 917 sports betting corners and 670 horse race betting
corners, constituting one of the largest networks of betting POS in Italy. We believe this large
and well-diversified retail platform, with POS across all of Italy, constitutes a strong barrier to
entry for our potential competitors because of the high costs associated with setting up a POS
network extensive enough to compete with us. In addition, our POS platform allows us to
achieve best-in-class brand awareness—we believe our Punto SNAI brand has become
synonymous with sports and horse race betting in Italy—and we believe that an expanded
network can only improve our brand visibility.
We believe that such a strong and well-diversified product portfolio provides revenue stability
because we can mitigate our exposure to the risks posed by sports betting where payout levels
fluctuate over time and we incur bookmaking risk, by focusing on our fixed-payout businesses
such as horse racing, gaming machines and online skill and casino games, where revenues are
more stable because minimum payouts are fixed by ADM.
Following the Cogemat Acquisition, we will acquire the Cogemat Group’s convenience payment
services business through which we will provide customers with payment services such as utility
bill payments, mobile phone top-ups and prepaid cards.
For the twelve months ended March 31, 2015, pro forma for the Cogemat Acquisition, we would
have generated pro forma combined total revenues of €979.0 million and pro forma combined
Adjusted EBITDA of €137.5 million. See “Summary Pro Forma and Historical Consolidated
Financial Information and Other Data.”
Following the Cogemat Acquisition, we intend to organize and manage our combined activities
within the following main business segments: Concessions, Racecourse Management, Television
Services, Betting Collection Services and Convenience Payment Services. We also intend to present
a further breakdown of our combined Concessions segment into three business lines: sports and
112
horse race betting and virtual events, gaming machines and online skill and casino games. The
following is a brief presentation of these main segments and business lines (not including the
Other segment of residual activities):
• Concessions: this segment comprises our core operations and for the twelve months ended
March 31, 2015, represented 96.4% of our total pro forma combined total revenues. The
Concessions segment includes the following business lines of Snai and the Cogemat Group:
• Gaming Machines: this business line includes the operation of our AWPs and VLTs under
concession and related services such as IT services managing the authorized IT network
connecting gaming machines to ADM’s control system;
• Sports and Horse Race Betting and Virtual Events: this business line includes our fixed-odds
betting operations for sports matches, our virtual events and our betting operations for
horse race events (mainly totalizer), which include bookmaking and other statistical
services and related online channel offerings and IT support; and
• Online Skill and Casino Games: this business line includes our online operations (including
Internet, mobile and tablet platforms), encompassing a number of gaming activities
(i.e. bingo, blackjack, backgammon, solitaire card games, dice games and poker) and other
residual revenues related to our Concessions segment;
• Racecourse Management: this segment includes our management of horse race course
operations, including real estate management and organization of races;
• Television Services: this segment includes our television operations managed by Teleippica
(televised horse race events);
• Betting Collection Services: this segment includes operations in electronic services to betting
acceptance points; and
• Convenience Payment Services: this segment includes convenience payment services such as
utility bill payment services, mobile phone top-ups, phone cards and gift cards.
The chart below sets forth the breakdown of our pro forma combined total revenues for each
business line within our Concessions segment for the twelve months ended March 31, 2015,
which represented 96.4% of our total pro forma combined total revenues for the same period.
Sports and
Horse Race
Betting and
Virtual Events
20.2%
Online Skill and
Casino Games
and Other
5.5%
Gaming
Machines
74.3%
Segment and business line information
Our financial segment reporting is prepared on the basis of five business segments: Concessions,
Racecourse Management, Television Services, Betting Collection Services and Other and,
113
consistent with IFRS 8, we provide segment reporting information thereof in the Snai Audited
Consolidated Financial Statements. The following presents a brief description of our segments in
accordance with IFRS 8:
• Concessions: this segment constitutes our core operations, including our sports betting, horse
race betting, gaming machines operations, online games, bingo and sports pools on both
offline and online, mobile and tablet platforms;
• Racecourse Management: this segment includes our results from management of horse
racecourses, including real estate management and organization of races;
• Television Services: this segment includes our results from our television operations managed
by Teleippica (televised horse race events);
• Betting Collection Services: this segment includes our results from electronic services to betting
acceptance points; and
• Other: this segment includes our results from operations not directly attributable to one of our
four primary segments, including non-operative companies in the process of being wound-up
and companies that will be wound-up.
For purposes of this Offering Memorandum, we present a further unaudited breakdown of our
Concessions segment into three business lines. The following presents a brief description of each
business line in our Concessions segment:
• Gaming machines: this business line includes the operation of our AWPs and VLTs under
concession and related services; and
• Sports and horse race betting and virtual events: this business line includes our fixed-odds
betting operations for sports matches, our virtual events and our betting operations for horse
race events (mainly totalizer), including bookmaking and other statistical services and related
online channel offerings and IT support; and
• Online Skill and Casino Games: this business line includes our online operations (including
Internet, mobile and tablet platforms), encompassing a number of gaming activities (i.e. bingo,
blackjack, backgammon, solitaire card games, dice and poker) and other residual revenues
related to our Concessions segment.
Key performance indicators
We use certain additional key performance indicators such as turnover, payout, revenues and
contribution margin to assess our underlying performance. We define these indicators as follows:
• Turnover: refers to the total amount of wagers collected;
• Payout: refers to the portion of turnover which is paid out to players as winnings;
• Revenues: refers to turnover minus payouts and taxes; and
• Contribution margin: refers to revenues minus concession fees and certain IT and distribution
costs.
Our definitions of such items may differ from those used by other companies, therefore
comparability may be limited. Turnover, payout and contribution margin are non-IFRS measures
and should not be considered as an alternative to operating profit or operating margin as a
measure of operating performance. See “Presentation of Financial Information.”
Factors affecting our results of operations
Below is an overview of the key factors which have affected, and may in the future continue to
affect, our results of operations.
114
Growth of the Italian betting and gaming industry and, in particular, the VLT, online skill and
casino games and virtual events sectors.
Our revenues are driven by the turnover generated in our offline distribution network and on
our online platform. The turnover we collect can be influenced by overall economic conditions
and the introduction of new bets or games that might affect the volumes of existing bets and
games. Betting and gaming products are susceptible to consumer trends, and the improvement
and expansion of product offerings by our competitors may attract customers away from those
products we offer and thus reduce our revenues and contribution margin as well as our market
share.
Turnover in the Italian betting and gaming industry decreased from €88.6 billion in 2012 to
€84.7 billion in 2013, and remained stable in 2014 at €84.5 billion. The mix of products changed
over this period, with tendency towards higher payout products, which creates a more positive
player experience and entices players to spend more.
The following table sets forth the total market turnover and market share per gaming product
determined by turnover, payout ratio and gross gaming revenues (defined as turnover less
payout) in the Italian betting and gaming industry for the periods indicated.
For the year ended December 31,
2012(1)
2013(1)
2014(1)
Payout
Gross
Payout
Gross
Payout
Gross
% of
% of gaming
% of
% of gaming
% of
% of gaming
Turnover turnover turnover revenues Turnover turnover turnover revenues Turnover turnover turnover revenues
(millions of €, except percentages)
AWPs . . . . . . . . . . . . . . . .
27,420 31.0% 75.6%
6,687
25,422 30.0% 74.9%
6,380
25,382
30.0% 74.6%
6,440
VLTs . . . . . . . . . . . . . . . . .
22,344 25.2% 85.2%
3,298
22,085 26.1% 86.4%
2,994
21,388
25.3% 85.1%
3,192
Gaming Machines . . . . .
Sports betting(2) . . . . . . .
Horse race betting(3) . . .
Virtual events . . . . . . . . .
Betting exchange . . . . .
49,764
3,995
1,313
–
–
56.2%
4.5%
1.5%
–
–
79.9%
82.5%
54.2%
–
–
9,985
700
601
–
–
47,507
3,822
1,116
17
–
56.1%
4.5%
1.3%
n.s.
–
80.3%
79.6%
51.3%
82.4%
–
9,374
781
544
3
–
46,770
4,250
913
1,148
205
55.3%
5.0%
1.1%
1.4%
n.s.
79.4%
80.9%
53.0%
83.9%
99.5%
9,632
814
429
186
1
Betting . . . . . . . . . . . . . .
Online games(4) . . . . . . .
Lotteries(5) . . . . . . . . . . . .
Bingo . . . . . . . . . . . . . . . .
5,308
13,972
17,764
1,763
6.0%
15.8%
20.1%
2.0%
75.5%
96.4%
66.6%
67.2%
1,301
503
5,936
578
4,995
13,281
17,321
1,664
5.8%
15.7%
20.4%
2.0%
72.6%
96.4%
67.3%
62.6%
1,328
474
5,657
622
6,516
12,318
17,258
1,624
7.5%
14.6%
20.4%
1.9%
78.1%
96.4%
68.4%
64.3%
1,430
444
5,445
580
Total gaming and
fixed-odds . . . . . . . . . .
88,572 100.0%
79.3%
18,303
84,728 100.0% 79.4%
17,455
84,486
100.0%
79.2%
17,531
(1) Source: ADM.
(2) Includes offline and online betting, fixed-odds and pool games.
(3) Includes offline and online betting, fixed-odds and pool games. Also includes Comma 7 gaming machines whose payouts are
awards in-kind (e.g., free cups of coffee, dolls, figurines, etc.), therefore it is not possible to determine the amount of payout
or a payout ratio. Comma 7 gaming machines generated total turnover of approximately €0.3 million, €0.3 million and
€0.2 million in the years 2012, 2013 and 2014, respectively.
(4) Includes online bingo.
(5) Includes offline and online lotteries.
As illustrated by the table above, traditional betting and gaming products such as horse race
betting, bingo and lotteries are losing market share (determined as a percentage of total
turnover) to newer betting and gaming products, such as VLTs and online betting and gaming.
With the exception of years in which major sporting events (the Olympics or the FIFA World Cup)
take place, sports betting is also losing market share to newer products.
One driver for such shift is that the newer products like virtual events and online games offer
higher payout rates. For example, online games offered in Italy in the year ended December 31,
2014 had an average payout rate of 96.4% compared to the 68.4% payout rate offered by the
lottery products. VLTs are particularly attractive to players because they offer payout rates of
85.1% and an improved betting and gaming and entertainment experience. Despite the
additions of new, high-payout-rate products into the market, the overall payout percentage in
the market has remained stable from 79.3% in 2012 to 79.4% in 2013 to 79.2% in 2014. The
higher payout rates offered by AWPs, VLT, online games and virtual events helped develop a
115
positive consumer experience; as a result, players were generally more likely to play again. This
resulted in increased turnover, but, as the payout percentage was higher, gross gaming revenues
did not increase in direct proportion to turnover. For additional discussion of the Italian betting
and gaming industry, see “Industry.” See also “—Sports and horse race betting and virtual events
payout ratio” for a further discussion of how overall payout rates have affected our results.
Our primary business lines—sports and horse race betting and virtual events, gaming machines,
online skill and casino games—have each been similarly affected by these market trends, as
shown by the table below.
For the year ended December 31,
For the three months ended March 31,
% of
% of
% of
% of
% of
2012 turnover
2013 turnover
2014 turnover
2014
turnover
2015
turnover
(In € millions, except percentages)
Gaming machines . . . . . . . . . . . . . . . . . . 2,836.9
56.2% 2,828.5
56.7% 2,842.4
57.7% 701.1
54.5%
744.4
59.8%
Sports and horse race betting and
virtual events . . . . . . . . . . . . . . . . . . . . 1,278.6
25.4% 1,166.1
23.4% 1,345.9
27.3% 372.3
28.9%
317.7
25.5%
Online skill and casino games(1) . . . . . . 923.3
18.3% 998.7
20.0% 737.9
15.0% 212.9
16.6%
183.5
14.7%
Total Concessions segment(2) . . . . . . . . 5,038.8 100.0% 4,993.3
100% 4,926.2
100% 1,286.3
100%
1,245.6
100%
Turnover by Concessions
business lines
(1) Includes other residual income from our Concessions segment.
(2) Excluding turnover collected under betting service agreements.
Gaming machines: growth of our VLTs and relative decline of AWPs
Our results of operations during the periods discussed herein have been principally affected by
the growth in our VLT operations, a new product which we introduced to the market in January
2011 and which has driven the total turnover of the betting and gaming market since its
introduction in 2010. In 2009, we were awarded 5,052 VLT licenses, which were all rolled out as
of the end of 2013. Concession revenues in 2012 were negatively affected by the deactivation of
the Barcrest platform: on April 16, 2012, the Barcrest VLT platform malfunctioned, resulting in
faulty awards of jackpots of between approximately €500,000 and €9.0 million. As a result of this
malfunction, approximately 1,450 of our VLTs were removed from operations beginning as of
April 16, 2012. This caused us to lose the revenues that would have been generated from these
VLTs had they been operational and an overall delay in the roll-out of the VLT products,
including vis-à-vis our competitors. See “Snai’s Business—Legal proceedings—Malfunctioning of
Barcrest VLT Platform.”
Our VLT revenues increased in 2014 to 17.8% of our total revenues as compared to 15.7% in 2013
and 10.7% in 2012. The increase in VLT revenues has been in part offset by a decrease in AWP
revenues. VLTs are, to a certain extent, a competitive product of AWPs; therefore, the growth in
VLTs has also adversely affected our AWP operations.
116
The replacement of AWP revenues with VLT revenues has impacted our results of operations due to
the different portion of the players’ bet which we record as revenues for VLTs compared to AWPs,
and the different value chain and other direct costs associated with these products. To illustrate the
revenues generated by VLTs and the differences between the comparable revenues generated by
AWPs, the following table shows the portion of each €100 bet that we record as revenues and the
value chain costs which are paid to the distribution network and ADM. The remainder is the
portion that we retain to pay other direct costs and the indirect costs of our business.
For the year ended December 31,
2012
2013
AWP
VLT
AWP
VLT
AWP
Turnover . . . . . . . . . . . . . . . . . . . . . . .
Payout . . . . . . . . . . . . . . . . . . . . . . . . .
PREU(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . .
Distribution network and IT
compensation . . . . . . . . . . . . . . . . .
ADM concession fee . . . . . . . . . . . . .
Contribution margin . . . . . . . . . . . . .
2014
VLT
For the three
months ended
March 31,
2015
AWP
VLT
100.0 100.0 100.0 100.0 100.0 100.0 100.0
(75.0) (90.5) (75.0) (89.6) (75.0) (88.3) (74.0)
(11.8) (4.0) (12.7) (5.0) (12.7) (5.0) (13.0)
13.2
5.5
12.2
5.4
12.8
6.7
12.6
(11.2)
(0.3)
1.7
(2.7) (10.3)
(0.3) (0.3)
2.4
1.6
(2.6) (10.9)
(0.3) (0.3)
2.5
1.6
(3.5)
(0.3)
2.9
10.7)
(0.3)
1.6
100.0
(87.9)
(5.0)
7.1
(3.9)
(0.3)
2.9
(1) PREU in 2012 includes the charge back paid by ADM to the Issuer after the end of the year.
As illustrated by the table, AWPs have a higher contribution to consolidated revenues than VLT
due to the different payout and PREU characteristics. However, the distribution network and IT
compensation is higher for AWPs than for VLTs. Although we record higher revenues for AWPs,
we also have a lower share of the value chain. Therefore, for every €100 in bets, we retained
€1.6 in 2014 from AWPs and €2.9 from VLTs to pay other direct costs and our general indirect
costs. In addition, our revenues from gaming machines for the three months ended March 31,
2015 were affected by the increase in PREU (from 12.7% to 13.0%) that became effective
January 1, 2014.
Sports and horse race betting and virtual events
During the period under review, we have diversified our business to encompass more betting and
gaming activities in addition to our traditional strength in sports and horse racing betting,
including by introducing virtual events in December 2013. In addition, although turnover in the
sports and horse race betting and virtual events market has declined from 2012 to 2014 due to the
proliferation of other forms of betting and gaming entertainment (i.e., gaming machines and
online skill and casino games), these business lines remain an important part of our business, equal
to 27.3% of turnover in 2014. We believe we are a leader in the Italian sport and horse race betting
markets, with estimated market shares of 17.7% and 36.8%, respectively, based on total turnover
for the year ended December 31, 2014. As of March 31, 2015, our distribution network included
601 sports and horse race betting shops, 847 sports betting corners and 670 horse race betting
corners. The online sports and horse race betting activities reported within this business line have
become increasingly prominent, especially with respect to mobile and tablet apps. Online sports
and horse betting generated 4.0% of our Concession segment revenues and 10.1% of our
Concession segment contribution margin during the twelve months ended March 31, 2015.
In the sports betting market, the turnover we collect is affected by the schedules of significant
sporting events that occur at regular but infrequent intervals, such as the FIFA Football World
Cup and the Summer Olympic Games, which occurred in 2014 and 2012, respectively and may
have helped to partially offset the decline in the market due to adverse macro-economic
situation. However, these marquee events can also affect the payout ratio (discussed below) and,
in turn, our contribution margin. As discussed in “—Sports and horse race betting and virtual
events payout ratio,” we believe that our established retail network across Italy with a dense
network of betting shops and corners can act as a partial “hedge” to large swings in payouts for
national sporting events. In the horse race betting market, our results were affected by the
overall downward trend in the market.
117
In online sports betting, we had a 8.7% market share for the year ended December 31, 2014, as
compared to 11.4% for the year ended 2013. The primary reason for our decrease in online sports
betting market share is that until 2014 one of our largest competitors was not considered by
ADM as part of the market. Including their activities within the market caused the decrease in
our reported market share to be artificially pronounced. Since the reality of the market did not
change significantly, but just the method for reporting the size of the market as a whole, we still
believe we are a leader in the market segment.
Online skill and casino games
We have significantly expanded the scope of our online skill and casino games operations in
recent years, as shown by the number of active registered users which was 291,914 as of
December 31, 2012 and grew to 506,796 as of March 31, 2015. In 2008, we entered into the
online skill games market, offering online poker. In 2011, we also entered the cash and casino
games online market. At the end of 2012, we launched the new online AWPs which met with a
very positive response from our customer base, contributing to the increase of our market share
in this business line. Our online skill and casino games turnover and revenue decreased in 2014 as
a result of a loss of market share in cash games (whose turnover declined from €270.2 million in
2013 to €122.8 million in 2014). As a result, our online skill and casino games revenues decreased
in 2014 to 3.8% of our total revenues as compared to 5.3% in 2013.
The following table shows the reconciliation of our revenues from online skill and casino games
from the relevant turnover figures, payout and taxes, both in absolute numbers and as a
percentage of turnover for the years ended December 31, 2012, 2013 and 2014.
For the year ended December 31,
2012
2013
(thousands of €, except percentages)
Online skill and casino games
turnover . . . . . . . . . . . . . . . . . . . . . .
Online skill and casino games
payout . . . . . . . . . . . . . . . . . . . . . . .
Online skill and casino games single
tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues from online skill and
casino games . . . . . . . . . . . . . . . . . .
923,347
100.0%
(893,112) (96.7)%
(7,888)
(0.9)%
998,711
100.0%
(965,170) (96.6)%
(8,086)
(0.8)%
737,903
2014
100.0%
(711,865) (96.5)%
(6,196)
(0.8)%
22,348
2.4%
25,454
2.5%
19,841
2.7%
Other Concessions revenues . . . . . . .
687
–
1,281
–
4,770
–
Total revenues from online skill and
casino games . . . . . . . . . . . . . . . . . .
23,035
–
26,736
–
24,611
–
Sports and horse race betting and virtual events payout ratio
Our fixed-odds betting products, mainly represented by sports betting, involve betting where
winnings are paid on the basis of the stake placed and the odds quoted, rather than derived
from a pool of stake money received from all customers. Our fixed-odds betting products give
rise to either a liability to make a certain payment to a customer, or the retention by us of the
stake placed by such customer. For the year ended December 31, 2014, we generated total
revenues and contribution margin of €195.1 million and €93.6 million from our offline and online
betting activities as compared to €171.4 million and €81.6 million for the year ended
December 31, 2013. The increase in 2014 was due to the effect of the exceptionally favorable
payout ratio on sports betting over the course of that year. Conversely, less favorable dynamics in
the sports betting payout in the three months ended March 31, 2015 (82.4% as compared to
74.3% in the three months ended March 31, 2014) resulted in a decrease of sports and horse race
betting and virtual events revenues and a contribution margin to €12.4 million (as compared to
€28.1 million for the three months ended March 31, 2014). Our sports betting payout averaged
79.5% from 2007 to 2013, compared to 79.1% in 2014. We believe that our sports betting payout
is returning to levels closer to its historic average. For the twelve months ended March 31, 2015,
our sports betting payout was 81.3%.
118
As a result of significant winnings or losses, event by event and day by day, revenues from our
betting business can be volatile and we cannot guarantee positive returns. As mentioned, 2012
was a year that was particularly unfavorable to bookmakers, with fixed-odds betting products
reaching an average payout ratio in the whole market of 82.7%, the highest payout ratio in the
last decade, which contributed to a decline in fixed-odds betting turnover in 2012. Payout ratios
normalized in both 2013 (78.9%) and 2014 (79.1%), but for the three months ended March 31,
2015, returned to a ratio similar to that seen in 2012 (82.4%)
We believe that our established retail network across Italy with a dense network of betting shops
and corners can act as a partial “hedge” to large swings in payouts. In our experience, our retail
network with a significant presence in all major regions of Italy allows us to minimize the
volatility of the payout for national sporting events vis-à-vis the volatility of the market since
players tend to bet on their favorite football teams and the geographical diversification of bets
acceptance operates similarly to a betting hedge, especially in situations of extreme payouts. In
September 2012, for example, the whole Italian market experienced a payout of 102.9% due to a
series of unfavorable events for bookmakers, while our payout was 100.2%.
Totalizer versus fixed-odds products
The manner in which our customers choose to bet affects the amounts staked by us and revenues
that are generated. Totalizer betting and gaming products, including AWPs, horse totalizer bets,
and other games, provide us with fixed revenues as a percentage of the volume of bets collected
(for instance, 12.8% for AWPs and 11.3% for totalizer bets in 2014). Fixed-odds products, such as
most sports betting, provide revenue percentages that are more variable in the short term, as
discussed above with respect to our payout ratio. Over the long term, however, our revenue
percentage from fixed-odds betting has decreased. Furthermore, the margins associated with the
fixed-odds products have been higher than the contribution margin from totalizer bets.
However, there is an inherently high level of variation in revenues as a percentage of volume of
fixed-odds bets collected on a day-to-day basis and depending on the event. For information on
risk management, please see “Snai’s Business—Risk management.”
Changes in regulation and taxes
We operate in a complex regulatory environment, in particular with respect to our betting and
gaming operations, which is subject to continuous evolution. The Italian betting and gaming
market is regulated by the Italian government, through ADM, the national regulator, and the
other bodies responsible for the control and regulation of this market. Such bodies dictate,
amongst other factors, gaming taxes, minimum payout ratios (i.e., the minimum amount payable
as winnings) and the number of gaming machines that we can operate, all of which have a direct
or indirect impact on our results of operations. Concession agreements with ADM can include
additional requirements.
ADM is responsible for drafting and implementing the regulatory framework governing betting
and gaming in Italy. In 2009, a new regulatory framework was introduced legalizing online
gaming. Following the new regulation, we were able to introduce online tournament poker in
the year ended December 31, 2010, online cash poker and casino games in the year ended
December 31, 2011 and online AWP games in the year ended December 31, 2012. The regulatory
framework also introduced VLTs, with our first machines becoming available in the market in
August 2010, significantly broadening the product offering in the gaming machines market. We
anticipate that the regulatory framework will continue to change in the near future, primarily as
a result of the Italian Stability Law of 2015 and proposed new regulation that could change the
betting and gaming taxation scheme as well as dictate new rules restricting advertising and
limiting the numbers of AWPs that can be installed at any one location. See “Regulation” and
“Summary—Recent developments—Potential change in Italian gaming industry regulation.”
119
Taxation; minimum payout ratios
We are subject to corporate income taxes as well as taxes on individual games which affect our
contribution margin. Changes in tax legislation can affect our results of operations. In particular,
the following changes in tax legislation have affected our results of operations over the three
year period ended December 31, 2014 and the three months ended March 31, 2015.
On awarding the VLT licenses in 2009, ADM stated that the tax on the turnover of these betting
and gaming machines would increase over time. The tax on VLTs was 4% in 2012, increased to
5% in 2013, and has remained unchanged. As our revenues from VLT are stated net of tax paid to
ADM, the increase in taxation from 2012 to 2013 partially offset the increase in overall VLT
revenues in 2013. Revenues from VLT increased from €55.3 million for the year ended
December 31, 2012 to €75.3 million for the year ended December 31, 2013 and to €93.8 million
for the year ended December 31, 2014, in line with increases in our total VLT turnover from
€1,009.9 million for the year ended December 31, 2012 to €1,393.6 million for the year ended
December 31, 2013 and to €1,394.8 million for the year ended December 31, 2014.
PREU (Prelievo Erariale Unico) tax on AWPs was 11.8% in 2012, 12.7% in 2013, 12.7% in 2014,
and increased to 13.0% in 2015. Our revenues are recorded net of tax; therefore any increases in
PREU can adversely affect our results of operations from year to year.
Considering the environment in which we operate, further changes in tax legislation could be
implemented, thereby affecting our results of operations. Changes in tax law or other laws
supersede the terms of our concessions and we are not entitled to additional compensation to
offset such changes during the life of a concession.
Impact of taxation and minimum payout on profitability
As demonstrated by the impact of the VLT tax increase, the profitability of our betting and
gaming products is affected by the taxes imposed and the minimum payout ratios applied by
ADM. Some of our betting and gaming products have payouts in excess of the minimum ratios
applied by ADM, and for these products we are able to decrease the payout in order to mitigate
the effect of any tax increases applied on them. In order to minimize the impact on betting and
gaming prizes and player volumes, we generally seek to make such reductions gradually over
time. Accordingly, there can be a time lag between increases in taxes and decreases in payouts,
resulting in a temporary decrease in profit margin of our betting and gaming products. Where
our betting and gaming products have payouts equal to the minimum applied by ADM, any tax
increases cannot be offset by decreases to payout ratios, and as such in addition to affecting our
revenues, could impact the profitability of these products. Payout on VLTs was 88.3% for the year
ended December 31, 2014 and decreased to 87.9% for the three months ended March 31, 2015.
The minimum payout for VLTs stated by ADM is 85.0%, therefore, further payout decrease could
potentially be decided by management with a positive impact on our profitability should the
total turnover not be adversely impacted by the payout decrease (which cannot be guaranteed).
See also “—Sports and horse race betting and virtual events.”
Explanation of key income statement items
Total revenues
Total revenues include revenues from sales and services and other revenues.
Revenues from sales and services
Revenues from sales and services consist of:
• revenues from our Concessions segment (in this Offering Memorandum, we present a further
unaudited breakdown of our Concessions segment revenues into the following business lines:
sports and horse race betting and virtual events; gaming machines; and online skill and casino
games (the latter includes other residual revenues from our Concessions segment); see
“Presentation of Financial Information—Segment and business line information”);
120
• revenues from our Racecourse Management segment;
• revenues from our Television Services segment;
• revenues from our Betting Collection Services segment; and
• revenues from our Other segment, which includes other revenues from sales and services
arising from other games and services such as Ippica Nazionale, Totocalcio, sale and set-up of
hardware, management of real estate assets and technical assistance services.
Other revenues
Other revenues mainly relate to revenues arising from the settlement of commercial disputes,
insurance reimbursements, expenses charged back to third parties and rental income.
Cost of raw materials and consumables
Cost of raw material and consumables mainly relates to the installed furnishings and equipment
for the new points of sale and raw material used to produce new gaming terminals.
Costs for services and use of third-party assets
Cost for services and use of third-party assets mainly relate to cost for payment for betting
acceptance services, gaming machines services, payment for betting acceptance services, online
skill and casino games management and services costs, and compensation paid to bookmakers.
Costs of personnel
Costs of personnel primarily include wages and salary, social security, and employee termination
indemnities, net of capitalized costs for internal work.
Other operating costs
Other operating costs include annual contribution paid to ADM as concessions fees, write-down
of trade receivables and current assets, gifts, accrual to the provision for technology renewal, and
other operating expenses.
Amortization, depreciation and write-downs
Amortization, depreciation and write-downs relate to intangible assets and property, plant and
equipment.
Other provisions
Other provisions relate to the accrual to provisions for risks and charges mainly related to
penalties to be paid to ADM in connection with AWPs and VLTs concessions (i.e., excess odds, the
malfunctioning of Barcrest platform), accrual related to legal expenses, risks for interest and
penalties related to PREU and imposta unica, and other legal proceedings.
Financial income and expenses
Financial income includes interest income from banks and from other financial assets, shares of
net profit/(loss) of associates, and other financial income. Financial expenses include interest
expense on bank borrowings and financial liabilities, commissions on guarantees and other
financial expenses.
Income tax benefit/(expense)
Income tax benefit/(expense) includes current and deferred taxes.
121
Results of operations
Three months ended March 31, 2015 compared to three months ended March 31, 2014
The following table sets forth our consolidated results of operations in absolute numbers and
expressed as a percentage of total revenues for the three months ended March 31, 2014 and
2015.
(thousands of €, except percentages)
For the three months ended March 31,
2014
%
2015
%
(unaudited)
Change
Amount
Revenues from sales and services . . . .
Other revenues . . . . . . . . . . . . . . . . . . .
142,255
183
99.9% 128,456
0.1%
27,667
82.3%
17.8%
(13,799)
27,484
Total revenues . . . . . . . . . . . . . . . . . . .
Changes in inventory of finished and
semi-finished products . . . . . . . . . . .
Costs of raw materials and
consumables . . . . . . . . . . . . . . . . . . .
Costs for services and use of third
party assets . . . . . . . . . . . . . . . . . . . . .
Costs of personnel . . . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . . . .
Capitalized internal construction
costs . . . . . . . . . . . . . . . . . . . . . . . . . .
142,438
100.0% 156,123
100.0%
13,685
Operating income before
amortization, depreciation,
write-downs, interest and taxes . .
Amortization, depreciation and
write-downs . . . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . . . . .
0
(410)
–
(16)
n.s.
(0.3)%
(151)
(0.1)%
(89,330) (62.7)%
(8,826) (6.2)%
(8,817) (6.2)%
(92,161) (59.0)%
(9,364) (6.0)%
(8,338) (5.3)%
%
(9.7)%
n.s.
9.6%
(16)
100.0%
259
63.2%
(2,831)
(538)
479
(3.2)%
(6.1)%
5.4%
225
0.2%
225
0.1%
0
–
35,280
24.8%
46,318
29.7%
11,038
31.3%
(14,204)
0
(9.1)%
–
606
424
4.1%
100.0%
32,114
20.6%
12,068
60.2%
(14,810) (10.4)%
(424) (0.3)%
Operating income/(loss) . . . . . . . . . . .
Share of net profit (loss) of
associates . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . .
20,046
14.1%
11
n.s.
348
0.2%
(15,237) (10.7)%
0
338
(14,144)
–
0.2%
(9.1)%
(11) (100.0)%
(10)
(2.9)%
1,093
7.2%
Net financial expenses . . . . . . . . . . . . .
(14,878) (10.5)%
(13,806)
(8.8)%
1,072
Profit/(loss) before taxes . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . .
5,168
(2,965)
Net profit/(loss) for the period . . . . . .
Other comprehensive profit/(loss) net
of taxes . . . . . . . . . . . . . . . . . . . . . . . .
2,203
1.6%
11,436
531
0.4%
2,734
1.9%
Total comprehensive profit/(loss) for
the period . . . . . . . . . . . . . . . . . . . . .
122
3.6%
(2.1)%
18,308 (11.7)%
(6,872) (4.4)%
7.2%
13,140
(3,907)
n.s.
n.s.
7.3%
9,233
n.s.
531
0.3%
–
–
11,967
7.7%
9,233
n.s.
Total revenues
The following table shows our total revenues by segment (and by line of business in the
Concessions segment) in absolute numbers for the three months ended March 31, 2014 and 2015.
For the
three months
ended March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
Business lines:
Gaming machines(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting and virtual events(2) . . . . .
Online skill and casino games . . . . . . . . . . . . . . . . . . . . . . .
Other concessions revenues . . . . . . . . . . . . . . . . . . . . . . . . .
64,909
63,646
5,760
1,348
%
75,245
40,760
4,637
28,527
10,336
15.9%
(22,886) (36.0)%
(1,123)
(20%)
27,179
n.s.
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Betting collection services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse racecourse services management . . . . . . . . . . . . . . . . .
Television services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135,663 149,169
2,870
3,397
1,317
1,243
2,284
2,282
304
32
13,506
10.0%
527
18.4%
(74) (5.6)%
(2) (0.1)%
(272) (89.5)%
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
142,438 156,123
13,685
9.6%
(1) The following table presents the breakdown between AWP and VLT revenues.
For the
three months
ended March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
%
AWP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VLT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,125 51,669
21,784 23,576
8,544 19.8%
1,792
8.2%
Gaming machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,909 75,245
10,336 15.9%
(2) The following table presents the breakdown between sports and horse race betting and virtual events revenues.
For the
three months
ended March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
%
Sports betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,782 26,278
6,086
5,369
11,778
9,113
(19,504) (42.6)%
(717) (11.8)%
(2,665) (22.6)%
Sports and horse race betting and virtual events . . . . . . . . . .
63,646 40,760
(22,886) (36.0)%
Total revenues for the three months ended March 31, 2015, increased by 9.6% to €156.1 million
from €142.4 million for the three months ended March 31, 2014. The increase of €13.7 million in
total revenues was primarily attributable to a combination of the following:
• revenues from gaming machines increased by 15.9% to €75.2 million from €64.9 million for the
three months ended March 31, 2014. This increase of €10.3 million is mainly due to an increase
in the average number of machines in operations, a 1.1 percentage point decrease in the
payout ratio for VLTs and the relocation of VLTs from low performing to higher performing
locations;
• revenues from sport and horse race betting and virtual events decreased by 36.0% to
€40.8 million from €63.6 million for the three months ended March 31, 2014. The decrease of
€22.9 million was mainly due to an increase in the payout on sports betting to 82.4% for the
three months ended March 31, 2015 from 74.3% for the three months ended March 31, 2014
and the entry of our competitors into the virtual events market;
123
• revenues from online skill and casino games decreased to €4.6 million from €5.8 million for the
three months ended March 31, 2014. The decrease of €1.2 million was primarily attributable to
increased competition in online poker from large international operators.
• other concessions revenues increased to €28.5 million from €1.3 million for the three months
ended March 31, 2014. The increase of €27.2 million was primarily attributable to a nonrecurring €27.4 million reimbursement to us by Barcrest Group Limited to settle the litigation
commenced by us against them on October 4, 2012 in respect of a malfunction of our Barcrest
gaming system on April 16, 2012. See “Snai’s Business—Legal proceedings—Malfunctioning of
Barcrest VLT Platform”;
• revenues from betting collection services increased by 18.4% to €3.4 million from €2.9 million
for the three months ended March 31, 2014 as a consequence of an increase in betting
collection services related to virtual events; and
• revenues from horse racetrack services management decreased by 5.6% to €1.2 million from
€1.3 million for the three months ended March 31, 2014.
Costs for services and use of third party assets
The following table shows our costs for services and use of third party assets for the three
months ended March 31, 2014 and 2015.
For the
three months
ended March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
Betting sports and horse race acceptance services . . . . . . . . .
Entertainment devices services (Gaming Machines) . . . . . . . .
Online Skill and Casino Games Management . . . . . . . . . . . . .
Online Betting and Skill and Casino Games services . . . . . . . .
Virtual events management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bookmakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse racecourse services and contributions(1) . . . . . . . . . . . . .
Television, radio and IT services . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees and collaborations(2) . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment maintenance and repair . . . . . . . . . . . . . . . . . . . . .
Advertising and marketing(3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installations, logistics and design . . . . . . . . . . . . . . . . . . . . . . . .
Insurance and guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leases and rentals(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate boards and regulation authority fees and
reimbursements(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,997 17,386
47,644 56,738
1,320
1,108
1,895
1,393
5,530
3,845
480
468
148
138
1,874
1,877
1,068
2,128
1,839
1,817
2,207
1,970
1,710
800
321
173
369
369
525
571
Cost for services and use of third party assets . . . . . . . . . . . .
89,330 92,161
746
657
728
652
%
(3,611)
9,094
(212)
(502)
(1,685)
(12)
(10)
3
1,060
(22)
(237)
(910)
(148)
–
46
(17.2)%
19.1%
(16.1)%
(26.5)%
(30.5)%
(2.5)%
(6.8)%
0.2%
99.3%
(1.2)%
(10.7)%
(53.2)%
(46.1)%
–
8.8%
(18)
(5)
(2.4)%
(0.8)%
2,831
3.2%
(1) Horse racecourse services and contributions include the costs for horse racecourse services and contributions to horse
racecourse entities.
(2) Professional fees and collaborations represent the sum of consultancy cost and expenses reimbursements and other personnel
costs for collaborations and other services.
(3) Advertising and marketing represents the sum of the following costs: advertising and promotions, market research, and
marketing materials.
(4) Leases and rentals represents the sum of rental fees, operating leases and rent of station.
(5) Corporate boards and regulation authority fees and reimbursements represents the sum of the followings: Directors’ fees,
Statutory Auditors’ fees, Independent Auditors’ fees, regulation authority and other committee fees and the expense
reimbursement to Directors and Statutory Auditors.
(6) Other comprises certain IT services, surveillance and security services for the transportation of money and valuables, cleaning
services, postal and shipping expenses, waste disposal and costs of company vehicles.
124
Cost for services and use of third party assets for the three months ended March 31, 2015,
increased by 3.2% to €92.2 million from €89.3 million for the three months ended March 31,
2014. This increase was primarily due to a €9.1 million increase in entertainment devices services
(gaming machines), including third party-collection costs and VLT platform costs, as a result of
increased fees paid to third party operators for running our VLT platforms, partially offset by (i) a
decrease of €3.6 million in betting sports and horse race acceptance services as a result of lower
turnover on sports and horse race bets in the physical network and (ii) a decrease of €1.7 million
in virtual events management as a result of a contractually-agreed reduction in the fees we paid
to our POS offering virtual events.
Costs of personnel
Our costs of personnel for the three months ended March 31, 2015, increased by 6.1% to
€9.4 million from €8.8 million for three months ended March 31, 2014. Such increase was
primarily due to the increase in our headcount from 690 as of March 31, 2014 to 720 as of
March 31, 2015. As a result, however, of increased revenues for the three months ended
March 31, 2015, costs of personnel as a percentage of total revenues decreased to 6.0% from
6.2% for the three months ended March 31, 2014.
Other operating costs
The following table shows our other operating costs for the three months ended March 31, 2014
and 2015.
For the three
months ended
March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
%
Concessions and licenses fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Italian Stability Law of 2015 . . . . . . . . . . . . . . . . . . . .
Administration fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions, net of utilization(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Sundry indirect taxes and duties(2) . . . . . . . . . . . . . . . . . . . . . .
Losses from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,268
1,375
–
146
1,423
491
720
394
3,888
959
1,468
31
1,262
402
42
286
(380)
(416)
1,468
(114)
(161)
(89)
(678)
(108)
(8.9)%
(30.3)%
n.s.
(78.8)%
(11.3)%
(18.1)%
(94.2)%
(27.4)%
Other operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,817
8,338
(479)
(5.4)%
(1) Provisions, net of utilization represent the sum of the following costs: allowance for doubtful accounts, write-downs of
receivables, accrual to provision for risks and charges and utilization of provision for doubtful accounts and provision for risks
and charges.
(2) Sundry indirect taxes and duties represents the sum of other indirect taxes and duties on properties (i.e. Unified Municipal
Tax (Imposta Municipale Unica)(“IMU”)).
(3) Other costs represent the sum of the followings: entertainment expenses, subscription fees, stationary, consumables and
promotional materials, costs for environmental and health control, settlement of disputes, other administrative and
operating costs.
Other operating costs for the three months ended March 31, 2015, decreased by 5.4% to
€8.3 million from €8.8 million for the three months ended March 31, 2014. This decrease was
primarily attributable to a €0.7 million decrease in losses from sales and assets, a €0.4 million
decrease in non-deductible VAT and a €0.4 million decrease in concession and licenses fees. These
decreases were partially offset by costs incurred in the three months ended March 31, 2015 in
respect of our portion of the Stability Fee. See “Snai’s business—Legal proceedings—Pending
litigation regarding the Italian Stability Law of 2015.” As a result of the above, other operating
costs as a percentage of total revenues decreased to 5.3% for the three months ended March 31,
2015, from 6.2% for three months ended March 31, 2014.
125
Amortization, depreciation and write-downs
Amortization, depreciation and write-downs for the three months ended March 31, 2015,
decreased by 4.1% to €14.2 million from €14.8 million for the same period of 2014. The decrease
of €0.6 million was mostly attributable to the expiration of certain leasing agreements related to
equipment we had been required to provide to our third-party operated POS, partially offset by
the amortization of new gaming machine investments.
Operating income/(loss)
As a result of the above, our operating income for three months ended March 31, 2015
amounted to €32.1 million as opposed to the three months ended March 31, 2014 when we
recorded an operating income of €20.0 million. Operating income as a percent of total revenues
represented 20.6% for the three months ended March 31, 2015, and 14.1% of total revenues for
the three months ended March 31, 2014. This change was primarily attributable to an increase in
other revenues of €27.5 million from €0.2 million for the three months ended March 31, 2014 to
€27.7 million for the three months ended March 31, 2015 primarily as a result of €27.4 million
reimbursement to us by Barcrest Group Limited to settle the litigation commenced by us against
them on October 4, 2012 in respect of a malfunction of our Barcrest gaming system on April 16,
2012. See “Snai’s Business—Legal proceedings—Malfunctioning of Barcrest VLT Platform.”
Net financial expenses
Net financial expenses for the three months ended March 31, 2015, decreased to €13.8 million
from €14.9 million for the three months ended March 31, 2014. This decrease of €1.1 million, or
7.2%, was primarily due to the expiration of certain leasing contracts relating to IT resources and
equipment on December 31, 2014.
Income before taxes
As a result of the above, our income before taxes for the three months ended March 31, 2015,
increased to €18.3 million compared to €5.2 million for the three months ended March 31, 2014.
Income tax expense
For the three months ended March 31, 2015, we reported income tax expenses of €6.9 million,
compared to income tax expenses of €3.0 million for the three months ended March 31, 2014.
This change is mainly due to increased income for the three months ended March 31, 2015.
Net profit for the period
As a result of the above, net profit for the period for the three months ended March 31, 2015
increased by €9.2 million to net profit of €11.4 million from net profit of €2.2 million for the
three months ended March 31, 2014.
Other comprehensive profit net of taxes
Other comprehensive profit net of taxes for the three months ended March 31, 2015 (which
includes unrealized gains or losses related to fair value (i.e. of hedging instruments)), amounted
to total profit of €0.5 million and remained unchanged from the three months ended March 31,
2014.
Total comprehensive profit for the period
As a result of the above, total comprehensive profit for the three months ended March 31, 2015
increased by €9.3 million to €12.0 million from a total comprehensive profit of €2.7 million for the
three months ended March 31, 2014.
126
Year ended December 31, 2014 compared with year ended December 31, 2013
The following table sets forth the amount of our consolidated results of operations for each of
the years ended December 31, 2013 and December 31, 2014.
(thousands of €, except percentages)
Revenues from sales and
services . . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . .
For the year ended December 31,
2013
2014
(audited)
(audited)
Change
Amount
%
(unaudited)
477,535
1,228
99.7%
0.3%
526,203
1,278
99.8%
0.2%
48,668
50
10.2%
4.1%
478,763
100.0%
527,481
100%
48,718
10.2%
107
–
0
–
(107)
n.s.
(1,162)
(0.2)%
(917)
(0.2)%
245
21.1%
(324,470)
(36,891)
(102,579)
(67.8)%
(7.7)%
(21.4)%
(358,015)
(35,969)
(40,468)
(67.9)%
(6.8)%
(7.7)%
1,337
0.3%
1,539
0.3%
202
15.1%
15,105
3.2%
93,651
17.8%
78,546
n.s.
(54,867)
(2,039)
(11.5)%
(0.4)%
(58,669)
(72)
11.1%
–
(3,802)
1,967
(6.9)%
96.5%
Operating income/(loss) . . . . . . . . .
Share of net income/(loss) of
associates . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . .
(41,801)
(8.7)%
34,910
6.6%
76,711
n.s.
(398)
(0.1)%
1,267
0.3%
(59,983) (13.5)%
(548)
(0.1)%
1,742
0.3%
(60,138) (11.4)%
Net financial expenses . . . . . . . . . . .
(59,114)
(12.3)%
(58,944)
(11.2)%
170
0.3%
(100,915) (21.1)%
6,385
1.3%
(24,034)
(2,048)
(4.6)%
(0.4)%
76,881
(8,433)
76.2%
n.s.
Total revenues . . . . . . . . . . . . . . . . .
Change in inventory of finished
and semi-finished products . . . . .
Costs of raw materials and
consumables . . . . . . . . . . . . . . . . .
Costs for services and use of third
party assets . . . . . . . . . . . . . . . . . . .
Costs of personnel . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . .
Capitalized internal constructions
costs . . . . . . . . . . . . . . . . . . . . . . . .
Operating income before
amortization, depreciation,
write-downs, interest and
taxes . . . . . . . . . . . . . . . . . . . . . . . .
Amortization, depreciation and
write-downs . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . . .
Loss before taxes . . . . . . . . . . . . . . .
Income tax benefit/(expense) . . . . .
Loss for the year . . . . . . . . . . . . . . . .
Other comprehensive profit net of
taxes(1) . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss for the
year . . . . . . . . . . . . . . . . . . . . . . . . .
(33,545) (10.3)%
922
2.5%
62,111
60.6%
(150) (37.7)%
475
37.5%
(155)
(0.3)%
(94,530)
(19.7)%
(26,082)
(4.9)%
68,448
72.4%
2,648
0.6%
1,836
0.4%
(812)
(30.7)%
(91,882)
(19.2)%
(24,246)
(0.5)%
67,636
73.6%
127
Total revenues
The following table shows the breakdown of our total revenues by segment (and by line of
business in the Concessions segment) in absolute numbers for the years ended December 31, 2013
and 2014.
For the year ended
December 31,
2013
2014
(audited)
(thousands of €, except percentages)
Change
Amount
%
Business lines:
Gaming machines(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting and virtual events(2) . . . . . . .
Online skill and casino games(3) . . . . . . . . . . . . . . . . . . . . . . .
250,896 278,475
171,419 195,130
26,736
24,610
27,579 11.0%
23,711 13.8%
(2,126) (8.0)%
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Betting collection services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse racecourse services management . . . . . . . . . . . . . . . . . .
Television services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
449,051 498,215
12,464
12,551
7,379
6,850
9,397
9,152
472
713
49,164 11.0%
87
0.7%
(529) (7.2)%
(245) (2.6)%
241 51.1%
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
478,763 527,481
48,718
10.2%
(1) The following table presents the breakdown between AWP and VLT revenues.
For the year ended
December 31,
Change
2013
2014 Amount
(unaudited)
(thousands of €, except percentages)
%
AWP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VLT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,614 184,713
75,282
93,762
9,099
5.2%
18,480 24.5%
Gaming machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250,896 278,475
27,579 11.0%
(2) The following table presents the breakdown between sports and horse race betting and virtual events revenues.
For the year ended
December 31,
Change
2013
2014 Amount
(unaudited)
(thousands of €, except percentages)
Sports betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting and virtual events . . . . . . . .
%
142,053 127,775 (14,278) (10.1)%
28,152
23,133
(5,019) (17.8)%
1,214
44,222
43,008
n.s.
171,419 195,130
23,711
13.8%
(3) Online skill and casino games includes €1.3 million of Other concession revenues for the year ended December 31, 2013 and
€4.8 million for the year ended December 31, 2014.
Total revenues for the year ended December 31, 2014 increased by 10.2% to €527.5 million from
€478.8 million in 2013. The increase of €48.7 million in revenues was primarily attributable to a
combination of the following:
• revenues from gaming machines increased by 11.0% to €278.5 million from €250.9 million for
the year ended December 31, 2013. This increase was primarily attributable to increased
revenues from VLTs as a result of the completion of the VLT rollout;
• revenues from sports and horse race betting and virtual events increased by 13.8% to
€195.1 million from €171.4 million for the year ended December 31, 2013. The increase of
€23.7 million was primarily a result of the full-year effects of our virtual events products
introduced in December 2013 partially offset by the negative effects of an increased payout
ratio in 2014 (79.1%) as compared to 2013 (78.9%);
128
• revenues from online skill and casino games decreased by 8.0% to €24.6 million from
€26.7 million for the year ended December 31, 2013. The decrease of €2.1 million was primarily
attributable to a decrease in revenues from online poker as a result of increased competition
from large international operators;
• revenues from horse racecourse services management decreased by 7.2% to €6.9 million from
€7.4 million for the year ended December 31, 2013. This decrease of €0.5 million was due to a
reduction in horse race turnover as well as a reduction by the Italian Ministry of Agriculture
(Ministero delle Politiche Agricole Alimentari e Forestali (MIPAAF)) of our portion of the
industry-wide horse racing revenues that are shared among concession holders; and
• revenues from television services for the year ended December 31, 2014 decreased by 2.6% to
€9.2 million from €9.4 million for the year ended December 31, 2013. This decrease of
€0.2 million was primarily attributable to reduced costs as a result of our revised contract with
the MIPAAF.
Costs of raw materials and consumables
Costs of raw materials and consumables for the year ended December 31, 2014 decreased by
21.1% to €0.9 million from €1.2 million for the year ended December 31, 2013. Such amounts
primarily refer to materials used to support the collection of betting, technology and furnishing
installed at new points of sale.
Costs for services and use of third party assets
The following table shows the breakdown of our costs for services and use of third party assets
for the years ended December 31, 2013 and 2014.
For the year ended
December 31,
2013
2014
(audited) (audited)
(thousands of €, except percentages)
Betting, sports and horse race acceptance
services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Entertainment devices services (Gaming
Machines) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Skill and Casino Games management . . . . . .
Online Betting and Skill and Casino Games
services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events management . . . . . . . . . . . . . . . . . . . .
Bookmakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse racecourse services and contributions(1) . . . . .
Television, radio and IT services . . . . . . . . . . . . . . . . .
Professional fees and collaborations(2) . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment maintenance and repair . . . . . . . . . . . . . .
Advertising and marketing(3) . . . . . . . . . . . . . . . . . . . .
Installations, logistics and design . . . . . . . . . . . . . . . .
Insurance and guarantees . . . . . . . . . . . . . . . . . . . . . .
Leases and rentals(4) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate boards and regulation authority fees
and reimbursements(5) . . . . . . . . . . . . . . . . . . . . . . .
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost for services and use of third-party assets . . . .
Change
Amount
%
(unaudited) (unaudited)
78,855
71,722
(7,133)
(9.1)%
184,558
5,706
205,897
4,782
21,339
(924)
11.6%
(16.2)%
6,560
1,001
1,819
1,091
7,097
4,272
7,880
8,897
6,402
1,396
1,816
2,130
6,317
20,989
1,852
1,090
7,716
4,345
7,199
8,393
7,168
1,384
1,504
2,172
(243)
19,988
33
(1)
619
73
(681)
(504)
766
(12)
(312)
42
(3.7)%
n.s.
1.8%
(0.1)%
8.7%
1.7%
(8.6)%
(5.7)%
12.0%
(0.9)%
(17.2)%
2.0%
2,598
2,392
2,797
2,688
199
296
7.7%
12.4%
324,470
358,015
33,545
10.3%
(1) Horse racecourse services and contributions represent the sum of costs for horse racecourse services and contributions to
horse racecourse entities.
(2) Professional fees and collaborations represent the sum of consultancy cost and expense reimbursements and other personnel
costs for collaborations and other services.
129
(3) Advertising and marketing represents the sum of the following costs: advertising and promotions, market research, and
marketing materials.
(4) Leases and rentals represents the sum of rental fees, operating leases and rent of stations.
(5) Corporate boards and regulation authority fees and reimbursements represents the sum of the followings: Directors’ fees,
Statutory Auditors’ fee, independent auditors’ fee, regulation authority and other committee fees and the expense
reimbursement to Directors and Statutory Auditors.
(6) Other comprises certain IT services, surveillance and security services for the transportation of money and valuables, cleaning
services, postal and shipping expenses, waste disposal and costs of company vehicles.
Costs for services and use of third party assets for the year ended December 31, 2014 increased by
10.3% to €358.0 million from €324.5 million for the year ended December 31, 2013. The increase
of €33.5 million was primarily attributable to the following:
• virtual events management costs for the year ended December 31, 2014 increased to
€21.0 million from €1.0 million for the year ended December 31, 2013. This increase was a
result of the fact that our virtual events offering was launched in December 2013 and so 2014
represents a full year of costs to support the offering;
• costs for betting sports and horse race acceptance services decreased by 9.1% to €71.7 million
from €78.9 million for the year ended December 31, 2013. This decrease of €7.1 million was
primarily related to lower collections on sports and horse race bets in the physical network;
and
• costs for entertainment devices services (gaming machines) for the year ended December 31,
2014 increased by 11.6% to €205.9 million from €184.6 million for the year ended December 31,
2013. This €21.3 million increase relates to increased fees paid to third parties that perform
cash collection and costs for VLTs.
Costs of personnel
Costs of personnel for the year ended December 31, 2014 decreased by 2.5% to €36.0 million
from €36.9 million for the year ended December 31, 2013. The decrease of €0.9 million was
mostly attributable to a decrease in other personnel costs as a result of the sale of the Festa S.r.l.
business branch at the end of 2013. As of December 31, 2014, our headcount was equal to 690
employees (including part-time and on-leave employees) as compared to 674 as of December 31,
2013 (including part-time and on-leave employees).
Other operating costs
The following table shows the breakdown of our other operating costs for the years ended
December 31, 2013 and 2014.
For the year ended
December 31,
2013
2014
(audited)
(thousands of €, except percentages)
Concessions and licenses fees . . . . . . . . . . . . . . . . . . . . . . .
Settlement Payments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administration fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision net of utilization(2) . . . . . . . . . . . . . . . . . . . . . . .
Sundry indirect taxes and duties(3) . . . . . . . . . . . . . . . . . .
Losses from the sale of assets . . . . . . . . . . . . . . . . . . . . . .
Other costs(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,683
63,000
4,406
3,678
10,337
1,867
1,678
1,930
Other operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102,579
Change
Amount
(unaudited)
%
15,160
(523)
(3.3)%
– (63,000) (100.0)%
5,533
1,127
25.6%
396
(3,282)
(89.2)%
15,169
4,832
46.7%
1,650
(217)
(11.6)%
1,203
(475)
(28.3)%
1,357
(573)
(29.7)%
40,468 (62,111)
(60.6)%
(1) Settlement payments for the year ended December 31, 2013 relate to payments made to settle the Court of Audit Litigation
commenced in 2007.
(2) Provisions, net of utilization represent the of the following costs: allowance for doubtful accounts, write-downs of
receivables, accrual to provision for risks and charges and utilization of provision for doubtful accounts and provision for risks
and charges.
130
(3) Sundry indirect taxes and duties represents the sum of other indirect taxes and duties on properties (i.e. IMU).
(4) Other costs represent the sum of the followings: entertainment expenses, subscription fees, stationery, consumables and
promotional materials, costs for environmental and health controls and other administrative and operating costs.
Other operating costs for the year ended December 31, 2014 decreased by 60.6% to €40.5 million
from €102.6 million for the year ended December 31, 2013. The decrease of €62.1 million was
primarily attributable to the settlement of the Court of Audit Litigation which was paid in 2013.
Operating income before amortization, depreciation, write-downs, interest and taxes
As a result of the above operating income before amortization, depreciation, write-downs,
interest and taxes for the year ended December 31, 2014 increased to €93.7 million from
€15.1 million for the year ended December 31, 2013. Operating income before amortization,
depreciation, write-downs, interest and taxes as a percent of total revenues increased from 3.2%
for the year ended December 31, 2013 to 17.8% for the year ended December 31, 2014.
Amortization, depreciation and write-downs
Amortization, depreciation and write-downs for the year ended December 31, 2014 increased by
6.9% to €58.7 million from €54.9 million for the year ended December 31, 2013. The increase of
€3.8 million was mostly the result of less depreciation to property, plants and equipment as a
result of increased depreciation from the roll out of additional VLTs and AWPs, offset by the
expiration of certain leasing agreements related to equipment we had been required to provide
to our third-party operated POS.
Other provisions
Other provisions for the year ended December 31, 2014 decreased to €0.1 million from
€2.0 million for the year ended December 31, 2013.
Operating income/(loss)
As a result of the above, operating income for the year ended December 31, 2014 increased to
€34.9 million from a loss of €41.8 million for the year ended December 31, 2013. Operating
income/(loss) as a percent of total revenues increased from negative 8.7% for the year ended
December 31, 2013 to positive 6.6% for the year ended December 31, 2014.
Net financial expenses
Net financial expenses for the year ended December 31, 2014 decreased by 0.3% to €58.9 million
from €59.1 million for the year ended December 31, 2013.
Loss before taxes
As a result of the above, loss before taxes for the year ended December 31, 2014 decreased by
76.2% to €24.0 million from €100.9 million for the year ended December 31, 2013. Loss before
taxes as a percent of total revenues increased from 21.1% for the year ended December 31, 2013
to 4.6% for the year ended December 31, 2014.
Income tax benefit/(expense)
For the year ended December 31, 2014, we recorded income taxes of €2.0 million, compared to
an income tax benefit of €6.4 million for the year ended December 31, 2013. This was primarily
the result of a decrease in losses before taxes, offset by an increase in non-deductible costs.
Loss for the year
As a result of the above, loss for the year ended December 31, 2014 decreased by €68.4 million, or
72.4% to €26.1 million from €94.5 million for the year ended December 31, 2013.
131
Other comprehensive profit net of taxes
For the year ended December 31, 2014, other comprehensive profit net of taxes (which includes
unrealized gains or losses related to fair value (i.e. of hedging instruments)) amounted to
€1.8 million, compared to a profit of €2.6 million for the year ended December 31, 2013.
Total comprehensive loss for the year
As a result of the above, we had a total comprehensive loss for the year ended December 31,
2014 of €24.2 million, an increase €67.6 million, or 73.6%, from a total comprehensive loss of
€91.9 million for the year ended December 31, 2013.
Year ended December 31, 2012 compared with year ended December 31, 2013
The following table sets forth our consolidated results of operations in absolute numbers and
expressed as a percentage of total revenues for each of the years ended December 31, 2012 and
December 31, 2013.
(thousands of €, except percentages)
Revenues from sales and
services . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . .
For the year ended December 31,
2012
2013
(audited)
(audited)
512,683
1,689
99.7%
0.3%
Total revenues . . . . . . . . . . . . . . . . 514,372
Change in inventory of finished
and semi-finished products . . . .
(3)
Costs of raw materials and
consumables . . . . . . . . . . . . . . . .
(1,206)
Costs for services and use of third
party assets . . . . . . . . . . . . . . . . . (389,335)
Costs of personnel . . . . . . . . . . . . . (33,840)
Other operating costs . . . . . . . . . . (33,697)
Capitalized internal construction
costs . . . . . . . . . . . . . . . . . . . . . . .
1,096
100.0%
477,535
1,228
99.7%
0.3%
478,763 100.0%
Change
Amount
(unaudited)
%
(35,148) (6.9)%
(461) (27.3)%
(35,609)
(6.9)%
–
107
–
110
n.s
(0.2)%
(1,162)
(0.2)%
44
3.6%
(324,470) (67.8)%
(36,891) (7.7)%
(102,579) (21.4)%
64,865
(3,051)
(68,882)
16.7%
(9.0)%
n.s.
241
22.0%
(75.7)%
(6.6)%
(6.6)%
0.2%
1,337
0.3%
15,105
3.2%
Operating income before
amortization, depreciation,
write-downs, interest and
taxes . . . . . . . . . . . . . . . . . . . . . . .
Amortization, depreciation and
write-downs . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . .
57,387
11.2%
(59,748)
(11,529)
(11.6)%
(2.2)%
(54,867) (11.5)%
(2,039) (0.4)%
Operating (loss) . . . . . . . . . . . . . . .
Share of net loss of associates . . .
Financial income . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . .
(13,890)
1,451
1,002
(45,027)
(2.7)%
0.3%
0.2%
(8.8)%
(41,801) (8.7)%
(398) (0.1)%
1,267
0.3%
(59,983) (12.5)%
(27,911)
n.s.
(1,849)
n.s.
265
26.4%
(14,956) (33.2)%
Net financial expenses . . . . . . . . .
(42,574)
(8.3)%
(59,114) (12.3)%
(16,540) (38.9)%
Loss before taxes . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . .
(56,464)
13,904
(11.0)%
2.7%
(100,915) (21.1)%
6,385
1.3%
(44,451) (78.7)%
(7,519) (54.1)%
Loss for the year . . . . . . . . . . . . . . .
Other comprehensive profit/(loss)
net of taxes . . . . . . . . . . . . . . . . .
(42,560)
(8.3)%
(94,530) (19.7)%
(3,561)
(0.7)%
(46,121)
(9.0)%
Total comprehensive (loss) for
the year . . . . . . . . . . . . . . . . . . . .
132
2,648
0.6%
(91,882) (19.2)%
(42,282) (73.7)%
4,881
9,490
8.2%
82.3%
(51,970)
n.s.
(6,209)
n.s.
(45,761) (99.2)%
Total revenues
The following table shows our total revenues by segment (and by line of business in the
Concessions segment) in absolute numbers for the years ended December 31, 2012 and 2013.
For the year ended
December 31,
2012
2013
(audited)
(thousands of €, except percentages)
Change
Amount
%
(unaudited)
Business Lines:
Gaming machines(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting and virtual events(2) . . . . .
Online skill and casino games(3) . . . . . . . . . . . . . . . . . . . . .
296,557 250,896 (45,661) (15.4)%
157,293 171,419
14,126
9.0%
23,035
26,736
3,701
16.1%
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Betting collection services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse racecourse services management . . . . . . . . . . . . . . . .
Television services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
476,885 449,051 (27,834)
(5.8)%
15,810
12,464
(3,346) (21.2)%
11,746
7,379
(4,367) (37.2)%
9,759
9,397
(362)
(3.7)%
172
472
300
n.s.
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
514,372 478,763 (35,609)
(6.9)%
(1) The following table presents the breakdown between AWP and VLT revenues.
For the year ended
December 31,
Change
2012
2013 Amount
(unaudited)
(thousands of €, except percentages)
AWP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VLT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gaming machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
%
241,267 175,614 (65,653) (27.2)%
55,290
75,282
19,992
36.2%
296,557 250,896 (45,661)
(15.4)%
(2) The following table presents the breakdown between sports and horse race betting and virtual events revenues.
For the year ended
December 31,
Change
2012
2013 Amount
(unaudited)
(thousands of €, except percentages)
%
Sports betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121,915 142,053
35,378
28,152
–
1,214
20,138
16.5%
(7,226) (20.4)%
1,214
n.s.
Sports and horse race betting and virtual events . . . . . . . .
157,293 171,419
14,126
9.0%
(3) Online skill and casino games includes €0.7 million of Other concession revenues in the year ended December 31, 2012, and
€1.3 million for the year ended December 31, 2013.
Total revenues for the year ended December 31, 2013 decreased to €478.8 million from
€514.4 million for the year ended December 31, 2012. The decrease of €35.6 million in revenues
was primarily attributable to a combination of the following:
• revenues from gaming machines decreased by 15.4% to €250.9 million from €296.6 million for
the year ended December 31, 2012. This decrease was primarily attributable to a withdrawal of
certain AWPs as a result of an important client exiting our AWP network to become a direct
concession holder as well as an increased tax burden (PREU tax on AWPs rose from 11.8% in
2012 to 12.7% in 2013 and on VLTs from 4% to 5%);
• revenues from sports and horse race betting and virtual events increased by 9.0% to
€171.4 million from €157.3 million for the year ended December 31, 2012. The increase of
€14.1 million was primarily attributable to (i) the reduced sports betting payout ratio in 2013
(78.9%) as compared to 2012 (82.7%) and (ii) the introduction in December 2013 of our virtual
events products. These positive effects were partially offset by a €7.2 million decrease in horse
race betting as a result of the general, sector-wide reduction in the popularity of horse racing
in Italy;
133
• revenues from betting collection services for the year ended December 31, 2013 decreased by
21.2% to €12.5 million from €15.8 million for the year ended December 31, 2012. This decrease
of €3.3 million was primarily attributable to reduced turnover recorded by our concessionaire
clients (due to increased risk management resulting in certain high-risk wagers not being
taken) and a corresponding decrease in our earnings from betting collection services in which
we are remunerated according to a percentage of turnover; and
• revenues from horse racecourse services management decreased by 37.2% to €7.4 million from
€11.7 million for the year ended December 31, 2012. This decrease of €4.4 million was due to
the continuing sector-wide reduction in the popularity of horse racing in Italy resulting in a
reduction in the total number of days of races to 100 in 2013 from 222 in 2012 caused, in part,
by a suspension of racing at the Milan gallop racecourse and the temporary closure of the
Montecatini Terme racecourse.
Costs of raw materials and consumables
Costs of raw materials and consumables for the year ended December 31, 2013 remained largely
unchanged at €1.2 million from €1.2 million for the year ended December 31, 2012.
Costs for services and use of third party assets
The table below shows the breakdown of our costs for services and use of third-party assets for
the years ended December 31, 2012 and December 31, 2013.
For the year ended
December 31,
2012
2013
(audited) (audited)
(thousands of €, except percentages)
Betting sports and horse race acceptance
services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Entertainment devices services (Gaming
Machines) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Skill and Casino Games management . . . . . .
Online Betting and Skill and Casino Games
services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events management . . . . . . . . . . . . . . . . . . . .
Bookmakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse racecourse services and contributions(1) . . . . .
Television, radio and IT services . . . . . . . . . . . . . . . . .
Professional fees and collaborations(2) . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment maintenance and repair . . . . . . . . . . . . . .
Advertising and marketing(3) . . . . . . . . . . . . . . . . . . . .
Installations, logistics and design . . . . . . . . . . . . . . . .
Insurance and guarantees . . . . . . . . . . . . . . . . . . . . . .
Leases and rentals(4) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate boards and regulation authority fees
and reimbursements(5) . . . . . . . . . . . . . . . . . . . . . . .
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs for services and use of third party assets . . . .
Change
Amount
%
(unaudited) (unaudited)
92,362
78,855
(13,507)
(14.6)%
232,468
5,387
184,558
5,706
(47,910)
319
(20.6)%
5.9%
3,779
–
1,751
2,347
6,418
7,573
8,231
9,223
9,309
1,794
1,657
2,122
6,560
1,001
1,819
1,091
7,097
4,272
7,880
8,897
6,402
1,396
1,816
2,130
2,781
1,001
68
(1,256)
679
(3,301)
(351)
(326)
(2,907)
(398)
159
(8)
73.6%
n.s.
3.9%
(53.5)%
10.6%.
(43.6)%
(4.3)%
(3.5)%
(31.2)%
(22.2)%
9.6%
(0.4)%
2,670
2,244
2,598
2,392
(72)
148
(2.7)%
6.6%
389,335
324,470
(64,865)
(16.7)%
(1) Horse racecourse services and contributions represent the sum of costs for horse racecourse services and contributions to
horse racecourse entities.
(2) Professional fees and collaborations represent the sum of consultancy cost and expense reimbursements and other personnel
costs for collaborations and other services.
(3) Advertising and marketing represents the sum of the following costs: advertising and promotions, market research, and
marketing materials.
134
(4) Leases and rentals represents the sum of rental fees, operating leases and rent of station.
(5) Corporate boards and regulation authority fees and reimbursements represents the sum of the followings: Directors’ fees,
Statutory Auditors’ fee, independent auditors’ fee, regulation authority and other committee fees and the expense
reimbursement to Directors and Statutory Auditors.
(6) Other comprises certain IT services, surveillance and security services for the transportation of money and valuables, cleaning
services, postal and shipping expenses, waste disposal and costs of company vehicles.
Costs for services and use of third party assets for the year ended December 31, 2013 decreased
by 16.7% to €324.5 million from €389.3 million for the year ended December 31, 2012. The
decrease of €64.9 million was primarily attributable to (i) a €13.5 million decrease in costs for
betting sports and horse race acceptance services resulting from reduced turnover; (ii) a
€47.9 million decrease in costs for entertainment devices services (gaming machines) as a result of
the exit of an important client from our AWP network to become a direct concession holder. less
remuneration paid to third parties in charge of collection; (iii) a €1.0 million increase in costs
related to virtual events management as resulting of the introduction of our virtual events
product offering in December of 2013; (iv) a €3.3 million decrease in professional fees and
collaborations relating to advertising and business consultants due primarily to legal and adviser
fees related to an un-executed financing in 2012, legal costs related to the Barcrest litigation and
market research; and (v) a €2.9 million decrease in advertising and marketing as in 2013 we did
not incur the costs related to the advertising campaign carried out in 2012 in connection with
2012 Summer Olympics.
Costs of personnel
Costs of personnel for the year ended December 31, 2013 increased by 9.0% to €36.9 million from
€33.8 million for the year ended December 31, 2012. The increase of €3.1 million was mainly due
to the resignation of our managing director and the consequent payment of his contractual postemployment benefits, the hiring of new strategic staff, the accrual of incentives for early
retirement for employees and managers and ordinary course increases in connection with
contract renewals. As of December 31, 2013, our headcount was equal to 674 employees
(including part-time and on-leave employees) as compared to 731 as of December 31, 2012
(including part-time and on-leave employees). This decrease in our headcount was mostly due to
the sale of our Festa S.r.l. business branch which became effective on December 31, 2013.
Other operating costs
The following table shows the breakdown of our other operating costs for the years ended
December 31, 2012 and 2013.
For the year ended
December 31,
(thousands of €, except percentages)
2012
2013
(audited)
Concessions and licenses fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement Payments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administration fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions, net of utilization(2) . . . . . . . . . . . . . . . . . . . . . . . . .
Sundry indirect taxes and duties(3) . . . . . . . . . . . . . . . . . . . . .
Losses from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other costs(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,812
–
5,259
148
8,446
1,658
419
1,955
15,683
63,000
4,406
3,678
10,337
1,867
1,678
1,930
Other operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,697 102,579
Change
Amount
(129)
(0.8)%
63,000
n.s.
(853) (16.2)%
3,530
n.s.
1,891
22.4%
209
12.6%
1,259
n.s.
(25)
(1.3)%
68,882
(1) Settlement payments for the year ended December 31, 2013 relate to payments made to settle our outstanding Court of
Audit (Corte dei Conti) litigation commenced in 2007.
(2) Provisions, net of utilization represent the following costs: allowance for doubtful accounts, write-downs of receivables,
accrual to provision for risks and charges and utilization of provision for doubtful accounts and provision for risks and
charges.
135
%
(unaudited)
n.s
(3) Sundry indirect taxes and duties represents the sum of other indirect taxes and duties on properties.
(4) Other costs represent the sum of the followings: entertainment expenses, subscription fees, stationery, consumables and
promotional materials, costs for environmental and health control and other administrative and operating costs.
Other operating costs for the year ended December 31, 2013 increased to €102.6 million from
€33.7 million for the year ended December 31, 2012. The increase of €68.9 million was primarily
attributable to (i) the €63.0 million paid to settle our outstanding Court of Audit (Corte dei Conti)
litigation (ii) an increase in the provision, net of utilization as a consequence of the higher
allowance for doubtful accounts (€1.9 million) due to the continued difficult macroeconomic
environment in the year ended December 31, 2013 and (iii) an increase in losses from sale of
assets related to the sale of the Festa S.r.l. business branch.
Amortization, depreciation and write-downs
Amortization, depreciation and write-downs for the year ended December 31, 2013 decreased by
8.2% to €54.9 million from €59.7 million for the year ended December 31, 2012. The decrease of
€4.8 million was primarily attributable to lower depreciation of property, plant and equipment
and lower amortization of intangible assets due primarily to the expiration, in 2012, of the
historical sport and horse race concession, partially offset by the acquisition of new concessions
and the roll out of additional VLTs.
Other provisions
Other provisions for the year ended December 31, 2013 decreased to €2.0 million from
€11.5 million for the year ended December 31, 2012. This was primarily due to extraordinary
provisions made in 2012 related to a tax assessment notice for 2010, a tax audit in 2011, the
Barcrest litigation and ADM sanctions related to alleged breaches of the rules regarding our
placement of gaming machines. See “Snai’s Business—Legal proceedings.”
Operating loss
As a result of the above, we recorded an operating loss for the year ended December 31, 2013 of
€41.8 million from an operating loss of €13.9 million for the year ended December 31, 2012.
Net financial expenses
Total financial expenses for the year ended December 31, 2013 increased by 38.9% to
€59.1 million from €42.6 million for the year ended December 31, 2012. The increase of
€16.5 million was primarily attributable to an increase in borrowing costs for €15.0 million from
€45.0 million for the year ended December 31, 2012 to €60.0 million for the year ended
December 31, 2013, primarily related to increased interest expenses on loans in the amount of
€14.1 million related to the amortized costs of the Existing Senior Secured Notes and the Senior
Subordinated Notes.
Loss before taxes
As a result of the above, loss before taxes for the year ended December 31, 2013 increased by
78.7% to €100.9 million from €56.4 million for the year ended December 31, 2012. Loss before
taxes as a percent of total revenues increased from 11.0% for the year ended December 31, 2012
to 21.1% for the year ended December 31, 2013.
Income tax benefit
For the year ended December 31, 2013, we reported an income tax benefit of €6.4 million,
compared to an income tax benefit of €13.9 million for the year ended December 31, 2012. This
change was primarily attributable to an increase of pre-tax losses and costs, partially offset by an
increase in non-deductible costs for the reasons discussed above.
136
Loss for the year
As a result of the above, loss for the year ended December 31, 2013 increased by €52.0 million to
€94.5 million from €42.6 million for the year ended December 31, 2012.
Other comprehensive profit/(loss) net of taxes
For the year ended December 31, 2013, other comprehensive profit/(loss) net of taxes (which
includes unrealized gains or losses related to fair value (i.e. of hedging instruments)) increased
our net results for the year ended December 31, 2013 by €2.6 million, compared to a decrease of
€3.6 million for the year ended December 31, 2012.
Total comprehensive (loss) for the year
As a result of the above, we had a total comprehensive loss for the year ended December 31,
2013 of €91.9 million, an increase €45.8 million, or 99.2%, from a total comprehensive loss of
€46.1 million for the year ended December 31, 2012.
Liquidity and capital resources
Liquidity before the Transactions
Our cash requirements consist mainly of the following:
• operating activities, including our net working capital requirements;
• servicing our indebtedness and the indebtedness of our subsidiaries;
• funding acquisitions;
• funding capital expenditures; and
• paying taxes.
Our sources of liquidity have historically consisted mainly of the following:
• cash generated from our operating activities; and
• the proceeds from the issuances of the Series B Notes (repaid on May 5, 2015), the Existing
Senior Secured Notes and the Senior Subordinated Notes.
As of March 31, 2015, our net financial indebtedness was €405.1 million, whereas our net
financial indebtedness was €419.1 million as of December 31, 2014. See “—Net financial
indebtedness” for more discussion of our indebtedness.
The Transactions
We intend to use the net proceeds of the Offering in connection with the Transactions to
refinance the Cogemat Existing Debt and for general corporate purposes. See “Use of Proceeds.”
Liquidity following the Transactions
Following the completion of the Transactions, our primary sources of liquidity are expected to
consist of the following:
• cash generated from our operating activities;
• a portion of the net proceeds of the Notes offered hereby;
137
• the sale of certain receivables pursuant to recourse factoring operations; and
• available drawings under the Revolving Credit Facility.
As of the Issue Date, we expect that the Revolving Credit Facility will be undrawn.
For more information regarding our indebtedness and cash service requirements on our
indebtedness following the Offering, see “Capitalization” and “Description of Certain Financing
and Guarantee Arrangements.”
As required by applicable law, we deduct a 0.5% security deposit from our gaming machine gross
revenues. This security deposit is payable to ADM and ADM subsequently reimburses the deposit
to us, in whole or in part, subject to our compliance with certain service and quality
requirements. The security deposit is recorded in our financial statements as a credit towards
ADM. As of March 31, 2015, we accrued an amount equal to €17.9 million. Historically, ADM has
reimbursed us for the full amount of the security deposit. The security deposit can affect our
liquidity on a seasonal basis because it accrues throughout the year (we pay bi-weekly) and is
then paid in a single lump sum, typically in June of the following year.
Net working capital
Our net working capital, as defined by the Group, is the sum of our trade receivables, other
current assets, inventories, trade payables and other current liabilities. The following table
provides the breakdown of our net working capital as of December 31, 2012, 2013 and 2014 and
as of March 31, 2015.
As of December 31,
2012
2013
2014
(audited)
(thousands of €)
As of
March 31,
2015
(unaudited)
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,837 75,604 58,486
36,364 26,687 24,509
3,384
1,329
486
(44,239) (37,539) (32,385)
(87,901) (91,467) (91,117)
91,680
36,160
451
(25,279)
(130,181)
Net working capital(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(555) (25,386) (40,021)
(27,169)
(1) “Net working capital” is not a recognized measure of financial performance or liquidity under IFRS and therefore no undue
reliance should be placed on such data contained in this Offering Memorandum. See “Presentation of Financial
Information—Non IFRS financial measures.”
As of March 31, 2015 and December 31, 2014, our net working capital financed our operating
activities for €27.2 million and €40.0 million respectively. This decrease of €12.8 million was
primarily due to the combined effect of the effects of the Italian Stability Law of 2015 which
created an increase in amounts owed to ADM as well as an increase in amounts payable to us by
our partner gaming machine operators related to the portion of the Stability Fee attributable to
gaming machines operated by them pursuant to our concessions.
As of December 31, 2014, our net working capital financed our operating activities for
€40.0 million, while as of December 31, 2013 our net working capital financed our operating
activities for €25.4 million. This increase of €14.6 million was primarily due to the combined effect
of (i) the decrease in trade receivables of €17.1 million mainly due to a higher allowance for
doubtful receivables recognized in the year ended December 31, 2014 compared to the prior
year, a decrease in trade receivables from customers as a result of lower turnover and a decrease
in trade receivables from MIPAAF for operation of the racecourse facilities; (ii) the decrease of
€2.2 million in other current assets due to normal-course business activities offset by (iii) the
decrease of €5.2 million in trade payables due to lower costs incurred during 2014.
As of December 31, 2013, our net working capital financed our operating activities for
€25.4 million while as of December 31, 2012 our net working capital financed our operating
activities for €0.6 million, a change of €24.8 million. This change was mainly due to (i) a decrease
in trade receivables of €16.2 million due to decreased receivables from MIPAAF in respect of prize
138
payments paid to winners of horse races in Milan and Montecatini which are now paid directly by
MIPAAF and the higher allowance for doubtful receivables recognized in the year ended
December 31, 2013 compared to the following year; (ii) a decrease in other current assets of
€9.7 million other current assets related to receivables from ADM in connection with the “di
Majo” award in 2012 which in 2013, after the “di Majo” award was declared void and
ineffective, decreased to nil; (iii) a decrease in trade payables of €6.7 million mainly due the
changed management of prizes won on the horse race tracks of Milan and Montecatini, which
are now paid directly by MIPAAF and (iv) an increase in other current liabilities of €3.6 million.
Cash flows
The following table presents our consolidated statements of cash flows for the years ended
December 31, 2012, 2013 and 2014 and for the three months ended March 31, 2014 and 2015.
This presentation differs from the presentation in our financial statements due to the
reclassification of net financial expenses from operating activities to financing activities.
For the Year Ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
Net profit/(loss) for the period . . . . . . . . . . . . . . . . .
Amortization, depreciation and write-downs . . . .
Change in provision for risks and charges and
employee termination indemnities . . . . . . . . . . .
Share of profit/(losses) of associates . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from operating activities before
changes in working capital and interest and
taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net working capital . . . . . . . . . . . . . . . .
(Gain)/loss on disposal of non-current assets . . . . .
Net change in non-current assets and liabilities . .
Net change in deferred tax assets and
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from/(used in) operating activities
excluding net financial expenses(1) . . . . . . . . . . .
(42,560) (94,530) (26,082)
59,748
54,867
58,669
Investments in property, plant and equipment . . .
Investments in other intangible assets . . . . . . . . . .
Investments in other non-current assets . . . . . . . . .
Proceeds from sale of property, plant and
equipment, intangible assets and other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of subsidiaries, net of cash
acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow used in investing activities . . . . . . . . . .
(16,540) (20,780) (10,844)
(5,269) (19,028) (7,746)
–
–
–
For the three
months ended
March 31,
2014
2015
(unaudited)
2,203
14,810
11,436
14,204
(214)
(11)
14,878
(538)
–
13,806
8,952
(1,451)
42,574
(9,217)
398
59,114
(5,961)
548
58,944
67,263
14,516
409
(3,382)
10,632
24,926
86
2,315
86,118 31,666 38,908
14,635 (12,978) (12,852)
1,085
716
27
(604) (1,365)
(390)
(14,414)
(1,125)
(6,686)
(715)
63,267
37
(695)
(237)
30,558 100,302
207
130
–
–
–
(21,772) (39,601) (18,460)
1,554
1,031
4,705
579
20,624
30,977
(2,022)
(766)
–
(2,758)
(747)
–
4
–
(2,784)
53
–
(3,452)
Change in financial assets and liabilities . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds/(repayments) of financial loans . . . .
Cash flow from/(used in) financing activities
including net financial expenses(2) . . . . . . . . . . .
(70,767)
43,532
(58,712)
(4,651)
(2,215)
Cash and cash equivalents at the beginning of
the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,282
11,010
45,499
45,499
68,629
(29,272)
34,489
23,130
13,189
25,310
11,010
45,499
68,629
58,688
93,939
Change in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents at the end of the
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(43,115) (28,391)
242 10,227 11,591
(42,574) (59,114) (58,944) (14,878) (13,806)
14,922 131,037
(10)
–
–
(1) We define cash flow from/(used in) operating activities excluding net financial expenses as the sum of cash flow from/(used
in) operating activities, plus net financial expenses of the period. Cash flow from/(used in) operating activities excluding net
139
financial expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash
flows from operating, activities. We believe that cash flow from/(used in) operating activities excluding net financial expenses
is a useful indicators of our ability to generate cash flow and can assist securities analysts, investors and other parties to
evaluate us. The following is a calculation to reconcile cash flow from/(used in) operating activities to cash flow from/(used in)
operating activities excluding net financial expenses.
For the Year Ended
December 31,
(thousands of €)
2012
2013
2014
For the three
months ended
March 31,
2014
2015
Cash flow from/(used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(unaudited)
20,693 (28,556)
41,358
42,574
59,114
58,944
(unaudited)
5,746 17,171
14,878 13,806
Cash flow from/(used in) operating activities excluding net financial expenses . .
63,267
20,624
30,558
100,302
30,977
(2) We define cash flow from/(used in) financing activities including net financial expenses as the sum of cash flow from/(used in)
financing activities and the net financial expenses of the period. Cash flow from/(used in) financing activities including net
financial expenses is not a measurement of performance under IFRS and you should not consider it as alternatives to cash
flows from financing activities. We believe that cash flow from/(used in) financing activities including net financial expenses is
a useful indicators of our financing activity and can assist securities analysts, investors and other parties to evaluate us. The
following is a calculation to reconcile cash flow from/(used in) financing activities to cash flow from/(used in) financing
activities including net financial expenses.
For the Year Ended
December 31,
(thousands of €)
2012
2013
2014
For the three
months ended
March 31,
2014
2015
Cash flow from/(used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(unaudited)
(unaudited)
(28,193) 102,646
232
10,227
11,591
(42,574) (59,114) (58,944) (14,878) (13,806)
Cash flow from/(used in) financing activities including net financial
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(70,767)
43,532
(58,712)
(4,651)
(2,215)
Cash flow from /(used in) operating activities excluding net financial expenses
For the three months ended March 31, 2015 and 2014, cash flow from operating activities
excluding net financial expenses amounted to €31.0 million and €20.6 million, respectively. The
€9.4 million increase in cash flow from operating activities excluding net financial expenses was
primarily due to the collection of cash from our partners in respect of the portion of the Stability
Fee represented by AWPs and VLTs operated by them under our concessions.
For the year ended December 31, 2014, cash flow from operating activities excluding net
financial expenses amounted to €100.3 million, while for the year ended December 31, 2013 cash
flow from operating activities excluding net financial expenses amounted to €30.6 million. This
change was primarily due to the fact that in 2013 we were required to pay €63.0 million as part
of the settlement of the Court of Audit Litigation.
For the year ended December 31, 2013, cash flow from operating activities excluding net
financial expenses amounted to €30.6 million, as compared to the prior year when our cash flow
from our operating activities excluding net financial expenses amounted to €63.3 million. This
change was primarily due to the fact that in 2013 we were required to pay €63.0 million as part
of the settlement of the Court of Audit Litigation as well as the fact that cash flows from
operating activities excluding net financial expenses for the year ended December 31, 2012 were
negatively affected by the high payout ratio in 2012 and the fact that our VLT rollout had begun,
but was not completed in 2012.
Cash flow used in investing activities
For the three months ended March 31, 2015, our net cash flow used in investing activities
amounted to €3.5 million, as compared to €2.8 million of net cash flow used for the three months
ended March 31, 2015. The investments of the period mainly related to investments in the new
horse racetrack at San Siro as well as investments in new technology for our datacenter and POS.
140
During the year ended December 31, 2014, our investing activities used financial resources equal
to €18.5 million, as compared to the year ended December 31, 2013 where our investing activities
used financial resources equal to €39.6 million. These investments were primarily related to the
purchase of new servers for our VLTs, the purchase of additional AWPs and the related
installment fees, technology upgrades for our distribution network and datacenters and
investments in our horse racetracks.
For the year ended December 31, 2013, our investing activities used financial resources equal to
€39.6 million while for the year ended December 31, 2012 net cash used in investing activities
amounted to €21.8 million. These investments were primarily related to payments for new
concessions, technology upgrades for our television services business and distribution network
and investments in our horse racetracks.
Cash flow from/(used in) financing activities including net financial expenses
For the three months ended March 31, 2015, cash flow used in financing activities including net
financial expenses amounted to €2.2 million, as compared to the three months ended
March 31, 2014 when we used cash in financing activities including net financial expenses equal
to €4.7 million. This change was primarily due to financial income earned on cash on hand.
For the year ended December 31, 2014, the cash flow used in financing activities including net
financial expenses amounted to €58.7 million, as compared to the prior year when our financing
activities including net financial expenses generated financial resources equal to €43.6 million.
This change was primarily due to an increase in the average cost of our indebtedness.
For the year ended December 31, 2013, the cash flow from financing activities including net
financial expenses amounted to €43.6 million, as compared to prior year when the cash flow used
in financing activities including net financial expenses amounted to €70.8 million. This change
was mainly due to the net proceeds from refinancing our debt with the proceeds from the
issuances of the Existing Senior Secured Notes and the Senior Subordinated Notes.
Capital expenditures
Our capital expenditures consist primarily of investments to renew existing concessions or acquire
new ones, expand our shop network and/or upgrade our existing betting shops. While we do not
own—and do not intend to own in the future—the majority of our AWP machines, we may
consider the selective purchase of certain machines in order to enhance the customer experience in
our betting shops. The following table sets forth our capital expenditures for the periods indicated.
For the year ended
December 31,
2012
2013
2014
(audited)
For the
three months ended
March 31,
2015
(unaudited)
Concession rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . .
2,444 14,572
2,423
2,825
4,456
5,323
16,540 20,780 10,844
179
568
2,758
Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,809 39,808 18,590
3,505
(thousands of €)
Investments in concession rights over the 2012 to 2014 period were primarily related to renewals
of expired concessions as well as investment to buy or develop new software. Investments in
property, plant and equipment over the 2012 to 2014 period were primarily related to
investments in equipment and furniture for our POS, upgrades to our IT network and other
infrastructure as well as minor investments for the horse racetrack at San Siro.
For the three months ended March 31, 2015, our investment amounted to €3.5 million whose
€0.2 million of concession rights mainly related to paying the installation fee for AWPs,
€0.2 million of intangible assets mainly related to investments in new software and €2.8 million
of property, plant and equipment primarily related to the new horse racetrack at San Siro and
investments in new technology for our datacenter and POS.
141
In addition, our and the Cogemat Group’s sports and horse race betting concessions expire in
2016. These multi-concessions contain licenses pursuant to which we operate our betting shops
and betting corners and the renewal of such concessions will likely require significant cash
payments. We are not currently in a position to estimate the amount of capital expenditures that
may be required in 2016 to renew these concessions, but in recent years, upfront expenditures to
acquire new concessions have been significant. For example, in 2009, the upfront fee for our VLT
concession was €15,000 for each of the 5,052 machines, for a total of €75.8 million. In the past we
have funded these expenditures with cash on hand and available borrowings under various
facilities and expect to follow the same course in the future. See “Risk Factors—Risks related to
our business—Acquiring or renewing a concession typically requires a significant upfront cash
payment, and in the future, we may not have sufficient cash on hand or adequate access to
additional capital to fund such payments.”
Net financial indebtedness
As of March 31, 2015, our net financial indebtedness was €405.1 million. As of December 31,
2014, 2013 and 2012, our net financial indebtedness was €419.1 million, €443.4 million and
€369.6 million, respectively.
“Net financial indebtedness” is the amount of long-term debt, plus financial liabilities, less
financial receivables, less cash and cash equivalents. We present net financial indebtedness in this
Offering Memorandum because we understand that certain investors believe that netting cash
against debt provides a clearer picture of the financial liability exposure. However, other
companies may present net financial indebtedness differently than we do. Net financial
indebtedness is not a measure of financial performance under IFRS and should not be considered
as an alternative to any other measures of performance derived in accordance with IFRS.
The following table presents a reconciliation of the net financial indebtedness to financing items
of the statement of financial position as of December 31, 2012, 2013 and 2014 and March 31,
2015:
As of December 31,
2012
2013
2014
(audited)
(thousands of €)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Current financial receivables(1) . . . . . . . . . . . . . . . . . . . . . .
Current financial borrowing . . . . . . . . . . . . . . . . . . . . . . . .
11,010
8
36,195
45,499
7
7,507
68,629
1
22,923
As of
March 31,
2015
(unaudited)
93,939
1
33,927
Net current financial borrowing . . . . . . . . . . . . . . . . . . . .
Non-current financial assets . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current financial borrowing . . . . . . . . . . . . . . . . . . . .
25,177 (37,999) (45,707)
–
–
–
9,406
–
–
335,030 481,388 464,769
(60,013)
–
–
465,157
Net non-current financial borrowings . . . . . . . . . . . . . . .
344,436 481,388 464,769
465,157
Net financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . .
369,613 443,389 419,062
405,144
(1) Includes trading financial instruments amounting to €1 thousand.
Moreover, in presenting our net financial indebtedness we do not include in our cash and cash
equivalents amounts in escrow accounts and restricted bank accounts for the dates presented
(equal to €19.7 million as of March 31, 2015). To settle our portion of the Stability Fee,
€4.1 million (representing the amount we were unable to collect from our partners operating
VLTs and AWPs under our concessions) was deducted from our deposit with ADM, equal to
€17.9 million as of March 31, 2015, thereby reducing the amount that will be refunded to us. See
“Snai’s Business—Legal proceedings—Pending litigation regarding the Italian Stability Law of
2015—Administrative proceeding against the Italian Stability Law of 2015.” The escrow accounts
also exists to manage funds arising from the liabilities for the collection of wagers and the setoff
of amounts receivable from ADM under the “di Majo award.” At the end of the 1990s, a dispute
142
arose between various horse race betting service providers and the Italian Finance and
Agriculture Ministries regarding alleged payment delays and breaches by those Ministries. The
matter resulted in the issuance in 2003 of the “di Majo award” (named for the arbitration
tribunal chaired by Professor di Majo). The ruling found that the Ministries were liable and
ordered them to compensate the concession holders. The compensation assigned to us for the
period ending June 2006 was €2.3 million. The compensation for subsequent years has yet to be
determined in its entirety. The Ministries concerned appealed the decision in the Court of Appeal
in Rome. On June 22, 2010, the trade association Assosnai sent ADM a proposal for a settlement
of the dispute, under which the concession holders’ claims against the Ministries would be offset
against their liabilities towards ADM (with an express waiver of the interest accrued on the
claims, currency adjustments, and any pending enforcement actions), and the Ministries would
abandon the challenge against the award brought before the Court of Appeal in Rome. ADM
authorized (in a communication) the offsetting of the claims from the di Majo award. Within the
context of this agreement, we are also acting on behalf of third party concession holders and
have acquired from them their rights arising under the di Majo award for an amount equal to
€19.1 million. Pursuant to agreements with the third party concession holders, an amount of
€16.2 million was transferred to an escrow account that will be redeemed and will be paid to
third party concession holders when the di Majo award is definitively settled. A portion of the
remaining amount was used by third party concession holders to settle trade receivables owed to
us. On November 21, 2013, the Court of Appeal of Rome voided the di Majo award stating that
the administrative courts, as opposed to the arbitration tribunal, have jurisdiction over the
matter. On May 21, 2014, we initiated our appeal of the Court of Appeal decision before the
Italian Supreme Court (Corte di Cassazione) and, on June 10, 2014, our appeal was filed with the
competent Italian Supreme Court’s clerk. We intend to continue this litigation in order to obtain
a definitive decision that is in our best interest. The outcome of such proceeding is inherently
uncertain and, until a final decision is adopted by the Italian Supreme Court, we may be subject
to potential claims by ADM, including a possible request for payment of the amounts offset. As
of March 31, 2015, a total amount of €17.9 million was used to offset payables to ADM at that
date. See “Snai’s Business—Legal proceedings—Proceeding regarding the di Majo award.”
Off-balance sheet arrangements
The following table summarizes our off-balance sheet arrangements as of December 31, 2012,
2013 and 2014 and March 31, 2015, which consisted solely of bank guarantees:
(millions of €)
Bank guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2012
2013
2014
As of
March 31,
2015
186.4 157.1 128.1
186.4 157.1 128.1
124.7
124.7
In connection with the award of a betting and gaming concession, we are required to post
guarantees in favor of ADM or UNIRE in the form of a bank or insurance guarantee indemnifying
such government authority in the event that we fail to adequately perform our obligations under
the concession. As of March 31, 2015, the total aggregate amount of our performance
guarantees to ADM and UNIRE was an aggregate of €124.7 million. These guarantees generally
expire from a minimum of one up to a maximum of five years after the expiration of the relevant
concession. Historically, we have not been required to make any payments under our guarantees.
See “Description of Certain Financing and Guarantee Arrangements—Snai—Bank guarantees in
favor of ADM and UNIRE on behalf of Snai.”
143
Contractual obligations
The following table summarizes our contractual obligations and the effect such obligations and
commitments are expected to have on our liquidity and cash flows, as of March 31, 2015, and pro
forma for the Transactions and the repayment of the Series B Notes.
(millions of €)
Total
Payments Due by Period
Less than
1 Year 2–3 Years 4–5 Years
More than
5 Years
Financial and operating lease obligations(1) . . .
Installments on tax assessment notice (PVC) . .
Installments on PREU from prior years . . . . . . .
Installments on Single Tax from prior years . . .
Existing Senior Secured Notes . . . . . . . . . . . . . .
Senior Subordinated Notes . . . . . . . . . . . . . . . . .
Notes offered hereby . . . . . . . . . . . . . . . . . . . . .
2.6
0.3
2.6
0.6
405.4
236.8
20.6
1.0
0.3
0.8
0.2
24.4
19.2
20.6
1.3
–
1.6
0.4
48.8
38.4
–
0.3
–
0.2
–
332.2
179.2
–
–
–
–
–
–
–
–
Total Contractual Obligations . . . . . . . . . . . . . .
668.9
66.5
90.5
511.9
–
(1) Refers to the nominal amount of financial and operating lease agreements, mainly relating to the sale and leaseback of
technology, equipment, and furniture for our headquarters and our betting shops and corners. See “Description of Certain
Financing and Guarantee Arrangements—Snai—Snai financial and operating lease agreements.”
Quantitative and qualitative disclosures about market risk
Credit risk
A significant portion of our revenues derives from the concessions of ADM, which results in a
significant concentration in the exposure to credit risk vis-à-vis groups of clients. We believe that
a significant portion of our operations and profits will continue to depend upon ADM
concessions.
We have to manage (i) cash inflows from AWPs and VLTs managers for concessionaire margin (on
average 1.6% on AWPs and 2.9% on VLTs in the first three months of 2015), PREU (13.0% on
AWPs and 5.0% on VLTs), gaming machine security deposit (0.5%) and concession fees (0.3%)
and from betting shops/corners managers for concessionaire fees and taxes due to ADM and
UNIRE; and (ii) cash outflows such as the PREU, the security deposit and concession fee for AWPs
and VLTs as well as the relevant taxes due on sport and horse race betting to ADM and UNIRE,
over time spans determined in the relevant contractual and/or concession arrangement with the
competent authority (i.e., ADM and UNIRE). In this framework, our role as collector of the taxes
due to ADM and UNIRE on the gaming machines and on betting volumes is of particular
relevance. In particular:
• “Imposta Unica” tax levied on sports and horse race betting—The collection by us of the
“Imposta Unica” taxation due to ADM over the volumes of bets collected on horse race bets
(approximately 4.6% of collected volumes) and sports bets (approximately 4.0% of the betting
volumes), takes place on a weekly basis. We then have to credit to ADM the relevant amounts
collected over any relevant six-month period (April 1 to September 30 and October 1 to
March 31), within the end of the month following the relevant six-month period. There is,
therefore, a time lag of approximately one month between the collection of the final tranche
of the accrued tax amount and the successive crediting of the amount due to ADM for the
preceding six-month period.
• UNIRE taxation payable on horse race bets—The collection and calculation of the tax amount
due to UNIRE is made on a weekly basis: the first tranche of tax amounts due with reference to
the first half of the month must occur no later than the 20th of the same month, while the tax
amounts accruing with reference to the second half of the month must be paid no later than
the 5th day of the following month. In this case, the time lag between the tax collection and
successive crediting of the taxes due to UNIRE equals five day.
144
• PREU on AWPs and VLTs bet volumes—We calculate the PREU accrued on gaming machines on
a weekly basis and generally collect payment of the accrued amount one week after the first
half of the relevant month. We then have to advance to ADM the PREU for each relevant twomonth period in four installments, of which (i) three equal to 25% of the volumes accrued in
the preceding two-month period each to occur end of the first month of the relevant twomonth period, and then approximately every two weeks thereafter; and (ii) a final installment
due on the 23rd of the month following the end of the relevant two-month period equal to the
difference between the amounts actually due for the relevant two-month period and the
amounts already advanced. As a result of the foregoing, there is generally a time lag between
collection of tax and subsequent payment to ADM of two days.
Our credit risk is primarily attributable to the collection of our trade receivables from the
managers of betting shops and corners. In order to mitigate our credit risk, we have adopted
various policies and instruments, including, but not limited to: (i) the adoption of the inter-bank
direct debit method (RID) for payments due by all of our clients, which allows us to draw-down
funds directly from the bank account of the client and promptly identify any failure to meet any
payment deadline; (ii) reliability and credit worthiness analysis of any potential new clients, by
means of acquisition of information from specialized firms and operators. The reports obtained
are appropriately supplemented with objective and subjective elements, such as past experience
and reputation in the market, deemed useful and already available within the Snai Group
generating a reliability assessment; (iii) obtainment of sureties or security deposits, issued in favor
of the Snai Group based on a credit worthiness and reliability assessment of the client; and
(iv) constant and regular monitoring of credit situations relating to existing relationships by an
internal dedicated team, which operates in cooperation with other of our internal functions,
including our internal legal department. The generally short period of collections, coupled with
the direct inter-bank debiting method of collection (RID), is also a factor that helps us reducing
the credit risk. We assess our trade receivables on a quarterly basis at the close of the relevant
unaudited interim consolidated financial statements. We evaluate the creditworthiness of each
debtor and the quality of our trade receivables on the basis of information available to us,
assessing the need for impairment using available statistical information.
We operate these credit management policies in a flexible manner, also taking into account
situations of temporary financial difficulties faced by the managers of betting shops and corners,
with a view to preserving a long-term business relationship.
As of March 31, 2015, we reported trade receivables, net of €52.6 million allowance for doubtful
accounts, of €91.7 million and as of December 31, 2014, we reported trade receivables, net of
€53.6 million allowance for doubtful accounts, of €58.5 million. The following table details the
amount and expiration of our trade receivables as of December 31, 2014:
As of December 31, 2014
(millions of €)
Total
Not expired
Expired
from
0–90 days
Trade Receivables . . . . . . . . . . . . . . . . . . . .
58.5
29.1
5.0
Expired
from
90–180 days
Expired
from
more than
180 days
3.6
20.8
Interest rate risk
Certain of our indebtedness including the Revolving Credit Facility bears interest at floating
interest rates. A change in interest rates affects the fair value of floating rate financial assets and
liabilities and may impact on our future results. As of March 31, 2015, all of our financial
liabilities (without considering fluctuations in the fair value of derivatives) bore interest at fixed
rates, other than the Series B notes and the Revolving Credit Facility which bear floating interest
rates indexed to EURIBOR. The Series B Notes were repaid at maturity on May 5, 2015. We
currently do not expect to enter into any hedging arrangements in respect of the Notes or any
future drawings under our Revolving Credit Facility.
145
Liquidity risk
This is the risk that we cannot generate sufficient cash flows from our operations to operate our
business, cover investments and third party debt, namely because of prolonged payment times
for trade receivables and our ongoing non-deferrable payroll and employee leasing obligations.
Our approach to liquidity management is to put into place adequate funds to cover our
obligations when they are due, both during normal conditions and at times of financial difficulty.
We manage our cash through various means, including by making use of checking accounts,
short-term certificates of deposit, finance leases and medium-term financing. We also have
begun to reposition our business and allocate our capital expenditures to areas which are highgrowth and high-profit and to make optimal use and leverage our existing fixed costs (related to
our retail network of betting shops and betting corners). We have historically met our liquidity
requirements through a combination of cash generated by our business, finance agreements and
other indebtedness. As of the date of this Offering Memorandum the Revolving Credit Facility is
expected to be undrawn. See “Description of Certain Financing and Guarantee Arrangements—
The combined Group—Revolving Credit Facility.”
Bookmaker risk
Quoting odds, or the process of bookmaking, is the activity of setting odds for fixed-odds
betting, which, in effect, represents a contract between the bookmaker, who agrees to pay a predetermined amount (the odds) and the player, who accepts the proposal made by the
bookmaker and decides on the amount of his bet within the limits allowed by law. We have risk
management functions, assisted by external consultants, in order to more accurately determine
the odds and reduce our bookmaker risk. See “Snai’s Business—Risk management.”
Critical accounting policies
Our significant accounting policies, which we have applied consistently, are fully described in
Note 1.2 to our annual consolidated financial statements as of and for the year ended
December 31, 2014.
We believe that the following discussion addresses our most critical accounting policies, which
are those that are most important to the portrayal of our financial condition and results of
operations and require subjective judgments by management, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Estimates are based on
past experience and other factors considered reasonable in the circumstances. Actual amounts
could differ from these estimates, based on different assumptions or different operating
conditions.
Revenue recognition
Revenues are recognized to the extent that it is likely that the economic benefits will flow to the
Snai Group and the revenues can be reliably measured. Revenues are presented net of discounts,
bonuses and returns. In particular, revenues from the sale of assets are recognized when the risks
and rewards of ownership are transferred to the purchaser, the sale price is fixed or determinable
and the collection is expected generally corresponding with the date of delivery or shipment of the
asset. Revenues for services are recognized on an accrual basis, when the services are delivered.
Revenues related to AWPs are recognized net of the indirect tax (PREU), paid winnings and gross of
fees to be paid to betting point managers and of concession payment due to ADM. Revenues
related to VLTs are recognized net of paid winnings, jackpots and the indirect tax (PREU), and gross
of fees paid to betting point managers, as well as the concession payments due to ADM. Revenues
related to online games (Skill/Casino/Bingo) are recognized net of paid winnings, single tax and
gross of the IT costs for the platform and the concession payment.
In accordance with IAS 32 and 39, the collection of fixed odd and totalizer odd bets represents
financial liabilities measured at fair value at the reporting date. Therefore, the collection
146
connected with the acceptance of fixed odd bets (for which we take the risk of winnings) is
recognized as revenues net of the costs for the single tax, indirect tax ex ASSI, winnings and
reimbursements paid to bettors. Revenues connected with the acceptance of totalizer bets are
instead recognized based on the commission percentage established by the concession for
operating the bets.
Revenues and costs related to bets are recognized at the time the event on which the bet is
accepted has occurred.
Impairment of non-financial assets
The carrying values of intangible assets with a definite useful life and of property, plant and
equipment are reviewed for impairment at year end and at the closing date of each interim
period, when events or changes in circumstances indicate the carrying value may not be
recoverable.
Goodwill is reviewed for impairment annually, regardless of circumstances that indicate that the
carrying value may be impaired, and at the closing date of each interim period, when certain
that such indications exist.
In both instances, annual or interim review of goodwill, where events or changes in
circumstances indicate the carrying value may not be recoverable for definite property, plant and
equipment and intangible assets, we perform an estimate of the relative carrying values and
where the carrying values exceed the estimated recoverable amount, the assets or cashgenerating units are written down to their recoverable amount. The recoverable amount is the
greater of net selling price and value in use. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for the cash-generating unit to
which the asset has been allocated.
Impairment test on goodwill is based on the cash flows generated by the cash-generating units
to which it has been allocated. In assessing value in use, the estimated future cash flows are
discounted to their 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.
Future cash flows are estimated with reference to the current operating conditions of the cash
generating unit and, therefore, do not include either benefits expected from future restructuring
for which the entity is not yet committed, or future investments for the improvement or
optimization of the cash-generating unit.
If the carrying amount of the cash-generating unit exceeds the recoverable amount, an
impairment loss is recognized in the statement of income. If there are indications that previously
recognized impairment losses have disappeared or reduced, with the exception of impairment
losses on goodwill that, in any case cannot be reversed, we determine the recoverable amount of
assets to quantify the reversal which in any case cannot exceed the carrying amount that would
have been recorded had no impairment loss been recognized. A reversal of an impairment loss is
recognized as income in the statement of operations. The depreciation expense for the future
periods is adjusted to consider the change in the carrying amounts. As mentioned, impairment
losses recognized on goodwill are never reversed.
Deferred tax assets
Deferred tax assets are recognized for all deductible temporary differences, unused carried
forward tax credits and unused tax losses, to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences, unused carried forward tax
credits and unused tax losses can be utilized. The carrying amount of deferred income tax assets
is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred income tax asset to
147
be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and
are recognized to the extent that it has become probable that future taxable profit will allow the
deferred tax asset to be recovered.
Provisions for risks and charges
The Issuer recognizes provisions mainly in connection with litigation. Given the complexity of the
regulatory framework in which we operate, estimating the amount of such provisions requires a
complex process involving subjective judgments on the part of the Issuer’s management.
148
Management’s Discussion and Analysis of Financial
Condition and Results of Operations of the Cogemat Group
The following discussion of the Cogemat Group’s financial condition and results of operations
should be read in conjunction with its consolidated financial statements included in this Offering
Memorandum. Among other things, those financial statements include more detailed
information regarding the basis of presentation for the following information.
The following discussion contains certain forward-looking statements that reflect our plans,
estimates and beliefs. Results could differ materially from those discussed in these forward
looking statements. Factors that could cause or contribute to such differences include, but are
not limited to, those discussed below and elsewhere in this Offering Memorandum, including the
section entitled “Risk Factors.”
This section should be read in conjunction with the Cogemat Audited Financial Statements
contained elsewhere herein, and the Cogemat Unaudited Interim Consolidated Financial
Statements contained elsewhere herein.
Unless the context indicates otherwise, in this section references to the “Cogemat Group” refers
to Cogemat S.p.A. and its consolidated group. Such references do not include the Issuer and do
not take into account the effects of the Transactions, unless the context otherwise requires. For
more information on the Issuer’s financial condition and results of operation, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of Snai” and for more
information on the Cogemat Acquisition, see “Summary—The Cogemat Acquisition” and
“Cogemat Group Business.”
Overview
The Cogemat Group is among the leading gaming machine companies in Italy, with a network, as
of March 31, 2015, of approximately 35,000 AWPs, 5,003 active VLTs and 186 POS. In addition to
its gaming and betting network, the Cogemat Group provides IT and betting services to
third-party betting retailers. It also offers convenience payment services (branded “PayMat”) such
as mobile phone top-ups, PayMat prepaid payment cards and bill payment services. For the
twelve months ended March 31, 2015, the Cogemat Group generated total revenues of
€437.9 million, Cogemat Adjusted EBITDA of €42.2 million and as of March 31, 2015 the Cogemat
Group’s total assets were €270.0 million.
The Cogemat Group represents a strategically important acquisition for us. It strengthens our
market positions across our primary business lines, expands our distribution network, further
diversifies our product portfolio, provides new revenue-generating businesses and increases our
scale and operational efficiencies.
149
Key factors affecting the Cogemat Group’s financial condition and results of
operations
The Cogemat Group’s operations are primarily focused on the Italian gaming market, though the
Cogemat Group also operates in the Italian convenience payment services market. The following
tables set forth an analysis of the Cogemat Group’s turnover generated from (i) gaming machines
(AWPs and VLTs), (ii) betting, (iii) online gaming and (iv) convenience payment services.
(in € millions, except
percentages)
For the year ended December 31,
% of
% of
% of
2012
total 2013
total 2014
total
For the three months ended March 31,
% of
% of
2014
total
2015
total
AWPs . . . . . . . . . . . . 2,509 58.6% 2,367 54.3% 2,309 51.5%
VLTs . . . . . . . . . . . . . 1,351 31.5% 1,716 39.4% 1,907 42.5%
581
476
51.7%
42.4%
587
508
50.4%
43.6%
Gaming machines . . . 3,860 90.1% 4,082 93.72% 4,216 94.0%
Sport betting . . . . .
63
1.7%
63
1.6%
63
1.6%
Horse betting . . . .
35
0.8%
30
0.7%
28
0.6%
Virtual races . . . . . .
–
– 218
–
43
1.0%
1,057
18
8
8
94.0%
1.9%
0.7%
0.7%
1,095
16
7
9
93.9%
1.6%
0.6%
0.8%
Betting . . . . . . . . . . . .
108
2.5%
101
2.3%
143
3.2%
37
3.3%
35
1.6%
Online skill and
casino game . . . . . .
285
6.0%
95
2.2%
42
1.0%
10
0.9%
13
1.1%
1,104
98.2%
1,143
98.0%
Total concession
segment . . . . . . . . . 4,225 98.6% 4,279 98.2% 4,401 98.1%
Convenience
payment
services . . . . . . . . . .
60
1.4%
77
1.8%
84
1.9%
Total . . . . . . . . . . . . . . 4,285 100.0% 4,356 100.0% 4,485 100.0%
20
1.8%
23
2.0%
1,123
100.0%
1,166
100.0%
As illustrated by the table above, gaming machines continue to represent the most significant
portion of the Cogemat Group’s gaming turnover, with VLTs increasing its share of turnover.
Betting represents approximately 3% of the Cogemat Group’s business. Below is an overview of
the other key factors which have affected, and may in the future continue to affect, the Cogemat
Group’s gaming and convenience payment services business.
Gaming
Italian gaming market trends
The drivers described under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of Snai—Factors affecting our results of operations—Growth of the Italian
betting and gaming industry and, in particular, the VLT and online skill and casino games
sectors” are also relevant to the Cogemat Group’s business.
Cogemat Group trends
The Cogemat Group’s turnover in the period under review has followed the trends of the market,
with the most substantial growth mainly driven by VLTs and online gaming. The growth in the
Cogemat Group’s turnover has been supported by the roll out of VLTs and by the expansion of
the Cogemat Group’s iZiPlay betting points of sale, which, following further liberalization of the
Italian gaming market, increased from 3,043 installed VLTs and 141 iZiPlay POS as of January 1,
2012 to 5,003 installed VLTs and 186 iZiPlay POS as of March 31, 2015, as a result of the progress
of the roll out of VLTs.
Gaming turnover increased by 4% between the year ended December 31, 2012 and the year
ended December 31, 2014, largely attributable to the growth in wagers by VLTs, which was only
partially offset by the decrease in AWPs and online turnover. In particular, for the year ended
December 31, 2014, the Cogemat Group’s turnover from gaming increased by 3%, as the increase
in VLT turnover more than offset a decrease in AWP turnover (as AWPs face product substitution
from VLTs).
150
The Cogemat Group’s betting turnover increased by 43% for the year ended December 31, 2014
mainly due to an increase in bets on virtual events.
Convenience payment services turnover increased by 41% between the year ended December 31,
2012 and the year ended December 31, 2014.
The Cogemat Group’s revenues have been affected by the trends in its turnover as well as by the
mix of products such as the introduction of virtual events. For the year ended December 31, 2014,
the Cogemat Group’s total revenues were €437.4 million.
VLTs and AWPs
Gaming machines include slot machines, AWPs, and video lottery terminals, VLTs. Under the
Italian regulatory regime, all gaming machines must be linked to the ADM control system, which
permits games played on the machines to be controlled and monitored for tax purposes by ADM.
In 2004, the Cogemat Group was among the first to be awarded a concession to establish and
manage an authorized IT network to connect gaming machines to ADM’s control system. Like the
other 12 gaming machine concessionaires, the Cogemat Group is responsible for connecting
machines to the ADM IT network, transmitting gaming data to ADM and collecting and
transferring gaming taxes owed to ADM. The Cogemat Group provides connection services for
gaming machines that are distributed across a network of approximately 11,000 points of sale
consisting of bars, tobacconists, betting shops and corners, bingo halls and gaming arcades
located across Italy. The Cogemat Group is among the leading gaming machine companies in
Italy based on the number of AWPs connected to its network and the number of VLTs terminals
installed.
The Cogemat Group’s most substantial growth in gaming turnover has been generated from
VLTs. The Cogemat Group was awarded 5,226 rights for VLTs and the Cogemat Group introduced
its first terminals to the market in 2010. The Cogemat Group’s number of installed VLTs has
increased from their first introduction to the market, reaching 5,003 (95.7% of the Cogemat
Group’s total rights) as of March 31, 2015. In September 2013, ADM gave the existing thirteen
gaming machine concessionaires the option to acquire additional VLT rights. The Cogemat Group
may have the option to purchase 312 additional rights. In such event, upon exercise of any such
option, the Cogemat Group will hold the rights to install and operate additional VLTs.
The number of AWPs connected to the Cogemat Group’s network has decreased from 38,449 as
of December 31, 2013 to 33,775 as of December 31, 2014, of which approximately 800 are directly
managed by the Cogemat Group. The decrease is a result of provisions of the Italian Stability Law
of 2015 which set limitations on the number of AWPs that can be located on any given POS. The
Cogemat Group has mitigated the effect of the decrease in AWPs on its turnover by opening
high-performing new points of sale and optimizing its warehousing and machine repair systems.
The following table sets forth certain information relating to the Cogemat Group’s points of sale
and number of gaming machines:
AWP points of sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VLT points of sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of AWPs installed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of VLTs installed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2012
2013
2014
As of
March 31,
2015
10,913 10,854 10,114
429
504
526
39,334 38,449 33,775
4,413
4,715
4,958
9,947
525
34,747
5,003
The Cogemat Group’s AWP revenues for the year ended December 31, 2014 were €290.2 million
as compared to €291.5 million for the year ended December 31, 2013.
The Cogemat Group’s VLT revenues for the year ended December 31, 2014 were €118.3 million as
compared to €103.6 million for the year ended December 31, 2013.
151
Betting retail
The Cogemat Group holds concessions to collect sport and horse race bets at 186 iZiPlay-branded
sports and horse race betting shops and corners across Italy. As of March 31, 2015, the Cogemat
Group directly managed three sports and horse race betting shops and had franchise-like
agreements with qualified business partners in 113 sports and horse race betting shops and
70 sports betting corners.
For the year ended December 31, 2014, the Cogemat Group generated revenues of €20.8 million
from its offline and online betting activities as compared to €16.2 million for the year ended
December 31, 2013.
Online skill and casino games
The Cogemat Group has continued to introduce new online games, thus expanding and
improving the Cogemat Group’s product offering. In particular, the Cogemat Group introduced
online tournament poker in 2010, online cash poker and casino games in 2011 and online AWP
games in 2012.
For the year ended December 31, 2014, the Cogemat Group generated revenues of €1.0 million
from its online skill and casino games compared to €1.2 million for the year ended December 31,
2013.
Gaming seasonality
In the Cogemat Group’s offline and online betting offerings, the volumes of bets the Cogemat
Group collects over the course of the year are affected by the schedule of sports events on which
the Cogemat Group accepts bets. The professional football season in Italy usually runs from late
August to mid-May. As a result, the Cogemat Group has historically recorded higher betting
revenues in these months. The volumes of bets the Cogemat Group collects are also affected by
the schedules of other significant sporting events that occur at regular but infrequent intervals,
such as the FIFA Football World Cup, UEFA European Football Championship and the Olympics.
Additionally, during the summer months, gaming in general typically decreases while some
customers are on vacation. In addition, the Cogemat Group has higher collections for gaming
machines in winter months, particularly in December.
Gaming regulation, taxation and minimum payout ratios
The factors described under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of Snai—Factors affecting our results of operations—Changes in regulation
and taxes,” “—Taxation; minimum payout ratios” and “—Impact of taxation and minimum
payout on profitability” also affect the Cogemat Group’s business in broadly the same manner as
they impact Snai’s business. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of Snai” for more information.
Betting collection services
The Cogemat Group provides IT support and betting services, such as bookmaking and other
statistical services, to approximately 100 additional third-party sports and horse race betting
shops through its proprietary services platform, BetSolutions.
For the year ended December 31, 2014, the Cogemat Group generated revenues of €1.0 million
from its Betting Collection Service activities as compared to €0.7 million for the year ended
December 31, 2013.
152
Convenience payment services
The Cogemat Group offers convenience payment services, including its PayMat prepaid payment
card, and utility bill payment services in cooperation with Poste Italiane and a third-party licensed
payment institution, as well as mobile top-ups, phone cards and gift cards at the Cogemat
Group’s POS, as well as at approximately 5,500 third-party POS across Italy.
For the year ended December 31, 2014, the Cogemat Group generated revenues of €2.2 million
from its convenience payment services as compared to €2.3 million for the year ended
December 31, 2013.
Growth of the Italian convenience payment services market
The overall Italian payment services market is organized along two broad market segments:
(i) the convenience payment services market segment in which the Cogemat Group indirectly
operates as a result of certain contractual arrangements with Poste Italiane and other financial
institutions, and (ii) the other payment services market segment in which mainly banks and post
offices operate. See “Industry—Italian Convenience Payment Services Market.” For phone top-ups
and gift cards (which include top-up services for pre-paid mobile and fixed line telephone
accounts), the Cogemat Group receives a fee from the phone company and other partners for
whom they issue gift cards. The fee the Cogemat Group earns for these services is generally based
on the size of the underlying transaction. For top-ups and issuances of prepaid payment cards,
the Cogemat Group receives a fee from the consumer, which is generally fixed. The Italian
convenience services market has grown significantly in recent years, primarily as a result of
changes in consumer behavior. Traditionally, consumers used banks and post offices for such
payments but have recently shifted towards the convenience market because this market offers
greater flexibility in terms of opening hours and proximity, as well as shorter queues, allowing
consumers to more efficiently carry out routine transactions. Growth has also been driven by
increased use of prepaid payment cards.
Acquisitions
On June 14, 2013, Cogetech exercised its option to acquire all outstanding shares of Azzurro for
€15.0 million, net of the €3.0 million Cogetech paid in January 2013 to acquire the option, to be
paid according to a deferred payment schedule. Prior to exercising the option Cogetech owned
25.3% of the shares of Azzurro. The acquisition of the remaining 74.7% of the Azzurro shares,
pursuant to the option, was completed on July 1, 2013 and Cogetech currently owns 100% of the
share capital of Azzurro. Upon payment of the final deferred payment on June 30, 2015, there
are no outstanding payment obligations owed by Cogetech or Azzurro to Casinos Austria (Swiss)
AG, as former shareholder of Azzurro, in connection with the acquisition of Azzurro. The pledge
over 74.7% of the Azzurro shares granted by Cogetech in favor of Casinos Austria (Swiss) AG to
secure the Cogemat Group’s payment obligations, will be released within six months of June 30,
2015, in accordance with the terms of the relevant pledge agreement.
Explanation of key income statement items
Revenues
Revenues from sales and services
Revenues from sales and services includes the consideration received by the Cogemat Group for
the activities discussed below:
• Gaming machine revenues includes the revenues generated by the Cogemat Group’s AWPs and
VLTs distributed across the network, net of the PREU tax and winnings paid and gross of fees
to be paid to operators and merchants or managers and the ADM concession fee.
153
• Horse and sports betting revenues includes the revenues earned on bets placed on horse races,
sports events and virtual events, net of single tax and the winnings and the refunds paid to
players. Revenues related to the acceptance of the totalizer bets corresponds to the pertaining
quota according to ADM regulations.
• Betting service revenues includes the revenues earned for providing connections, bookmaking
and other betting services.
• Online game revenues includes revenues related to online games which players can access and
play directly on the Cogemat Group’s website, including online cash poker, casino games and
AWP games and are presented net of the winnings and gross of the costs for the platform and
the ADM concession fee.
Other revenues
Other revenues includes revenues and gains from non-recurring transactions.
Cost of materials and consumables
Cost of materials and consumables relate primarily to purchases of gaming materials, spare parts
and the use of inventory.
Cost of services and use of third-party assets
Cost of services and use of third-party assets primarily include:
• Gaming expenses relates mainly to distribution network compensation or commission for
gaming activities, including commissions paid to points of sale for the Cogemat Group’s
gaming products (for example bets placed at bars and tobacconists), and commissions paid to
establishments which house the Cogemat Group’s gaming machines.
• Non-gaming services includes distribution network compensation for phone top-ups and
payment services, including the commissions paid to points of sale in the distribution network
for executing these transactions in their establishments.
• Commercial services relates mainly to marketing and commercial expenses, relating to
advertising and promotional expenses, and expenses incurred in relation to promotional events
and other commercial incentives and services.
• Consulting includes mainly legal expenses incurred, and to a lesser extent the expenses relating
to tax and technical advice.
• Telecommunications expenses includes network costs (primarily related to connection with the
distribution network), internet and mobile phone expenses.
• Maintenance and technical assistance relates primarily to the maintenance of the Cogemat
Group’s gaming hardware and software and to a lesser extent maintenance to its buildings.
• Lease and rent expenses relate primarily to the rent incurred by the Cogemat Group on
properties and to a lesser extent to vehicle and gaming hardware leases.
Cost of personnel
Cost of personnel includes the expenses related to salaries and wages, social security
contributions and employee service indemnity from the Cogemat Group’s workforce.
154
Other operating costs
Other operating costs include the ADM concession related to the gaming machines platform and
correspond to 0.3% of gaming turnover (calculated as 0.8% of gaming turnover (canone) due to
ADM, less 0.5% security deposit to ADM). Other operating costs also include sanctions, penalties,
the allowance for doubtful accounts and other minor non-recurring costs.
Depreciation, amortization and write downs
Depreciation, amortization and write down relates to the depreciation of property, plant and
equipment, the amortization of intangible assets, impairment of assets including investments.
Other provisions
Other provisions mainly relates to accruals to provision for risks and charges, including the
provision for litigation and severance incentives.
Net financial expenses
Net financial expenses represents financial expenses net of financial income. Financial expenses
mainly includes interest and other finance expenses on loans from third parties, interest and
charges accrued on bank loans and overdraft and other financial expenses mainly related to the
interest on the Cogemat Group’s payment to settle the Court of Audit Litigation. Financial
income comprises the interest the Cogemat Group generates on its cash deposits and on loans to
affiliates.
Income tax benefit/(expense)
Income tax benefit/(expense) comprises current income tax expense and deferred tax benefits or
expenses.
Other ratios and measures
The Cogemat Group also uses certain additional key performance indicators, which, in the
Cogemat Group’s view, provide an alternative measure with which to assess its underlying
performance. The Cogemat Group’s definitions of turnover and payout may differ from those
used by other companies, therefore comparability may be limited. Such measures are non-IFRS
measures and should not be considered as an alternative to operating profit or operating margin
as a measure of operating performance. See “Presentation of Financial Information.”
Turnover
Turnover refers to the total amount of wagers collected and total amount of payments received
from customers in the gaming industry and convenience payment services industry, respectively.
In the gaming industry “turnover” is also widely referred to as “wagers” and in the convenience
payment services industry, as to the amount of payments received from customers.
Payout
The Cogemat Group defines payout as the percentage of turnover which is paid out to customers
as winnings from the Cogemat Group’s gaming activities.
155
Results of operations
Three months ended March 31, 2015 compared to three months ended March 31, 2014
The following table sets forth the Cogemat Group’s consolidated results of operations in absolute
numbers and expressed as a percentage of total revenues for the three months ended March 31,
2014 and 2015.
(thousands of €, except percentages)
For the three months ended March 31,
2014
%
2015
%
(unaudited)
Change
Amount
Revenues from sales and services . . . .
Other revenues . . . . . . . . . . . . . . . . . . .
108,430
1,191
98.9%
0.6%
110,634
278
99.8%
0.3%
Total revenues . . . . . . . . . . . . . . . . . . . .
Change in inventory of finished and
semi-finished products . . . . . . . . . . .
Cost of raw materials and
consumables . . . . . . . . . . . . . . . . . . . .
Cost for services and use of thirdparty assets . . . . . . . . . . . . . . . . . . . . .
Cost of personnel . . . . . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . . . . .
109,621
100.0%
110,912
100.0%
1,291
–
–
–
–
–
Total operating costs . . . . . . . . . . . . . .
Operating income before
depreciation, amortization, write
down and other provisions . . . . . . .
Depreciation, amortization and write
down . . . . . . . . . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . . . . . .
(91)
1.2%
45 (49.5)%
(90,582) (82.6)%
(4,482) (4.1)%
(4,595)
4.2%
(92,027) (83.0)%
(3,970) (3.6)%
(5,995) (5.4)%
(1,445) (1.6)%
512
11.4%
(1,400) (30.5)%
(99,750) (91.0)%
(102,038) (92.0)%
9.0%
(46)
2,204
2.0%
(913) (76.7)%
n.s.
9,871
(0.1)%
%
8,874
8.0%
(2,288)
(2.3)%
(997) (10.1)%
(4,274)
–
(3.9)%
–
(3,847)
(85)
(3.5)%
(0.1)%
Operating income/(loss) . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . .
5,597
(3,502)
5.1%
(3.1)%
4,942
(2,976)
4.5%
(2.7)%
(655) (11.7)%
526
15.0%
Income before taxes . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . .
2,095
(1,431)
1.9%
(1.3)%
1,966
(1,017)
1.8%
(0.9)%
(129)
414
6.2%
28.9%
285
49.2%
Net income/(loss) for the period . . . . .
664
156
0.6%
949
0.9%
427
(85)
10.0%
–
Total revenues
The following table shows the Cogemat Group’s total revenues by segment (and by line of
business in the Concessions segment) in absolute numbers for the three months ended March 31,
2014 and 2015.
For the three months
ended March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
Business lines:
Gaming machines(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting and virtual events(2) . . . .
Online skill and casino games(3) . . . . . . . . . . . . . . . . . . . .
100,512
6,893
225
104,661
4,792
327
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convenience Payment Services . . . . . . . . . . . . . . . . . . . . . . .
Betting Collection Services . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107,630
597
203
–
109,780
542
307
5
2,150
(55)
104
5
Total revenues from sales and services . . . . . . . . . . . . . . .
108,430
110,634
2,204
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,191
278
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109,621
110,912
%
4,149
4.1%
(2,101) (30.5)%
102
45.3%
2.0%
(9.2)%
51.2%
–
2.0%
(913) (76.7)%
1,291
1.2%
(1) The following table presents the breakdown between AWP and VLT revenues.
For the three months
ended March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
%
AWP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VLT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71,288
29,224
73,334
31,327
2,046 2.9%
2,103 7.2%
Gaming machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,512
104,661
4,149 4.1%
(2) The following table presents the breakdown between sports and horse race betting and virtual events revenues.
For the three months
ended March 31,
Change
2014
2015 Amount
(unaudited)
(thousands of €, except percentages)
%
Sports betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,019
959
915
2,864
833
1,095
(2,155) (42.9)%
(126) (13.1)%
180
19.7%
Sports and horse race betting and virtual events . . . . . . .
6,893
4,792
(2,101) (30.5)%
Total revenues for the three months ended March 31, 2015, increased by 1.2% to €110.9 million
from €109.6 million for the three months ended March 31, 2014. The increase in total revenues
was primarily attributable to a combination of the following:
• revenues from gaming machines increased by 4.1% to €104.7 million from €100.5 million for
the three months ended March 31, 2014. This increase is mainly due to increased turnover per
AWP machine and an increase in revenues from VLTs due to the continued roll-out of VLTs;
• revenues from sport and horse race betting and virtual events decreased by 30.5% to
€4.8 million from €6.9 million for the three months ended March 31, 2014. The decrease of
€2.1 million was mainly due to general, sector-wide reduction in the popularity of horse racing
in Italy as well as to a general decrease in sport betting turnover;
• revenues from online skill and casino games increased to €0.3 million from €0.2 million for the
three months ended March 31, 2014. The increase of €0.1 million was primarily attributable an
increase in the Cogemat Group’s online casino games offering;
157
• revenues from Convenience Payment Services decreased by 9.2% to €0.5 million from
€0.6 million for the three months ended March 31, 2014 as a consequence of a change in
consumer behavior toward lower margin services such as utility bill payment services rather
than higher margin services such as telephone top-ups; and
• revenues from Betting Collection Services increased by 51.2% to €0.3 million from €0.2 million
for the three months ended March 31, 2014 as a consequence of the Cogemat Group increasing
the size of its odds portfolio and related betting services offered to its customers.
Operating costs
Cost of raw materials and consumables
Cost of raw materials and consumables amounted to €46 thousand for the three months ended
March 31, 2015, a decrease of €45 thousand, or 49.5% from €91 thousand for the three months
ended March 31, 2014.
Cost of services and use of third-party assets
Cost of services and use of third-party assets amounted to €92.0 million for the three months
ended March 31, 2015, an increase of €1.4 million, or 1.6%, from €90.6 million for the three
months ended March 31, 2014, primarily attributable to the increase in the costs related to
gaming machine third-party fees, partially offset by a decrease in the costs for the Cogemat
Group’s directly-managed sports and horse race betting shops.
Cost of personnel
Cost of personnel amounted to €4.0 million for the three months ended March 31, 2015, a
decrease of €0.5 million, or 11.4%, from €4.5 million for the three months ended March 31, 2014,
primarily attributable to reduced headcount following restructuring efforts to increase the
efficiency of the Cogemat Group’s betting retail activities.
Other operating costs
Other operating costs amounted to €6.0 million for three months ended March 31, 2015, an
increase of 30.5% from €4.6 million for the three months ended March 31, 2014, primarily
attributable to costs incurred in respect of the Cogemat Group’s portion of the Stability Fee.
Operating income before depreciation, amortization, write down and other provisions
Operating income before depreciation, amortization, write down and other provisions amounted to
€8.9 million for the three months ended March 31, 2015, a decrease of €1.0 million, or 10.1%, from
€9.9 million for the three months ended March 31, 2014, as a result of the factors discussed above.
Depreciation, amortization and write down
Depreciation, amortization and write down amounted to €3.8 million for the three months ended
March 31, 2015, a decrease of €0.4 million, or 10.0%, from €4.3 million for the three months ended
March 31, 2014, primarily attributable to the sale of certain of the Cogemat Group’s VLT machines.
Other provisions
Other provisions amounted to €85 thousand for the three months ended March 31, 2015
compared to no provisions being made for the three months ended March 31, 2014. The increase
of €85 thousand was primarily attributable to management’s assessment of increased
administrative uncertainty and risks related to PREU payments owed to ADM.
Operating income/(loss) before taxes
Operating income before taxes amounted to €4.9 million for the three months ended March 31,
2015, a decrease of €0.7 million, or 11.7%, from €5.6 million for the three months ended
March 31, 2014.
158
Net financial expenses
Net financial expenses amounted to €3.0 million for the three months ended March 31, 2015, a
decrease of €0.5 million, or 15.0%, from €3.5 million for the three months ended March 31, 2014,
primarily attributable to interest paid on amounts paid to settle the Court of Audit Litigation.
Income tax expense
Income taxes amounted to €1.0 million for the three months ended March 31, 2015, a decrease of
€0.4 million, or 28.9% from €1.4 million for the three months ended March 31, 2014, attributable
to an increase in deductible operating costs as a result of the Cogemat Group’s payment of its
portion of the Stability Fee.
Net income/(loss) for the period
Net income for the period amounted to €0.9 million for the three months ended March 31, 2015,
a decrease of €0.3 million, or 42.9%, from €0.7 million for the three months ended March 31,
2014.
Results of operations
Year ended December 31, 2014 compared to year ended December 31, 2013
The following table sets forth the Cogemat Group’s consolidated results of operations in absolute
numbers and expressed as a percentage of total revenues for the years ended December 31, 2014
and 2013.
(thousands of €, except percentages)
For the year ended December 31,
2013
%
2014
(audited)
%
Revenues from sales and services . . . .
Other revenues . . . . . . . . . . . . . . . . . . .
415,684
4,161
99.0%
1.0%
434,017
2,571
99.4%
0.6%
Total revenues . . . . . . . . . . . . . . . . . . .
Change in inventory of finished and
semi-finished products . . . . . . . . . . .
Cost of raw materials and
consumables . . . . . . . . . . . . . . . . . . .
Cost for services and use of thirdparty assets . . . . . . . . . . . . . . . . . . . .
Cost of personnel . . . . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . . . .
419,845
100.0%
436,588
100.0%
46
n.s.
(44)
n.s.
(0.1)%
(229)
(0.1)%
Total operating costs . . . . . . . . . . . . . .
Operating income before
amortization, depreciation, writedowns and other provisions . . . . . .
Depreciation, amortization and write
down . . . . . . . . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . . . . .
(275)
Change
Amount
%
18,333
4.4%
(1,590) (38.2)%
16,743
(90)
4.0%
n.s.
46 (16.7)%
(352,233) (83.9)%
(18,739) (4.5)%
(96,803) (23.1)%
(361,584) (82.8)%
(19,882) (4.6)%
(18,943) (4.3)%
(9,351)
(1,143)
77,860
(2.7)%
(6.1)%
80.4%
(468,004)
(400,682) (91.8)%
67,322
14.4%
8.2%
84,065
n.s.
4,291
587
20.0%
57.1%
n.s.
(48,159) (11.5)%
(21,473)
(1,027)
35,906
(5.1)%
(0.2)%
(17,182)
(440)
(3.9)%
(0.1)%
Operating income/(loss) . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . .
(70,659) (16.8)%
(8,017) (1.9)%
18,284
(13,391)
4.2%
(3.1)%
Income/(loss) before taxes . . . . . . . . .
Income tax benefit/(expense) . . . . . . .
(78,676) (18.7)%
20,937
5.0%
4,893
(646)
1.1%
(0.2)%
Net income /(loss) for the period . . . .
(57,739) (13.8)%
4,247
159
1.0%
88,943
n.s.
(5,374) (67.0)%
83,569
(21,583)
n.s.
n.s.
61,986
n.s.
Total revenues
The following table shows the Cogemat Group’s total revenues by segment (and by line of
business in the Concessions segment) in absolute numbers for the year ended December 31, 2014
and 2013.
For the year
ended December 31,
Change
2013
2014 Amount
(audited)
(thousands of €, except percentages)
%
Business lines:
Gaming machines(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting and virtual events(2) . . .
Online skill and casino games(3) . . . . . . . . . . . . . . . . . . .
395,117
16,156
1,199
408,474
20,798
977
13,357
3.4%
4,642
28.7%
(222) (18.5)%
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convenience Payment Services . . . . . . . . . . . . . . . . . . . . . .
Betting Collection Services . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
412,472
2,267
702
243
430,249
2,247
967
554
17,777
(20)
265
311
Total revenues from sales and services . . . . . . . . . . . . . .
415,684
434,017
18,333
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,161
2,571
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
419,845
436,588
4.1%
(0.9)%
37.7%
n.s.
4.4%
(1,590) (38.2)%
16,743
4.0%
(1) The following table presents the breakdown between AWP and VLT revenues.
For the year ended
December 31,
Change
2013
2014 Amount
(audited)
(thousands of €, except percentages)
%
AWP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VLT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
291,536 290,191
103,581 118,283
(1,345) (0.5)%
14,702 14.2%
Gaming machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
395,117 408,474
13,357
3.4%
(2) The following table presents the breakdown between sports and horse race betting and virtual events revenues.
For the year ended
December 31,
Change
2013
2014 Amount
(audited)
(thousands of €, except percentages)
%
Sports betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,582
3,540
34
13,585
3,434
3,779
1,003
8.0%
(106) (3.0)%
3,745
n.s.
Sports and horse race betting and virtual events . . . . . . .
16,156
20,798
4,642
28.7%
Total revenues for the year ended December 31, 2014, increased by 4.0% to €436.6 million from
€419.8 million for the three months ended December 31, 2013. The increase of €16.7 million in
total revenues was primarily attributable to a combination of the following:
• revenues from gaming machines increased by 3.4% to €408.5 million from €395.1 million for
the year ended December 31, 2013. This increase of €13.4 million is mainly due to the increased
roll-out of VLTs;
• revenues from sport and horse race betting and virtual events increased by 28.7% to
€20.8 million from €16.2 million for the year ended December 31, 2013. The increase of
€4.6 million was mainly due to the introduction of virtual events in December 2013;
• revenues from online skill and casino games decreased by 18.5% to €1.0 million from
€1.2 million for the year ended December 31, 2013. The decrease of €0.2 million was primarily
attributable to the Cogemat Group’s exit in May 2014 from Lottomatica Scommesse S.r.l.s
(“Lottomatica Scommesse”) Pokerclub gaming system, see “Cogemat Group Business—Legal
proceedings—Litigation with Lottomatica Scommesse;”
160
• revenues from Convenience Payment Services decreased by 0.9% to €2.2 million from
€2.3 million for the year ended December 31, 2013 as a consequence of consumer behavior
toward lower margin services such as bill payment services rather than higher margin services
such as telephone top-ups; and
• revenues from Betting Collection Services increased by 37.7% to €1.0 million from €0.7 million
for the year ended December 31, 2013 as a consequence of the Cogemat Group increasing the
size of its odds portfolio and related betting services offered to its customers
Operating costs
Change in inventory of finished and semi-finished products
Change in inventory of finished and semi-finished products decreased by €90 thousand for the
year ended December 31, 2014.
Cost of raw materials and consumables
Cost of raw materials and consumables amounted to €0.2 million for the year ended
December 31, 2014, a slight decrease from €0.3 million for the year ended December 31, 2013.
Cost of services and use of third-party assets
Cost of services and use of third-party assets amounted to €361.6 million for the year ended
December 31, 2014, an increase of €9.4 million, or 2.6%, from €352.2 million for the year ended
December 31, 2013, primarily attributable to increased operations associated with the increased
roll-out of VLTs and an increased product offering.
Cost of personnel
Cost of personnel amounted to €19.9 million for the year ended December 31, 2014, an increase
of €1.1 million, or 6.1%, from €18.7 million for the year ended December 31, 2013, primarily
attributable to recognition of costs under the stock option plan.
Other operating costs
Other operating costs amounted to €18.9 million for the year ended December 31, 2014, a
decrease of €77.9 million, or 80.4%, from €96.8 million for the year ended December 31, 2013,
primarily attributable to the €76.5 million paid in 2013 to settle the Court of Audit Litigation.
Operating income before depreciation, amortization, write down and other provisions
Operating income before depreciation, amortization, write down and other provisions amounted
to €35.9 million for the year ended December 31, 2014, an increase of €84.1 million from an
operating loss of €48.2 million for the year ended December 31, 2013, as a result of the factors
discussed above.
Depreciation, amortization and write down
Depreciation, amortization and write down amounted to €17.2 million for the year ended
December 31, 2014, a decrease of €4.3 million, or 20.0%, from €21.5 million for the year ended
December 31, 2013, primarily attributable to the amortization of VLT rights due to the sale by
the Cogemat Group of certain of their VLT machines as part of a strategy to rent VLT machines as
opposed to owning them.
Other provisions
Other provisions amounted to €0.4 million for the year ended December 31, 2014, a decrease of
€0.6 million from €1.0 million for the year ended December 31, 2013, primarily attributable to a
decrease in costs related to legal and administrative disputes during the normal course of
business.
161
Operating income/(loss) before taxes
Operating income before taxes amounted to €18.3 million for the year ended December 31, 2014,
an increase of €88.9 million from an operating loss of €70.7 million for the year ended
December 31, 2013, as a result of the factors discussed above.
Net financial expenses
Net financial expenses amounted to €13.4 million for the year ended December 31, 2014, an
increase of €5.4 million, or 67.0%, from €8.0 million for the year ended December 31, 2013,
primarily attributable to increased interest expenses as a result of the full year effects of the
Cogetech Senior Facility entered into in November 2013 and the issuance of the Cogemat Notes
in February 2014.
Income tax benefit/(expense)
For the year ended December 31, 2014, the Cogemat Group’s income taxes were €0.6 million,
compared to an income tax benefit of €20.9 million for the year ended December 31, 2013. This
was primarily attributable to the Cogemat Group’s payment of €76.5 million to settle the Court
of Audit Litigation in 2013, which decreased operating income and therefore lowered the
Cogemat Group’s tax burden.
Net income/(loss) for the period
Net income amounted to €4.2 million for the year ended December 31, 2014, an increase of
€62.0 million from a loss of €57.7 million for the year ended December 31, 2013, as a result of the
factors discussed above.
162
Results of operations
Year ended December 31, 2013 compared to year ended year ended December 31, 2012
The following table sets forth the Cogemat Group’s consolidated results of operations in absolute
numbers and expressed as a percentage of total revenues for the years ended December 31, 2013
and 2012.
(thousands of €, except percentages)
Revenues from sales and
services . . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . .
Change in inventory of finished
and semi-finished products . . . . .
Cost of raw materials and
consumables . . . . . . . . . . . . . . . . .
Cost for services and use of thirdparty assets . . . . . . . . . . . . . . . . . .
Cost of personnel . . . . . . . . . . . . . . .
Other operating costs . . . . . . . . . . .
Total operating costs . . . . . . . . . . .
Operating income before
amortization, depreciation,
write-downs and other
provisions . . . . . . . . . . . . . . . . . . .
Depreciation, amortization, and
write down . . . . . . . . . . . . . . . . . .
Other provisions . . . . . . . . . . . . . . . .
For the year ended December 31,
2012
%
2013
(audited)
%
Change
Amount
%
444,373
2,481
99.4%
0.6%
415,684
4,161
99.0%
1.0%
28,689
1,680
6.5%
67.7%
446,854
100.0%
419,845
100.0%
27,009
6.0%
15
n.s.
46
n.s.
31
n.s.
(0.1)%
89
24.5%
(364)
(0.1)%
(275)
(368,587) (82.5)%
(19,689) (4.4)%
(20,599) (4.6)%
(352,233) (83.9)%
(18,739) (4.5)%
(96,803) (23.1)%
16,354
(950)
(76,204)
4.4%
(4.8)%
n.s.
(409,224) (91.6)%
(468,004)
n.s.
(58,780)
14.4%
(85,789)
n.s.
37,630
(8.4)%
(48,159) (11.5)%
(15,646)
(580)
(3.5)%
(0.1)%
(21,473)
(1,027)
Operating income/(loss) . . . . . . . . .
Net financial expenses . . . . . . . . . .
21,404
(3,898)
(4.8)%
(0.9)%
(70,659) (16.9)%
(8,017) (1.9)%
(92,063)
4,119
n.s.
n.s.
Income/(loss) before taxes . . . . . . .
Income tax benefit/(expense) . . . . .
17,506
(4,665)
(3.9)%
(1.0)%
(78,676) (18.8)%
20,937
5.0%
(96,182)
25,602
n.s.
n.s.
Net income/(loss) for the
period . . . . . . . . . . . . . . . . . . . . . .
12,841
(2.9)%
(57,739) (13.8)%
(70,580)
n.s.
163
(5.1)%
(0.2)%
5,827 37.24%
(447) (77.1)%
Total revenues
The following table shows the Cogemat Group’s total revenues by segment (and by line of
business in the Concessions segment) in absolute numbers for the year ended December 31, 2014
and 2013.
For the year
ended December 31,
Change
2012
2013 Amount
(audited)
(thousands of €, except percentages)
%
Business lines:
Gaming machines(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting and virtual events(2) . . . .
Online skill and casino games(3) . . . . . . . . . . . . . . . . . . . .
423,908
14,646
2,818
395,117
16,156
1,199
(28,791) (6.8)%
1,510
10.3%
(1,619) (57.5)%
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convenience Payment Services . . . . . . . . . . . . . . . . . . . . . . .
Betting Collection Services . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
441,372
1,903
742
356
412,472
2,267
702
243
(28,900) (6.5)%
364 (19.1)%
(40) (5.4)%
(113) (31.7)%
Total revenues from sales and services . . . . . . . . . . . . . . .
444,373
415,684
(28,689)
(6.5)%
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,481
4,161
1,680
68.0%
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
446,854
419,845
(27,009)
(6.0)%
(1) The following table presents the breakdown between AWP and VLT revenues.
For the year
ended December 31,
Change
2012
2013 Amount
(audited)
(thousands of €, except percentages)
%
AWP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VLT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
327,383
96,525
291,536
103,581
(35,847) (10.9)%
7,056
7.3%
Gaming machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
423,908
395,117
(28,791)
(6.8)%
(2) The following table presents the breakdown between sports and horse race betting and virtual events revenues.
For the year
ended December 31,
Change
2012
2013 Amount
(audited)
(thousands of €, except percentages)
%
Sports betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,647
3,999
–
12,582
3,540
34
1,935
18.2%
(459) (11.5)%
34
n.s.
Sports and horse race betting and virtual events . . . . . . .
14,646
16,156
1,510
10.3%
Total revenues for the year ended December 31, 2013, decreased by 6.0% to €419.8 million from
€446.9 million for the year ended December 31, 2012. The decrease of €27.0 million in total
revenues was primarily attributable to a combination of the following:
• revenues from gaming machines decreased by 6.8% to €395.1 million from €423.9 million for
the year ended December 31, 2012. This decrease of €28.8 million is mainly due to the increase
in the PREU tax. The reduction of AWP revenues is partially offset by the increase in revenues
from VLTs as a result of increased VLT turnover;
• revenues from sport and horse race betting and virtual events increased by 10.3% to
€16.2 million from €14.7 million for the year ended December 31, 2012. The increase of
€1.5 million was mainly due to increased revenues from the opening of new POS;
• revenues from online skill and casino games decreased to €1.2 million from €2.8 million for the
year ended December 31, 2012. The decrease of €1.6 million was primarily attributable to a
reduction in revenues from poker (both online poker cash and poker tournaments) due to
increased competition from large international competitors;
164
• revenues from Convenience Payment Services increased by 19.1% to €2.3 million from
€1.9 million for the year ended December 31, 2012 as a consequence of improved services
provided to consumers;
• revenues from Betting Collection Services remained unchanged at €0.7 million for the year
ended December 31, 2012 and for the year ended December 31, 2013.
Operating costs
Change in inventory of finished and semi-finished products
Change in inventory of finished and semi-finished products amounted to €46 thousand for the
year ended December 31, 2013, an increase of €31 thousand from €15 thousand for the year
ended December 31, 2012.
Cost of materials and consumables
Cost of materials and consumables amounted to €0.3 million for the year ended December 31,
2013, a slight decrease from €0.4 million for the year ended December 31, 2012.
Cost of services and use of third-party assets
Cost of services and use of third-party assets amounted to €352.2 million for the year ended
December 31, 2013, a decrease of €16.4 million, or 4.4%, from €368.6 million for the year ended
December 31, 2012, in line with revenue trends and due in part to a reduction in fees paid to
third parties for gaming machine collection services as a result of an increase in PREU for both
AWPs (11.8% to 12.7%) and VLTs (4% to 5%).
Cost of personnel
Cost of personnel amounted to €18.7 million for the year ended December 31, 2013, a decrease
of €1.0 million, from €19.7 million for the year ended December 31, 2012, primarily attributable
to a decrease in the Cogemat Group’s total headcount as a result of the sale of a number of the
Cogemat Group’s directly-managed sports and horse race betting shops.
Other operating costs
Other operating costs amounted to €96.8 million for the year ended December 31, 2013, an
increase of €76.2 million from €20.6 million for the year ended December 31, 2012, primarily
attributable the Cogemat Group’s payment of €76.5 million to settle the Court of Audit
Litigation.
Operating income before depreciation, amortization, write down and other provisions
Operating income before depreciation, amortization, write down and other provisions amounted
to a loss of €48.2 million for the year ended December 31, 2013, a decrease of €85.8 million from
€37.6 million for the year ended December 31, 2012, as a result of the factors discussed above.
Depreciation, amortization and write down
Depreciation, amortization and write down amounted to €21.5 million for the year ended
December 31, 2013, an increase of €5.8 million, or 37.2%, from €15.6 million for the year ended
December 31, 2012, primarily attributable to the amortization of increased taxes on the Cogemat
Group’s operations of gaming machines, which the Cogemat Group recognizes as a capital
expenditure.
Other provisions
Other provisions amounted to €1.0 million for the year ended December 31, 2013, an increase of
€0.4 million from €0.6 million for the year ended December 31, 2012 due primarily to an
increased provision for administrative proceedings relating to disputes with ADM.
165
Operating income/(loss)
Operating loss amounted to €70.7 million for the year ended December 31, 2013, a decrease of
€92.1 million from an operating income of €21.4 million for the year ended December 31, 2012.
Net financial expenses
Net financial expenses amounted to €8.0 million for the year ended December 31, 2013, an
increase of €4.1 million, from €3.9 million for the year ended December 31, 2012, primarily
attributable to interest paid on amounts paid to settle the Court of Audit Litigation.
Income tax benefit/(expense)
For the year ended December 31, 2013, the Cogemat Group had an income tax benefit of
€20.9 million, compared to income taxes of €4.7 million for the year ended December 31, 2012.
This was primarily attributable to the Cogemat Group’s payment of €76.5 million to settle the
Court of Audit Litigation in 2013, which decreased operating income and therefore lowered the
Cogemat Group’s tax burden.
Net income/(loss) for the period
As a result of the foregoing, net loss amounted to €57.7 million for the year ended December 31,
2013, a decrease of €70.6 from a net income of €12.8 million for the year ended December 31,
2012.
Liquidity and capital resources
The Cogemat Group’s primary sources of liquidity have been cash flows from operations and cash
proceeds from Cogemat Existing Debt. The Cogemat Group has uncommitted overdraft facilities
and trade credit facilities totaling approximately €10.9 undrawn as of the date of this Offering
Memorandum. See “Description of and Certain Financing and Guarantee Arrangements.” The
Cogemat Group’s liquidity requirements arise primarily from the Cogemat Group’s need to meet
debt service requirements and to fund its capital expenditures. The Cogemat Group also requires
liquidity to fund any acquisitions and associated costs. The Cogemat Group’s cash flows
generated from operating activities together with its cash flows generated from financing
activities have historically been sufficient to meet the Cogemat Group’s liquidity requirements.
Working capital
The Cogemat Group’s business operations generally are not working capital intensive. The
Cogemat Group’s changes in net working capital are mostly influenced by the collection and
payment of the PREU. The Cogemat Group is a creditor in respect of its partner operators and
POS owners with respect to the collection of PREU from their activities and is a debtor in respect
of the fiscal authorities for the PREU tax that is due. The fluctuation of the Cogemat Group’s
receivables and payables is influenced by the changes in the balance receivable from its partner
operators and POS owners in respect of PREU owed by them and the PREU balance owed by the
Cogemat group to the Italian Government. The Cogemat Group’s changes in net working capital
from period to period are also influenced by the bi-monthly outflow of cash equal to 0.8% of
gaming turnover (canone), consisting of a 0.3% tax and a 0.5% security deposit, each of which is
paid to ADM. The 0.5% security deposit which forms part of the canone is subsequently
reimbursed to the Cogemat Group by ADM, in whole or in part, once a year, subject to the
Cogemat Group’s compliance with certain service and quality requirements. For example, the
Cogemat Group received €19.2 million in June 2013 and €20.3 million in June 2014 as
reimbursements from ADM. The Cogemat Group’s working capital is structurally negative as the
Cogemat Group collects cash from points of sale on a regular and frequent basis (generally once
a week for VLTs and bi-weekly for AWPs) via direct debit procedures while the Cogemat Group
pays its suppliers on standard credit terms (on average between 60 and 90 days). The Cogemat
Group’s working capital and cash balances at the end of each period are influenced by the day of
the week on which the period is closed.
166
The fluctuations in cash flows related to trade working capital during the historical periods is
related to the growth in the business. The Cogemat Group’s movements in other assets and
liabilities are principally driven by taxes and the ADM security deposit, discussed above.
Cash flows
The following table presents the Cogemat Group’s consolidated statements of cash flows for the
years ended December 31, 2012, 2013 and 2014 and for the three months ended March 31, 2014
and 2015. This presentation differs from the presentation in the Cogemat Group’s financial
statements due to the reclassification of net financial expenses from operating activities to
financing activities to conform the presentation of cash flows to that of Snai.
For the Year Ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
Net profit/(loss) for the period . . . . . . . . . . . . . . . . . .
Amortization, depreciation and write-downs . . . . .
Change in provision for risks and charges and
employee termination indemnities . . . . . . . . . . . .
Share of profit/(losses) of associates . . . . . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from operating activities before
changes in working capital and interest and
taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net working capital . . . . . . . . . . . . . . . . .
(Gain)/loss on disposal of non-current assets . . . . . .
Net change in non-current assets and liabilities . . .
Net change in deferred tax assets and liabilities . . .
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from/(used in) operating activities
excluding net financial expenses(1) . . . . . . . . . . . .
Investments in property, plant and equipment . . . .
Investments in other intangible assets . . . . . . . . . . .
Investments in other non-current assets . . . . . . . . . .
Proceeds from sale of property, plant and
equipment, intangible assets and other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of subsidiaries, net of cash acquired . .
Cash flow from/(used in) investing activities . . . . .
Change in financial assets and liabilities . . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds/(repayments) of financial loans . . . . .
Proceeds from bond loan . . . . . . . . . . . . . . . . . . . . . .
Share capital increase . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from/(used in) financing activities
including net financial expenses(2) . . . . . . . . . . . .
Cash and cash equivalents at the beginning of the
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash and cash equivalents . . . . . . . . . . . .
Cash and cash equivalents at the end of the
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,841 (57,739)
15,646 21,473
1,347
669
3,898
(1,004)
69
8,017
For the three
months ended
March 31,
2014
2015
(unaudited)
4,247
17,182
664
4,274
949
3,847
(1,063)
–
13,391
314
–
3,502
151
–
2,976
34,401 (29,184)
4,465 (14,042)
–
–
(6,489) (4,416)
(3,121) (20,133)
(8,323) (7,493)
33,757
8,754
7,923
(5,458) (12,333) (10,509)
–
–
60
(953)
(52)
–
746
(400)
662
(58)
–
–
20,933 (75,268)
(4,242) (2,371)
(5,603) (3,012)
–
–
28,034
(1,311)
(978)
–
265
–
(9,580)
(6,630)
(3,898)
(6,578)
–
–
(4,031)
(327)
(239)
–
(1,864)
(298)
(885)
–
3,050
2,546
831
(3,342)
–
–
(5,675)
257
265
(3,683) (14,219) (4,970)
(8,017) (13,391) (3,502)
75,756 (29,800) (29,800)
– 47,500 47,500
10,717
4,282
–
11
–
(1,172)
4,495
(2,976)
–
–
–
(17,106)
74,773
(5,628)
9,228
1,519
16,901
(5,753)
11,148
(6,170)
4,978
22,663
4,978
5,462
27,641
(1,517)
11,148
4,978
27,641
10,440
26,124
(1) The Cogemat Group defines cash flow from/(used in) operating activities excluding net financial expenses as the sum of cash
flow from/(used in) operating activities, plus net financial expenses of the period. Cash flow from/(used in) operating
activities excluding net financial expenses is not a measurement of performance under IFRS and you should not consider it as
alternatives to cash flows from operating, activities. We believe that cash flow from/(used in) operating activities excluding
167
net financial expenses is a useful indicators of its ability to generate cash flow and can assist securities analysts, investors and
other parties to evaluate the Cogemat Group. The following is a calculation to reconcile cash flow from/(used in) operating
activities to cash flow from/(used in) operating activities excluding net financial expenses.
For the Year Ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
For the three
months ended
March 31,
2014
2015
(unaudited)
Cash flow from/(used in) operating activities . . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,035 (83,285) 14,643 (7,533) (4,840)
3,898
8,017 13,391 3,502 2,976
Cash flow from/(used in) operating activities
excluding net financial expenses . . . . . . . . . . . . . . . . .
20,933 (75,268) 28,034 (4,031) (1,864)
(2) The Cogemat Group defines cash flow from/(used in) financing activities including net financial expenses as the sum of cash
flow from/(used in) financing activities and the net financial expenses of the period. Cash flow from/(used in) financing
activities including net financial expenses is not a measurement of performance under IFRS and you should not consider it as
alternatives to cash flows from financing activities. We believe that cash flow from/(used in) financing activities including net
financial expenses is a useful indicators of its financing activity and can assist securities analysts, investors and other parties to
evaluate the Cogemat Group. The following is a calculation to reconcile cash flow from/(used in) financing activities to cash
flow from/(used in) financing activities including net financial expenses.
For the Year Ended
December 31,
2012
2013
2014
(unaudited)
(thousands of €)
For the three
months ended
March 31,
2014
2015
(unaudited)
Cash flow from/(used in) financing activities . . . . . . .
Net financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,208) 82,790
7,763 12,730 4,495
(3,898) (8,017) (13,391) (3,502) (2,976)
Cash flow from/(used in) financing activities
including net financial expenses . . . . . . . . . . . . . . . .
(17,106) 74,773
(5,628)
9,228
1,519
Cash flow from /(used in) operating activities excluding net financial expenses
For the three months ended March 31, 2015 and 2014, cash flow used in operating activities
excluding net financial expenses amounted to €1.9 million and €4.0 million, respectively. The
€2.2 million decrease in cash flow used in operating activities excluding net financial expenses
was primarily due to changes in working capital and deferred tax assets and liabilities due to the
payment in the first quarter of 2014 of certain overdue debt related to the costs incurred in 2013
by the Cogemat Group to refinance their indebtedness.
For the year ended December 31, 2014, cash flow from operating activities excluding net
financial expenses amounted to €28.0 million, while for the year ended December 31, 2013 cash
flow used in operating activities excluding net financial expenses amounted to €75.3 million. This
change was primarily due to the Cogemat Group’s payment of €76.5 million to settle the Court of
Audit Litigation in 2013 and the improvement in working capital and deferred tax assets and
liabilities during the period due primarily to a more efficient handling of trade receivables.
For the year ended December 31, 2013, cash flow used in operating activities excluding net
financial expenses amounted to €75.3 million, while for the year ended December 31, 2012 cash
flow from operating activities excluding net financial expenses amounted to €20.9 million. This
change was primarily due to the Cogemat Group’s payment of €76.5 million to settle the Court of
Audit Litigation in 2013 and a decrease in net working capital and deferred tax assets and
liabilities during the period due primarily to delayed trade receivables collection.
Cash flows from/(used in) investing activities
For the three months ended March 31, 2015 the Cogemat Group’s cash flow used in investing
activities amounted to an outflow €1.2 million mainly related to investments in AWP software,
authorization fees for APWs and the development of AWP technology to be used in Cogemat
Group POS, compared to an inflow of €0.3 for the three months ended March 31, 2014. The
168
€1.4 million decrease in cash flows from investing activities was primarily due to proceeds from
the sales of VLTs and related equipment of the Cogemat Group during the three months ended
March 31, 2013 that did not occur in the three months ended March 31, 2015.
The Cogemat Group’s cash flows from investing activities amounted to an inflow of €0.3 million
for the year ended December 31, 2014, as compared to an outflow of €5.7 million in the year
ended December 31, 2013. This change was primarily due to investments in AWP software,
authorization fees for APWs and the development of AWP technology to be used in Cogemat
Group POS, all of which were offset by the disposal of certain VLT machines.
The Cogemat Group’s cash flows used in investing activities amounted to an outflow of
€5.7 million for the year ended December 31, 2013, as compared to an outflow of €9.6 million in
the year ended December 31, 2012. This change was primarily due to payments made in
connection with the AWP concession renewal in 2013 as well as the purchase of software to
operate virtual events and technology for the operation of the Cogemat Group’s AWPs.
Cash flows from/(used in) financing activities
For the three months ended March 31, 2015, the Cogemat Group’s cash flows from financing
activities including net financial expenses amounted to €1.5 million, as compared to the three
months ended March 31, 2014 when the Cogemat Group’s cash flow from financing activities
including net financial expenses was equal to €9.2 million. This change was primarily due to the
issuance of the Cogemat Notes in February 2014 partially offset by the repayment of the
Cogemat Group’s bridge financing with the proceeds of the Cogemat Notes.
For the year ended December 31, 2014, the Cogemat Group’s cash flow used in financing
activities including net financial expenses amounted to €5.6 million, as compared to the prior
year when the Cogemat Group’s financing activities including net financial expenses generated
financial resources equal to €74.8 million. This change was primarily due to the refinancing of the
Cogemat Group’s indebtedness with the proceeds of the Cogemat Notes issued in February 2014,
the second installment payment for the purchase of Azzurro and the reimbursement of a
Cogemat Group shareholder loan, all partially offset by the issuance of the Cogemat Notes.
For the year ended December 31, 2013, the Cogemat Group’s cash flow from financing activities
including net financial expenses amounted to €74.8 million, as compared to prior year when the
cash flow used in financing activities including net financial expenses amounted to €17.1 million.
This change was mainly due to the Cogemat Group’s entering into a senior loan facility, a bridge
loan and the cash inflows from a capital increase and a shareholder loan.
Capital expenditures
The Cogemat Group’s capital expenditures consist primarily of expenditures towards expansion,
modernization and upgrading of the Cogemat Group’s gaming network. The following table sets
forth the Cogemat Group’s capital expenditures (net of changes in financial assets and disposal)
for the periods indicated as derived from the Cogemat Group’s cash flow statement.
For the
For the year ended
three months ended
December 31,
March 31,
2012
2013
2014
2015
(unaudited)
(thousands of €)
Concession rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
3,606
1,997
4,242
–
978
1,311
–
885
298
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .
9,845 5,383 2,289
1,183
169
1,923
1,089
2,371
Investment in property and equipment during the period under review has mainly been related
to investments in new AWPs and VLTs. The Cogemat Group estimates that historically it has spent
approximately €4.5 million per year in maintenance capital expenditures, which includes some
replacement of machines. Investments in intangible assets mainly relate to software to support
the management of operations and the concessions that the Cogemat Group has acquired.
The Cogemat Group expects its total capital expenditures in 2015 to be approximately
€5.0 million, primarily attributable to capital expenditures to maintain the Cogemat Group’s
betting and gaming network and gaming machines.
Financial indebtedness
The Cogemat Group’s main sources of financing in the past has been the Cogemat Existing Debt
as well as other bilateral credit lines. As of March 31, 2015, after giving pro forma effect to the
Transaction, including the Cogemat Refinancing, and the Azzurro Repayment the Cogemat
Group would have had no outstanding financial indebtedness.
The following table sets forth the principal amounts of the Cogemat Group’s total external debt
as of March 31, 2015 on a historical basis and pro forma for the Transaction, including the
Cogemat Refinancing and the Azzurro Repayment:
As of March 31, As of March 31,
2015
2015
Historical
As Adjusted
(unaudited)
(millions of €)
Cogetech Senior Facility(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cogemat Notes(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59.3
50.8
4.7
–
–
–
Total financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114.8
–
(1) On the Completion Date, all amounts outstanding under the Cogetech Senior Facility and the Cogemat Notes, including their
respective derivatives, will be repaid. The Cogetech Senior Facility bears interest at a rate of EURIBOR plus 575 bps. The
Cogemat Notes bear interest at a floating rate determined as the sum of certain market rates, a cash margin and a PIK
margin. See “Capitalization” and “Unaudited Pro Forma Consolidated Financial Information.”
(2) As of March 31, 2015, other debt includes the Azzurro Repayment which was made on June 30, 2015. See “—Acquisitions.”
Off-balance sheet arrangements
As of March 31, 2015, the Cogemat Group had in place the following off-balance sheet items:
As of March 31,
2015
(thousands of €)
Guarantees from financial institutions on behalf of the Cogemat Group . . . . . . . .
Guarantees from the Cogemat Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collaterals/pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goods received from third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantees received from third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59,208
139,798
13,836
43,479
32,023
In particular, as of March 31, 2015, the Cogemat Group had: (i) guarantees worth €59.2 million
from financial institutions mainly in favor of ADM as security for PREU payments and concession
rights and various guarantees on behalf of the Cogemat Group in favor of the suppliers;
(ii) guarantees worth €139.8 million issued by the companies of the group in favor of the lenders
for Cogemat Notes (€52.5 million), for Cogetech Senior Facility (€72.0 million), to AM TRUST
(€5.0 million) for surety provided, to Casinos Austria for Azzurro’s acquisition (€4.4 million) and to
lender for Guarantee Facility Agreement 2013 pursuant to art. 1958 of the Italian Civil Code
(€6.0 million); (iii) a €10.0 million pledge over the capital shares of Cogetech to secure the
Cogetech Senior Facility and the Cogemat Notes; (iv) a €0.1 million pledge over the capital shares
of Cogetech Gaming to secure the Cogetech Senior Facility and the Cogemat Notes; (v) a
€3.7 million pledge over 75% of the capital shares of Azzurro to secure the Cogemat Group’s
170
outstanding payments (which have all been satisfied as of June 30, 2015) and which will be
released within six months of June 30, 2015; (vi) €43.5 million of goods and equipment belonging
to third parties and used in the Cogemat Group’s POS (e.g., VLTs, servers, printers, etc.); and
(vii) €32.0 million of guarantees issued by third parties in favor of the Cogemat Group.
As of March 31, 2015, the Cogemat Group had provided the following guarantees:
As of March 31,
2015
(thousands of €)
ADM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-gaming services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other guarantees provided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,737
1,275
2,196
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59,208
The Cogemat Group is required to provide guarantees in the ordinary course of its business,
primarily in relation to the Cogemat Group’s obligations under its concession agreements.
Guarantees provided to ADM relate to the guarantees which the Cogemat Group has provided to
ADM related to the tax and operating obligations under its concessions to operate and develop
various games. Non-gaming service guarantees relate to guarantees issued mainly in respect of
agreements relating to Convenience Payment Services and the sale or distribution of telephone
top-ups for which the Cogemat Group is required to guarantee payment, net of the Cogemat
Group’s fees, for the amounts collected under such agreements. To settle the Cogemat Group’s
portion of the Stability Fee, €6.6 million (representing the amount the Cogemat Group was
unable to collect from their partners operating VLTs and AWPs under its concessions) was
deducted from this escrow account, thereby reducing the amount that will be refunded to the
Cogemat Group. See “Cogemat Group Business—Legal proceedings—Pending litigation
regarding the Italian Stability Law of 2015—Administrative proceeding against the Italian
Stability Law of 2015.”
Historically, the Cogemat Group has not been required to make any payments or settlements
under the Cogemat Group’s guarantees.
Contractual obligations and commitments
As of March 31, 2015, after giving pro forma effect to the Transaction, including the Cogemat
Refinancing, the Cogemat Group would have no outstanding financial indebtedness.
Additionally, the Cogemat Group has no material finance or operating leases, and the leases the
Cogemat Group holds, such as real estate leases, may be terminated with notice and the payment
of a cancellation penalty.
Quantitative and qualitative disclosures about market risk
The Cogemat Group’s activities expose it to a variety of financial risks including credit risk,
liquidity risk, market rate risk, foreign exchange rate risk and interest rate risk. The Cogemat
Group’s risk management policy, which is managed centrally by the Cogemat Group’s senior
management, focuses on minimizing the potential adverse effects on the Cogemat Group’s
financial performance. The following section discusses the significant financial risks to which the
Cogemat Group is exposed. This discussion does not address other risks which the Cogemat
Group is exposed to in the normal course of business such as operational risks. See “Risk Factors.”
Credit risk
The Cogemat Group has adopted risk management procedures in order to both reduce and
monitor credit risk. The Cogemat Group’s partners and retailers are responsible for, among other
things, collecting the cash at the Cogemat Group’s gaming machines and transferring these
payments to the Cogemat Group, net of their commission, on a weekly or bi-weekly basis. As part
171
of the Cogemat Group’s risk management system, the Cogemat Group evaluates the credit of a
potential partner or retailer before it agrees to enter into a commercial relationship, and the
Cogemat Group continually monitors the credit of such partner or retailer during the term of the
Cogemat Group’s contract. If a partner or retailer fails to make a timely payment to the Cogemat
Group, the Cogemat Group has the ability to remotely disconnect the gaming machine at the
relevant point of sale while the Cogemat Group investigates the cause and seek remedial action.
Additionally, the Cogemat Group can prematurely terminate its relationship with those points of
sale that fail to make timely payments on a recurring basis.
The allowance for doubtful accounts is evaluated on a regular basis for each debtor. For the year
ended December 31, 2014, the allowance for doubtful accounts the Cogemat Group accrued
amounted to €3.4 million, representing 0.8% of revenues.
Credit risk relating to cash and cash equivalents, bank loans, finance leases, short-term bank
deposit and bank deposits on demand as well as derivative financial instruments arises from the
risk that the counterparty becomes insolvent and accordingly is unable to return the deposited
funds or execute the obligations under the derivative transaction as a result of the insolvency. To
mitigate this risk, the Cogemat Group seeks to deposit funds with financial institutions the
Cogemat Group deems credit-worthy and it monitors transaction volumes in order to reduce the
risk of concentration of its transactions with any single party.
Liquidity risk
Liquidity risk is the risk of not being able to fulfil present or future obligations if the Cogemat
Group does not have sufficient funds available to meet such obligations. Liquidity risk arises
mostly in relation to cash flows generated and used in financing activities, and particularly by
servicing the Cogemat Group’s debt, in terms of both interest and capital, and its payment
obligations relating to the Cogemat Group’s ordinary business activities. The Cogemat Group
manages liquidity risk through various management policies including through monitoring the
timing of receivable collections and minimizing any delays in collections. The Cogemat Group
collects cash from the Cogemat Group’s distribution network on a frequent basis (generally once
a week for VLTs and bi-weekly for AWPs). Therefore, the Cogemat Group’s receivables balance is
generally low. The Cogemat Group pays its suppliers on standard credit terms (on average
between 60 and 90 days).
Bookmaker risk
Quoting odds, or the process of bookmaking, is the activity of setting odds for fixed-odds
betting, which, in effect, represents a contract between the bookmaker, who agrees to pay a predetermined amount (the odds) and the player, who accepts the proposal made by the
bookmaker and decides on the amount of his bet within the limits allowed by existing law. The
Cogemat Group has risk management functions, assisted by external consultants, in order to
more accurately determine the odds and reduce their bookmaker risk. See “Cogemat Group
Business—Risk management.”
Critical accounting policies
The Cogemat Group’s significant accounting policies, which the Cogemat Group has applied
consistently, are more fully described in its annual consolidated financial statements as of and for
the year ended December 31, 2014. The preparation of financial statements in conformity with
IFRS requires the use of judgment and estimates. The following accounting policies applied in
preparing the Cogemat Group’s consolidated financial statements are those which most depend
on the application of estimates and assumptions and that the Cogemat Group considers critical in
preparing its consolidated financial statements. These policies include significant estimates and
assumptions made by management using information available at the time the estimations are
made. The application of these estimates and assumptions affects the reported amounts of assets
172
and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of income and expenses during the reporting period. Actual results may
differ from these estimates given the uncertainty surrounding the assumptions and conditions
upon which the estimates are based.
Revenue recognition
Revenues are recorded to the extent it is likely that the Cogemat Group will earn economic
benefits with an amount that is reliably determinable. Revenues are represented on a net basis
after deducting discounts, coupons and returns. Revenues for services are recognized on an
accrual basis, depending upon the moment in which the services are performed. Revenues and
costs related to bets are recorded the moment in which the event on which the bet is accepted is
completed.
Revenues from gaming machines related to AWPs are recorded on a gross basis including fees to
be paid to operators and merchants, and the installment for the concession to be paid to ADM
and net of the PREU and winnings paid. Consideration due to dealers is recorded as a cost. The
revenues related to VLTs are recorded in the financial statements under “Revenues from sales
and services” net of winnings, jackpots and the PREU, and gross of (therefore without deducting)
fees paid to managers, as well as the concession installment to be paid to ADM. The revenues
related to remote games (Skill/Casino/Bingo) are stated in the financial statements under
“Revenues from sales and services” net of winnings, the sole tax and on a gross basis including
the costs for the platform and the concession installment. The wagers related to the acceptance
of fixed quota and reference bets (or bets for which the Cogemat Group bears a risk deriving
from winnings) are stated in the financial statements under “Revenues from sales and services”
gross of the costs for the single tax, the costs for the UNIRE withholding, the winnings and the
refunds paid to bettors, all of which are recognized as cost for services. Revenues related to the
acceptance of the totalizer bets are recognized on the basis of the discount percentage
established under the agreement for the operation of the betting business. Except for betting
services the Cogemat Group operates a system of non-deductible VAT, therefore such tax is
recognized as part of the activity purchase cost in the income statement.
Property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets, including goodwill, are recorded at their
acquisition cost. Property, plant and equipment and intangible assets are depreciated or
amortized on a straight-line basis over their estimated useful lives. The useful lives of long-lived
assets are subject to several factors, such as technological feasibility, obsolescence, changes in
consumer demand and strategic management decisions. Property, plant and equipment and
intangible assets, including goodwill, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. If such
assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amounts of such assets exceed the fair value of the assets.
Considerable judgment is required to estimate the fair value of the impaired asset.
Trade receivables and other receivables
Trade receivables are recorded at nominal value net of specific allowance for doubtful accounts
to adjust them to their presumed realizable value. Trade receivables are assessed by analyzing
the solvency of each customer to identify unguaranteed doubtful accounts. Trade receivables are
considered doubtful if: (i) they are overdue for more than two billing periods and unguaranteed;
(ii) they are due from customers no longer operating; and (iii) they are pursued by the Cogemat
Group’s legal department.
Since management cannot predict future changes in the financial stability of its customers, actual
future losses from uncollectible accounts may differ from estimates. If the financial condition of
the customers were to deteriorate, resulting in their inability to make payments, a larger reserve
173
might be required. In the event management determined that a smaller or larger allowance was
appropriate, a credit or a charge to operating expenses would be recorded in the period in which
such a determination was made.
Receivables include PREU receivables from customers, the amount of which is determined every
15 days, by reading the gaming machines or if not possible on a basis of a lump sum. The
receivable due from PREU, determined on a lump sum basis will be subsequently adjusted based
on the effective values recorded historically by the machine counter.
Should any corrections arise following the reading of the gaming machines compared to the
PREU paid, such differences will adjust the payables due to Treasury and the correspondent
receivables from customers.
Deferred tax assets and liabilities
Deferred tax assets are recognized, to the extent that there is a reasonable certainty of their
recoverability, for all deductible temporary differences, unused carried forward tax credits and
unused tax losses, to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences, unused carried forward tax credits and unused tax
losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred income tax asset to be utilized. The
assessment of expected future taxable profit depends on factors which may vary over time and
may have significant effects on the recognition of deferred tax assets.
Provisions for risk and charges
Management exercises considerable judgment in recording provisions for liabilities and for
exposure to contingent liabilities related to pending litigation or other outstanding claims
subject to negotiated settlement, mediation, arbitration or government regulation as well as
other contingent liabilities. Judgment is necessary in assessing the likelihood that a pending
claim or a potential liability will in fact occur and to quantify the possible range of the final
settlement. When the occurrence of a contingency or potential liability is probable, an amount
for contingent liabilities that represents management’s estimate at that date is accrued.
Given the complexity of the regulatory framework in which the Cogemat Group operates,
estimating the amount of provisions for risks and charges requires a complex process involving
subjective judgments on the part of its management. Judgment is necessary in assessing the
likelihood that a pending claim or a potential liability will in fact occur and to quantify the
possible range of the final settlement. In case the occurrence of a contingency or potential
liability is probable, a provision is accrued. Provisions for risk and charges reflect the best possible
estimate on the basis of the information available at the reporting date.
Because of the inherent uncertainties in the foregoing evaluation process, actual losses may be
different from the original estimated amount accrued. The necessary estimates used by
management rely on the analysis of internal specialists, attorneys, actuaries or other external
specialists as considered necessary. A revision of the original estimates may significantly affect
future operating results.
Income taxes
Management is required to estimate income taxes. This process involves an estimation of actual
current tax exposure and the assessment of the temporary differences resulting from differing
treatment of financial statements line items. These differences result in deferred tax assets and
liabilities. Deferred tax assets are recognized only if there exists evidence that the assets will be
realized with reasonable certainty. Significant management judgment is required in determining
174
the provision for income taxes, deferred tax assets, deferred tax liabilities and valuation
allowances to reflect the potential inability to fully recover deferred tax assets previously
accrued. Assessment of the appropriate amount and classification of income taxes is dependent
on several factors, including estimates of the timing and realization of deferred income tax assets
and the timing of income tax payments. Actual collections and payments may materially differ
from these estimates as a result of changes in tax laws as well as unanticipated future
transactions impacting related income tax balances.
175
Industry
Unless otherwise stated, all information regarding markets, market position and other industry
data contained in this Offering Memorandum is based on our own estimates, internal surveys,
market research, publicly available information (including statistical information released by
ADM) and industry reports prepared by consultants. In many cases, there is no readily available
external information that is regularly updated (whether from trade associations, government
bodies, other industry organizations or competitors) to validate market-related analyses and
estimates, resulting in our relying on our own internally-developed estimates. Market data and
statistics are inherently subject to uncertainties and not necessarily reflective of market
conditions. We cannot assure you that any of the assumptions underlying these statements are
accurate or correctly reflect our position in the industry or relevant markets, and none of our
internal surveys have been verified by any independent sources. None of the Issuer, the Initial
Purchasers, the Trustee or the Agents makes any representation or warranty as to the accuracy or
completeness of the industry and market data set forth in this Offering Memorandum and none
of the Issuer, the Initial Purchasers, the Trustee or the Agents has independently verified this
information.
Overview
We operate in the Italian betting and gaming market, which is regulated by ADM, and
specifically, we compete within the following market segments: betting (sports and horse race
both offline and online and virtual events), gaming machines (VLTs and AWPs), online games
(including online skill and casino games). We also operate in the convenience payment services
market. We do not compete within the market segments of bingo or lotteries nor do we operate
casinos (of which there are only four in Italy) and therefore none of these activities will be
discussed in detail in this “Industry” section.
Three key performance indicators, turnover, gross gaming revenues and net gaming revenues,
are frequently utilized within the Italian betting and gaming industry, and ADM has historically
recorded annual statistics thereof. “Turnover” refers to the total amount of wagers collected
from players. “Gross gaming revenues” refers to turnover less the amount paid to players as
winnings. “Net gaming revenues” refers to gross gaming revenues less the amount of taxes
payable to the Italian treasury.
We believe that the Italian betting and gaming market is the largest in Europe with gross
gaming revenues of €17.5 billion in 2013 (€17.5 billion in 2014 as well), which we estimate is
50% greater than the next largest market, the United Kingdom. Total turnover on betting and
gaming activities in Italy amounted to €84.5 billion in 2014. The following table shows certain
key performance indicators for the total betting and gaming market in Italy for the years 2007 to
2014.
(millions of €, except
percentages)
2007
2008
2009
2010
2011
2012
2013
2014
Turnover . . . . . . . . . . . . .
41,424
47,555
54,404
60,984
79,597
88,571
84,728
84,486
year-on-year
growth . . . . . . . . . .
14.8%
14.4%
12.1%
30.5%
11.3%
(4.3%)
(0.3%)
Gross Gaming
Revenues . . . . . . . . . . .
13,190
14,835
16,196
17,016
17,991
18,304
17,455
17,531
year-on-year
growth . . . . . . . . . .
12.5%
9.2%
5.1%
5.7%
1.7%
(4.6%)
0.4%
Net Gaming
Revenues . . . . . . . . . . .
5,488
6,343
6,883
7,680
8,569
10,266
9,275
9,572
year-on-year
growth . . . . . . . . . .
15.6%
8.5%
11.6%
11.6%
19.8%
(9.7%)
3.2%
Real Italian GDP . . . . . . . 1,687,963 1,670,242 1,578,690 1,605,694 1,615,117 1,570,372 1,543,702 1,537,125
year-on-year
growth . . . . . . . . . .
(1.0%)
(5.5%)
1.7%
0.6%
(2.8%)
(1.7%)
(0.4%)
Source: ADM (for betting and gaming industry data), ISTAT (for GDP data)
176
The Italian betting and gaming market has experienced strong growth from 2007 to 2014, with a
compound annual growth rate (“CAGR”) for turnover of 10.7% and for net gaming revenues of
8.3%. The CAGR growth of net gaming revenues over the past seven years compares favorably to
real GDP in Italy which decreased at a CAGR of -1.3% in the same period. The growth of the
Italian betting and gaming market has stabilized since 2012 as the market is maturing and due to
the general difficult macroeconomic situation in Italy which has impacted consumer behavior and
spending patterns. Additionally, gross and net gaming revenues in 2013 declined due to an
increase in the legally mandated payout ratio for existing games, the introduction of new games
with higher payout and an increase in taxes.
Historically, the Italian betting and gaming market has experienced attractive through-the-cycle
growth primarily due to (i) the definition and subsequent liberalization of a new regulatory
framework, which, among other things, legalized online betting and gaming activities and
introduced VLTs, significantly broadening the product offering in the gaming machine market
segment; (ii) the modernization of existing retail networks and introduction of new gaming hall
formats suitable to hosting VLTs; (iii) the re-launch and re-styling of traditional lottery products
including the development of new lottery formats such as annuity lottery games; (iv) an increase
in the average payout from about 68% in 2007 to about 79% in 2014, largely attributable to the
introduction of new games with higher legally-mandated payouts, which made games more
attractive to consumers; (v) stricter controls on illegal betting and gaming activities as well as a
greater focus on socially responsible gaming, which we believe may have led to a broader
acceptance of betting and gaming in the population; (vi) the legalization of CTDs (internet cafes
operated as betting shops via a foreign licensed online gaming operator) with the adoption of
the Italian Stability Law of 2015, which we believe added 2,000 point of sales to the legal gaming
market. The Italian betting and gaming market is subject to a complex regulatory framework
which is overseen by ADM.
Regulations prescribe, among other things, (i) which games may be operated and, for certain
activities, what amounts are charged as taxes; (ii) for certain activities, what minimum level of
winnings may be awarded; (iii) for certain activities, what level of compensation may be paid to
concessionaires; (iv) the number of the points of sales and whether a given concession is exclusive
or available to multiple concessionaires; and (v) minimum levels of service. Regulations of the
Italian betting and gaming market include the following (each as discussed under “Regulation”):
• the Bersani Decree of 2006 which significantly liberalized the betting market by extending
betting concessions to non-specialized points of sales such as tobacconists and coffee shops;
• the 2008 Community Law which aimed at modifying and integrating the existing Italian
regulatory framework to comply with EC Treaty requirements on competition law and freedom
of establishment, with a view to simplifying the award of new concessions to existing market
participants and to opening the Italian market to competition from other EU member states;
• the Abruzzo Decree of 2009 which introduced and regulates VLTs in Italy, thus significantly
broadening the product offering in the gaming machines market;
• the legalization and regulation of online gaming in 2009, introducing new games such as
online tournament poker in 2010, online cash poker and casino games in 2011 and online slot
machines in 2012, and setting higher payout ratios and lower tax rates for online games.
• the Balduzzi Decree of 2012 which regulates advertisements in the betting and gaming
industry and the disclosure of payout ratios;
• the AMD issued a decree detailing the mechanics of the Stability Fee, providing for, among
other things, an annual fee of, initially, €500 million to be paid by AWP and VLT
concessionaires and which will be divided among such concessionaires in proportion to the
number of machines relating to each concession holder, as quantified by an ADM decree. The
Italian Stability Law of 2015 also seeks to bring CTDs inside the gaming tax regime by, amongst
other things, connecting them to the regulator’s servers and considerably increasing sanctions
for CTDs that do not participate.
177
Based on these recent initiatives and the overall regulatory framework, we believe Italy is one of
the most developed betting and gaming markets in Europe. For more information on the
regulatory framework that governs our betting and gaming activities, see “Regulation.”
We believe that the betting and gaming market is maturing and is likely to stabilize over the
next years. We expect the market to follow the trends below:
• the further consolidation of the fragmented Italian betting and gaming market through the
acquisition of small independent and local operators by larger players, especially in the AWP,
VLT and betting market segments;
• the expansion of products such as virtual events which have proved to be popular in the
betting market segment in the United States, the United Kingdom and Ireland;
• the expansion of the online betting and gaming market, which is characterized by a high rate
of product innovation; and
• the consolidation and modernization of the existing retail network with improved betting and
gaming hall formats.
Market segments
The following table shows gaming turnover in Italy by market segment for the years 2007 to
2014 as well as certain historical growth data thereof:
(millions of €, except
percentages)
2014
CAGR
07-14
AWPs . . . . . . . . . . . . . . . . 18,072 21,685 25,525 30,674 29,870 27,420 25,422 25,382
VLTs . . . . . . . . . . . . . . . . .
–
–
–
860 14,745 22,344 22,085 21,388
5.0%
NA
2007
2008
2009
2010
2011
2012
2013
Gaming Machines . . . . . . . 18,072 21,685 25,525 31,534 44,615 49,764 47,507 46,770 14.6%
Sports betting . . . . . . . . . 2,825 4,085 4,162 4,498 3,925 3,995 3,822 4,250 6.0%
Horse race betting(1) . . . 2,732 2,272 1,981 1,730 1,369 1,313 1,116
913 (14.5%)
Virtual events . . . . . . . . .
–
–
–
–
–
–
17 1,148
NA
Betting exchange . . . . . .
–
–
–
–
–
–
–
205
NA
Betting(2) . . . . . . . . . . . . . . .
Poker & Casino . . . . . . . .
5,557
–
6,357
242
6,143
2,348
6,228
3,146
5,294 5,308 4,955 6,516
8,418 13,972 13,281 12,318
Online Games . . . . . . . . . . .
–
242 2,348 3,146 8,418 13,972 13,281 12,318
Lotteries . . . . . . . . . . . . . . . 16,042 17,635 18,876 18,123 19,420 17,764 17,321 17,258
Bingo . . . . . . . . . . . . . . . . . . 1,753 1,636 1,512 1,953 1,850 1,763 1,664 1,624
2.3%
NA
NA
1.0%
(1.1%)
Total Market Turnover . . . 41,424 47,555 54,404 60,984 79,597 88,571 84,728 84,486 10.7%
Source: ADM
(1) Also includes Comma 7 gaming machines whose payouts are awards in-kind (e.g., free cups of coffee, dolls, figurines, etc.).
(2) Includes pool and prediction games as well as online sports and horse race betting.
The payout ratio to winners varies by segment. In 2014, we estimate that winnings expressed as a
percentage of turnover amounted to approximately 81% for sports betting (online and offline
betting), 53% for horse race betting, 75% for slot machines, 85% for VLTs and 96% for online
skill games.
178
The following table shows gross gaming revenues in Italy by market segment for the years 2007
to 2014:
(millions of €, except
percentages)
2007
2008
2009
2010
2011
2012
2013
2014
CAGR
07-14
AWPs . . . . . . . . . . . . . . . . .
VLTs . . . . . . . . . . . . . . . . . .
4,518
–
5,421
–
6,381
–
7,669
85
7,282
1,435
6,687
3,298
6,380
2,994
6,440
3,193
5.2%
NA
Gaming Machines . . . . . . . .
Sports betting . . . . . . . . .
Horse race betting(1) . . . .
Virtual events . . . . . . . . . .
Betting exchange . . . . . .
4,518
735
844
–
–
5,421
1,032
704
–
–
6,381
912
622
–
–
7,754
866
542
–
–
8,717
913
427
–
–
9,985
700
601
–
–
9,374
781
544
3
–
9,633 11.4%
814 1.5%
429 (9.2%)
186
NA
1
NA
Betting(2) . . . . . . . . . . . . . . . .
Poker &Casino . . . . . . . . .
1,579
14
1,736
29
1,534
282
1,408
380
1,340
434
1,301
503
1,328
474
1,430 (1.4%)
444 63.9%
Online Games . . . . . . . . . . .
Lotteries . . . . . . . . . . . . . . . .
Bingo . . . . . . . . . . . . . . . . . . .
14
6,343
736
29
6,962
687
282
7,545
454
380
6,889
585
434
6,986
514
503
5,937
578
474
5,657
622
444 63.9%
5,446 (2.2%)
580 (3.3%)
Total Market Gross
Gaming Revenues . . . . . . 13,190 14,835 16,196 17,016 17,991 18,304 17,455 17,531
4.2%
Source: ADM
(1) Also includes Comma 7 gaming machines whose payouts are awards in-kind (e.g., free cups of coffee, dolls, figurines, etc.),
therefore it is not possible to determine the amount of payout or a payout ratio.
(2) Includes pool and prediction games as well as online sports and horse race betting.
Gaming providers must pay taxes on turnover (gross gaming revenues for poker cash, online
casino games and virtual events), the amount of which varies by segment and on a
game-by-game basis. In 2014, we estimate that taxes expressed as a percentage of turnover on
average amounted to approximately 4% for sports betting, 18% for horse race betting, 13% for
slot machines, 5% for VLTs and 1% for online games.
On January 15, 2015, ADM issued a decree detailing the mechanics of the Stability Fee, a fee
levied against AWP and VLT concessionaires intended to raise €500 million annually as part of the
Italian Stability Law of 2015. Under the Italian Stability Law of 2015, each AWP and VLT
concessionaire is required to pay a portion of the annual Stability Fee in proportion to the
number of AWP and VLT machines connected to the regulator’s network as of December 31 of
the preceding year. For 2015, and based on the number of AWP and VLT machines connected to
the network on December 31, 2014, Snai’s and the Cogemat Group’s portions of the Stability Fee
have been determined by ADM to be €37.8 million and €47.0 million, respectively. See
“Summary—Recent developments—Stability Fee payments,” “Snai’s Business—Legal
proceedings—Pending litigation regarding the Italian Stability Law of 2015” and “Cogemat
Group Business—Legal proceedings—Pending litigation regarding the Italian Stability Law of
2015.”
179
The following table shows net gaming revenues in Italy by market segment for the years 2007 to
2014:
(millions of €, except
percentages)
2007
2008
2009
2010
2011
2012
2013
2014
CAGR
07-14
5.0%
NA
AWPs . . . . . . . . . . . . . . . . .
VLTs . . . . . . . . . . . . . . . . . .
2,279 2,743 3,127 3,874 3,548
–
–
–
65 1,088
3,451 3,151 3,216
2,404 1,890 2,124
Gaming Machines . . . . . . . .
Sports betting . . . . . . . . . .
Horse race betting(1) . . . . .
Virtual events . . . . . . . . . .
Betting exchange . . . . . . .
2,279 2,743 3,127 3,939 4,636
554
813
700
652
729
311
256
222
193
155
–
–
–
–
–
–
–
–
–
–
5,855 5,041 5,340 12.9%
523
619
644
2.2%
529
481
379
2.9%
–
2
149
NA
–
–
1
NA
Betting(2) . . . . . . . . . . . . . . . .
Poker & Casino . . . . . . . . .
865 1,069
–
21
922
205
845
286
884
330
1,052 1,102 1,173
394
374
350
4.4%
NA
Online Games . . . . . . . . . . . .
Lotteries . . . . . . . . . . . . . . . .
Bingo . . . . . . . . . . . . . . . . . . .
–
21
205
286
330
2,025 2,212 2,357 2,259 2,426
319
298
272
351
293
394
374
350
2,581 2,319 2,321
384
439
390
NA
2.0%
2.9%
Total Market Net Gaming
Revenues . . . . . . . . . . . . . .
5,488 6,343 6,883 7,680 8,569 10,266 9,275 9,572
8.3%
Source: ADM
(1) Also includes Comma 7 gaming machines whose payouts are awards in-kind (e.g., free cups of coffee, dolls, figurines, etc.),
therefore it is not possible to determine the amount of payout or a payout ratio.
(2) Includes pool and prediction games as well as online sports and horse race betting.
Gaming machines
In 2014, we estimate that the Italian gaming machines market accounted for approximately 55%
of overall betting and gaming market turnover, with total turnover in Italy amounting to
approximately €46.8 billion and total net gaming revenues amounting to €5.3 billion. The gaming
machines market currently includes 13 concessionaires (including the Group). The gaming
machines market can be divided into two different segments; (i) AWPs (Amusement With Prize)
and (ii) VLTs (Video Lottery Terminal).
AWPs: Traditional slot machines, also referred to as “clause 6A” machines, or amusement with
prize (“AWP”), employ a graphical reel containing pictures (such as fruits) and provide games of
controlled chance, paying cash to winners. Slot machines were legalized in Italy in 2004. Slot
machines are primarily placed in betting shops, bars, cafés, tobacconists, gaming and bingo halls.
AWPs offer a minimum payout ratio of approximately 74%. Because of the similarity in product
offerings, AWPs face some product substitution in favor of VLTs. In 2014, total AWPs turnover in
Italy amounted to approximately €25.4 billion and total slot machine net gaming revenues
amounted to €3.2 billion.
We estimate that the eight largest AWPs concessionaires represent approximately 84% of the
market turnover (according to 2014 data) and that we are the eighth largest concessionaire with
approximately 5.7% of turnover. The operation of slot machines in Italy is highly fragmented,
with over 4,000 participants.
An AWP concessionaire is responsible for the certification of the gaming machine, the
establishment and management of the network connection, data transmission to ADM and the
proper functioning of the machine. The concessionaire receives compensation based on a
percentage of the turnover or a fixed amount related to the network connection. The operator
of a slot machine, known as the “gestore,” is responsible for the initial deployment,
management and maintenance of the gaming machine and enters into a revenue-sharing
contract with the retailer who displays the machine. The gestore is also responsible for collecting
the wagers. A concessionaire may also act as gestore, and we were gestore for about 2,700 of our
AWPs at the end of 2014. Currently, we estimate that over 4,000 gestore operate in the Italian
gaming machines market segment.
180
Video Lottery Terminals: Video lottery terminals, also referred to as “clause 6B” machines, or
VLTs, were first introduced in Italy in August 2010. Instead of the traditional graphical reels of
slot machines, VLTs employ a video display and provide a wider range of games. VLTs can be
managed and monitored remotely and in real time. VLTs can only be placed in dedicated gaming
halls. VLTs offer a minimum payout ratio of approximately 85%, which is higher than the payout
ratio for traditional slot machines, due to different legally-mandated payout rates. In 2014, total
VLT turnover in Italy amounted to approximately €21.4 billion and we estimate VLT net gaming
revenues amounted to €2.1 billion.
Currently, concessions to deploy approximately 60,500 VLTs have been assigned to the same
concessionaires that are active in the traditional slot machines market segment. As of the date of
this Offering Memorandum, and based on the latest available ADM data, we estimate
approximately 84% of such awarded concessions have been deployed whereas we have deployed
approximately 99% of our awarded concessions.
The VLT market segment is relatively consolidated. We estimate that the largest nine
concessionaires account for approximately 90% of turnover (according to 2014 data), and that
we are the ninth largest concessionaire with 6.3% market share based on turnover.
A VLT concessionaire is the owner of the license and has a revenue sharing contract with the VLT
platform provider. VLT providers supply the platform, the wall system including hardware and
software which determine the winnings as VLT winnings are paid out across the entire network.
The concessionaire enters into a revenue sharing contract with the retailer who hosts the
machine. Additionally, in certain instances the concessionaire enters into an agreement with a
third party to install and/or to maintain the VLT in return for a fixed fee.
Betting
Concessions for betting activities are granted in the form of licenses for the operation of a single
betting shop or betting corner and a concessionaire can hold one or more licenses depending on
the number of betting shops or corners it operates. The Italian betting market comprises two
main segments: sports betting and horse race betting, which can be played both in authorized
betting shops or corners and online and virtual events. Other betting relates to non-sports events
connected with the world of entertainment, music, culture and current affairs of national and
international importance. In 2014, total betting turnover (including online betting) in Italy
amounted to approximately €6.5 billion and total betting net gaming revenues (including online
betting) amounted to €1.2 billion.
The Italian sports and horse race betting market is relatively consolidated. We believe we are the
largest betting market participant, with, pro forma for the Cogemat Acquisition 22.4% of the
Italian betting market in 2014 in terms of turnover (including turnover collected under service
agreements with third parties).
Sports Betting: Sports betting includes fixed-odds sports betting, as well as pool games, where
participants pay a fixed price into a betting pool and make a selection on a particular outcome.
Sports betting takes place at designated betting shops and corners as well as online and is based
on real-life sport events, such as football. In 2014 total sports betting turnover amounted to
approximately €4.3 billion, and total sports betting net gaming revenues amounted to
€643 million. Part of the growth of the market in 2014 was that until 2014 one of our largest
online sports betting competitors was not considered by ADM as part of the market and was,
therefore not included in market-wide calculations. Including their activities within the market
caused the increase in reported market activity to be artificially pronounced. Consumer
participation in the sports betting segment fluctuates from year to year and is influenced by the
occurrence of special sport events such as the Olympic Games and the FIFA World Cup or UEFA
European Championships. Furthermore, the liberalization of the regulatory framework has
broadened the range of permissible betting events and introduced new betting formats such as
live betting, which allows consumers to place bets on an event after the event has started based
181
on constantly changing odds. The popularity of pool games has declined significantly in recent
years, which we attribute primarily to competition from fixed-odds sports betting and the limited
appeal of pool games compared to other newer offerings.
Horse Race Betting: Horse race betting includes (i) traditional horse race betting, which is mainly
played in betting shops and corners and horse race courses and more recently, using online and
mobile platforms, (ii) other horse race betting games, such as Ippica Nazionale, which can be
played in betting shops and corners and online (iii) fixed-odds horse race betting, which can be
played in betting shops and horse racecourses and using online and mobile platforms. For
traditional horse race betting, a unit bet costs €0.50 and the number of events on which bets can
be placed depends on the daily program published by the horse race association. For Ippica
Nazionale, the number of events on which bets can be placed is fixed at approximately 15 events
per day and a unit bet costs €1.00. In fixed-odds horse race betting, participants pay a fixed price
into a betting pool and make a selection on a particular outcome. Turnover from horse race
betting has declined since 2007, which we attribute primarily to players switching to other
betting games as well as prolonged strikes by workers in the horse race industry. Additionally,
horse race betting is characterized by high taxes as a percentage of turnover, which in turn
reduces the payout to players. In 2014, total horse race betting turnover (including online horse
race betting) amounted to approximately €913 million and total horse race betting net gaming
revenues (including online horse race betting) amounted to €379 million.
Virtual Events: Virtual events are a visual representation of a race where odds are based on a
computerized number draw. Virtual events were introduced in Italy in December 2013 and
already proved popular with total turnover amounting to €1.1 billion in 2014 and total net
gaming of €148 million.
Online games
Online games were legalized in Italy in 2005 with the introduction of online sports betting. An
online concession generally permits the concession holder to operate any number of online
games, even if such concession holder does not hold a concession to operate such games at an
offline point of sale. The Italian online games market has grown to a turnover and net gaming
revenues of €12.3 billion (excluding both online betting and online lotteries) and €350 million
(excluding both online betting and online lotteries), respectively, in 2014. We believe this
increase in turnover can be primarily attributed to the frequent introduction of new online
games as well as the very high legally-mandated payout rates of online games (excluding betting
and lotteries games, which have the same payout rate whether they are played online or offline)
which on average exceed 95%. The following online games are available in the market: sports
and horse race betting (which we report in our sports and horse race betting and virtual events
business line rather than our online skill and casino games business line), instant lotteries, pool
games, NTNG and other lottery games, skill games, casino games, poker cash games, soft games
(i.e., games of chance not based on cards) and online slot machines.
To access the online betting and gaming market, players must set up an online account with an
online games provider, must have an Italian fiscal code card (i.e., an Italian tax registration
number) and an Italian registered address and must be located in Italy.
We believe that we are among the largest players in online casino games and the fourth largest
player in online cash games in the Italian betting and gaming industry.
Italian Convenience Payment Services Market
The overall Italian payment and services market is organized along two broad market segments:
(i) the convenience payment services market segment in which we indirectly operate as a result
of certain contractual arrangements with Poste Italiane and other financial institutions, and
(ii) the other payments and services market segment in which mainly banks and post offices
182
operate. Convenience payment services refers to the ability to make payments through “local”
channels such as bars and newsagents. For cultural reasons and because of the low penetration
of online and direct debit payments, Italian consumers frequently seek to make such convenience
payments.
The Italian convenience payment services market offers three broad product categories:
(i) top-ups, (ii) payments and (iii) financial services.
Payments: Payment services allow for payment of telephone and national and local utilities bills,
traffic violation fines and certain taxes such as municipal refuse collection, car registration and
television license fees. Currently payment services are provided by Poste Italiane and banking
institutions, as well as gaming companies in their capacity of licensed payment institutions or, as
in our case, indirectly through duly licensed financial institutions. The consumer typically pays a
fee to the convenience payment service provider.
Top-ups: Top-ups comprise top-up services for pre-paid mobile and fixed-line telephone accounts,
TV card top-up services and pay-per-view TV vouchers. The convenience payment service provider
typically receives a fee from the utility company or other partner.
Financial Services: Financial services consist of prepaid debit card issuances and reload services.
The customer typically pays a fee for the card and for subsequent reloads. We do not directly
operate in the financial services segment, as we distribute our PayMat prepaid payment cards
through a third-party bank and duly licensed Italian payment institution.
According to information from 2012 (the latest available information), we estimate that
convenience payment services accounted for over half of overall payment and services market
turnover, followed by top-ups with about one third of total turnover and financial services which
contributed for the remaining part. Due to proximity to the consumer which allows customers to
more efficiently carry out routine transactions, we estimate that the convenience payment
services market has grown significantly from a turnover of over €6 billion in 2007 to over
€18 billion in 2012. The Cogemat Group started offering convenience payment services in 2006
and, since then, its turnover growth has exceeded the performance of the market mainly owing
to the increasing number of its affiliated and unaffiliated points of sale offering the Cogemat
Group’s convenience payment services.
183
Snai’s Business
Overview
We are a leader in the Italian betting and gaming entertainment market. We were founded in
1906 and are currently listed on the Italian Stock Exchange. We manage our business pursuant to
a broad portfolio of long-term concessions granted to us by ADM, the Italian gaming industry
regulator, and offer a broad spectrum of betting and gaming products, including (i) gaming
machines, (ii) sports and horse race betting and virtual events (including online betting) and
(iii) online skill and casino games. Operating multiple concessions mitigates our concession
renewal risk compared to mono-concession businesses such as Lotto and SuperEnalotto. Our
concessions have varying expiration dates and although we have consistently been able to renew
and increase all our concessions, we retain discretion as to how many individual shop or machine
concessions we choose to renew at each renewal date, providing us with flexibility to manage
our capital expenditures and liquidity.
On July 11, 2015, as further described under “—The Transactions—The Cogemat Acquisition,” we
entered into an agreement to acquire 88.56% (and up to 100.00%) of the outstanding share
capital of Cogemat, one of the leading gaming machine companies in Italy, based on turnover.
The Cogemat Group operates in some of the same market segments that we do, and we believe
that the two companies have highly complementary networks and product offerings.
The Cogemat Acquisition strengthens our leading market positions across our primary business
lines. As of March 31, 2015, and pro forma for the Cogemat Acquisition, we would have had a
gaming machines network of approximately 60,000 active AWPs and 10,000 active VLTs,
establishing us as one of the market leaders in gaming machines. The charts below illustrate our
combined market position in respect of our competitor concessionaires based on numbers of
authorized AWPs (left) and VLTs (right).
Source: ADM, 2014
Pro forma for the Cogemat Acquisition we would have had a market share, by 2014 turnover, of
15.1% in the gaming machines market segment. In addition, pro forma for the Cogemat
Acquisition, we would have had market shares, by 2014 turnover, of 19.4%, 40.9% and 33.5% in
the sports betting, horse race betting and virtual events market segments, respectively, and a
market share of 6.3% in the online skill and casino games market segment.
Our acquisition of the Cogemat Group expands our existing physical betting and gaming
network in a market that remains primarily a “brick and mortar” industry, with approximately
83% of the total turnover of the Italian market in 2014 coming from the offline channel. As of
March 31, 2015, pro forma for the Cogemat Acquisition, our distribution network included
717 sports and horse race betting shops, 917 sports betting corners and 670 horse race betting
corners, constituting one of the largest networks of betting POS in Italy. We believe this large
and well-diversified retail platform, with POS across all of Italy, constitutes a strong barrier to
entry for our potential competitors because of the high costs associated with setting up a POS
network extensive enough to compete with us. In addition, our POS platform allows us to
achieve best-in-class brand awareness—we believe our Punto SNAI brand has become
184
synonymous with sports and horse race betting in Italy—and we believe that an expanded
network can only improve our brand visibility.
We believe that such a strong and well-diversified product portfolio provides revenue stability
because we can mitigate our exposure to the risks posed by sports betting where payout levels
fluctuate over time and we incur bookmaking risk, by focusing on our fixed-payout businesses
such as horse racing, gaming machines and online skill and casino games, where revenues are
more stable because minimum payouts are fixed by ADM.
Following the Cogemat Acquisition, we will acquire the Cogemat Group’s convenience payment
services business through which we will provide customers with payment services such as utility
bill payments, mobile phone top-ups and prepaid cards.
For the twelve months ended March 31, 2015, pro forma for the Cogemat Acquisition, we would
have generated pro forma combined total revenues of €979.0 million and pro forma combined
Adjusted EBITDA of €137.5 million. See “Summary Pro Forma and Historical Consolidated
Financial Information and Other Data.”
Following the Cogemat Acquisition, we intend to organize and manage our combined activities
within the following main business segments: Concessions, Racecourse Management, Television
Services, Betting Collection Services and Convenience Payment Services. We also intend to present
a further breakdown of our combined Concessions segment into three business lines: sports and
horse race betting and virtual events, gaming machines and online skill and casino games. The
following is a brief presentation of these main segments and business lines (not including the
Other segment of residual activities):
• Concessions: this segment comprises our core operations and for the twelve months ended
March 31, 2015, represented 96.4% of our total pro forma combined total revenues. The
Concessions segment includes the following business lines of Snai and the Cogemat Group:
• Gaming Machines: this business line includes the operation of our AWPs and VLTs under
concession and related services such as IT services managing the authorized IT network
connecting gaming machines to ADM’s control system;
• Sports and Horse Race Betting and Virtual Events: this business line includes our fixed-odds
betting operations for sports matches, our virtual events and our betting operations for
horse race events (mainly totalizer), which include bookmaking and other statistical
services and related online channel offerings and IT support; and
• Online Skill and Casino Games: this business line includes our online operations (including
Internet, mobile and tablet platforms), encompassing a number of gaming activities
(i.e. bingo, blackjack, backgammon, solitaire card games, dice games and poker) and other
residual revenues related to our Concessions segment;
• Racecourse Management: this segment includes our management of horse race course
operations, including real estate management and organization of races;
• Television Services: this segment includes our television operations managed by Teleippica
(televised horse race events);
• Betting Collection Services: this segment includes operations in electronic services to betting
acceptance points; and
• Convenience Payment Services: this segment includes convenience payment services such as
utility bill payment services, mobile phone top-ups, phone cards and gift cards.
185
The chart below sets forth the breakdown of our pro forma combined total revenues for each
business line within our Concessions segment for the twelve months ended March 31, 2015,
which represented 96.4% of our total pro forma combined total revenues for the same period.
Sports and
Horse Race
Betting and
Virtual Events
20.2%
Online Skill and
Casino Games
and Other
5.5%
Gaming
Machines
74.3%
Our strengths
We believe that, following the Cogemat Acquisition, our key strengths and competitive
advantages include:
Operating in the largest and most developed betting and gaming market in Europe, with a
robust track record of growth (even during periods of declining GDP), favorable regulatory
regime and future growth prospects
Italy is the largest and most developed betting and gaming market in Europe with gross gaming
revenues of €17.5 billion for 2014, which we believe is 50% larger than the United Kingdom and
Ireland, the next largest gaming market in Europe. Betting and gaming has historically been one
of the fastest growing sectors of the Italian economy with a robust track record of growth, even
during periods of declining GDP. From 2007 to 2014, during which time Italian real GDP
contracted at a CAGR of -1.3%, the turnover of the Italian betting and gaming market grew at a
CAGR of 10.7% according to ADM data, reaching an estimated total turnover of approximately
€84.5 billion.
The market in which we operate is regulated by ADM, and permission to operate in our industry
is granted pursuant to a limited number of typically long-term concessions. Even though the
regulations themselves change periodically, we believe the overall structure of the regulatory
regime provides clear rules, which allows operators such as us to develop and implement our
business strategy with confidence and creates a regulatory environment that we believe is
generally favorable to betting and gaming providers.
In addition, we believe that the Italian betting and gaming market exhibits appealing prospects
for future growth, driven by factors including a resilient offline betting channel (favoring
operators with strong retail networks like us) and a growing online channel, with a regulatory
framework that has historically favored the introduction of new products. We believe we are
well-positioned to benefit from these opportunities.
Leading market position in key market segments
We believe the Cogemat Acquisition makes us a leader in the gaming machines market segment
where, pro forma for the Cogemat Acquisition, we would have had a 15.1% combined market
share in 2014, by turnover, and would have ranked as the third largest operator in Italy on the
basis of number of authorized AWPs and VLTs. We also believe the Cogemat Acquisition
strengthens our leading position in the Italian sports and horse race betting market segments
186
where, pro forma for the Cogemat Acquisition, we would have had 19.4% and 40.9% market
shares, respectively, in 2014, by turnover. Further, we believe the Cogemat Acquisition
strengthens our market position in the online skill and casino games market segment where we
believe we are a market leader with a 6.3% market share, by 2014 turnover. As of March 31,
2015, and pro forma for the Cogemat Acquisition, our online sites had 518,601 unique, active
registered users.
Diversified product portfolio: one-stop-shop for betting and gaming in Italy
We operate as an authorized “multi-concession holder” in all multi-concession segments of the
Italian betting and gaming industry. We offer our customers a broad range of products, from
offline and online betting, to gaming machines (AWPs and VLTs) and online skill and casino
games. We believe we have been able to adapt our product offering to evolving customer trends
and to successfully diversify our revenue streams, creating a more stable revenue base. Our horse
race betting, gaming machines and online skill and casino games businesses generate stable
revenues as the payout levels are generally set by applicable law or regulation which reduces our
exposure to sports betting, the business line where payout levels fluctuate over time and we
incur bookmaking risk. Moreover, we believe the breadth of our offering appeals to different
demographics, and our strong presence in sports betting caters to the most widely followed sport
in Italy, football.
Finally, our diversified product portfolio provides us with know-how of the entire betting and
gaming market that helps us cater to and anticipate changes in consumer behavior and adapt
faster to regulatory and technological changes. For example, when rolling out our online betting
and gaming offering, we leveraged our existing offline platform to sell prepaid and rechargeable
SNAI cards. We believe our market leading positions and strong brand name in offline betting,
especially sports and horse race betting, generates new customers for our online channel, virtual
events and gaming machines, as our existing offline customers choose Snai as their betting and
gaming provider at home or using our mobile and tablet apps. In addition, we believe that
integrating the Cogemat Group’s convenience payment services network expands our product
offerings and attracts additional customers to our POS.
Resilient business model
We believe that we operate a resilient business model and that we are well-positioned, in part as
a result of the Cogemat Acquisition, to defend our leading market positions in the segments in
which we already have an established presence and to further expand our business in related
areas such as payments services.
We also believe that the Italian betting and gaming market presents significant barriers to entry
for new entrants (including overseas operators), due to, among other things, the preference of
Italian consumers for offline betting and gaming channels as well as certain regulatory,
technological and operating requirements specific to the Italian market.
We believe the Italian marketplace is characterized by a focus on “brick and mortar” where
betting is primarily done at betting shops and corners which in turn favors operators like us with
a large nationwide footprint. According to ADM data, and pro forma for the Cogemat
Acquisition, our retail platform would have been the largest dedicated betting network in Italy
as of March 31, 2015, with 717 sports and horse race betting shops, 917 sports betting corners
and 670 horse race betting corners. The scale and breadth of this network was formed through
our long history of leadership in the Italian betting and gaming sector and we have POS in every
region of Italy. Our presence throughout Italy and our strong brand name inextricably linked to
our long history in the marketplace serves as another competitive advantage and we believe
helps us foster and maintain customer loyalty. For example, our market share in terms of
turnover tends to increase around high-profile sporting events, such as the FIFA World Cup and
UEFA European Championship, because we believe a greater number of customers, including
187
those that rarely place wagers, place bets with us as a result of our large network and strong
brand names. As a result, we believe a new competitor would need significant financial
resources, operating expertise and a qualified workforce to build profitable operations and
notoriety in the marketplace, each representing a significant barrier for new competitors in our
core business areas.
Regulatory requirements function as a further barrier to entry. We hold several long-term
concessions, some of which terminate in 2020 and 2022, and public tenders for new or bolt-on
concessions are infrequent. Furthermore, incumbent concessionaires such as us benefit from the
criteria established by ADM for participation in public tenders for betting and gaming
concessions that require bidders to demonstrate extensive expertise in the information
technology processes necessary for the operation of a gaming network. We have successfully
participated in all public tenders for multi-concessions and we have a 100% track record of
successfully renewing such concessions. For example, in 2004, we received our first AWP
concession, in 2006, we significantly expanded our sports and horse race betting concessions
through the Bersani Invitation to Tender, and the same year, we received our first online sports
and horse race betting concessions. Moreover, when VLTs were first introduced to Italy in 2009,
only existing AWP concessionaires were eligible to bid, and we therefore benefitted from this
favorable position.
In addition, we possess other competitive advantages that promote resiliency and reinforce our
incumbent position in key business areas. For example, our Betting Collection Services segment
gives us insight on how to promote efficiency throughout our business as we have in-house
capabilities in gaming technology and related infrastructure management.
Significant cash generation and resilient financial performance with flexible cost structure
Our business is highly cash generative. For the years ended December 31, 2012, 2013 and 2014,
Snai’s cash conversion was 89.4%, 84.7% and 96.5%, respectively. For the twelve months ended
March 31, 2015, pro forma for the Cogemat Acquisition, our cash conversion was 93.0%.
We benefit from a lean and flexible cost structure that helps to shield us from swings in volumes
and temporary market shocks. In contrast to some of our competitors, we neither own nor
operate the majority of our shops and we do not incur any substantial rental and personnel
expense, and our payments to our network partners (distribution costs and concession fees) are
linked to turnover and hence variable in nature. Moreover, in the gaming machines business line,
our large AWP and VLT network allows us to exploit economies of scale, spreading the cost of
providing coin collection and outage response over more machines (minimizing machine
downtime and maximizing revenue potential). As a result, our variable costs have historically
averaged over 63% of total revenues (since 2010), and for the twelve months ended March 31,
2015, pro forma for the Cogemat Acquisition, our variable costs would have represented 66.8%
of pro forma total combined revenues. In addition, we recently completed the process of
implementing new contractual arrangements with our distribution network to provide incentives
our sports betting points of sale that deliver more multiple bets, which historically have lower
payouts, thus improving our profitability.
Our major capital expenditures have historically been acquisitions of concessions, where we have
a successful track record of renewing our concessions. However, as a multi-concession business,
the risk and cost of renewal of each individual concession is significantly lower than the
concentrated costs and renewal risks associated with mono-concession businesses (such as
lotteries). Our AWP and VLT concessions, including the concessions gained from the Cogemat
Acquisition, were successfully renewed in March 2013 for an additional nine years. Our sports
betting and horse race betting concessions, including those gained from the Cogemat
Acquisition, will have to be renewed in 2016 and we expect to be able to renew them on similar
terms for at least six additional years. Finally, capital expenditures related to the ongoing
maintenance and reallocation of our gaming machines are expected to be modest due to our inhouse operational capabilities, the fact that our IT support partner is compensated with a
188
percentage of turnover as consideration for covering maintenance costs of the machines and a
business model based on a limited number of owned or directly-operated POS.
Seasoned management team with decades of experience
Our senior management team comprises individuals with extensive experience in the Italian
betting and gaming market as well as managers who have joined our Group more recently,
bringing further expertise in management of public companies from long careers developed in
the betting and gaming as well as in other industries. In recent years, our senior management
team has managed the Group through a period of successful revenue diversification, transitioned
our Group towards the next generation of gaming technology with the rollout of VLTs and the
introduction and development of our online channel and guided the Group through the
Cogemat Acquisition. In addition, following the Cogemat Acquisition we will integrate the
Cogemat Group’s experienced senior managers into our management team, thus further
strengthening it. See “Management.”
Our strategies
Our objective is to successfully integrate the Cogemat Group and Snai to further strengthen our
position as a leading betting and gaming company in Italy and achieve sustainable, profitable
growth through the following strategic pillars:
Leverage expanded betting and gaming network and combined know-how of the Group
Pro forma for the Cogemat Acquisition, we believe we will be one of the largest betting and
gaming entertainment player in the Italian market, based on turnover. As of March 31, 2015, pro
forma for the Cogemat Acquisition, our combined distribution network included 717 sports and
horse race betting shops, 917 sports betting corners and 670 horse race betting corners all across
Italy and we intend to focus our efforts on leveraging this larger distribution network to reach
new customers. For example, in 2013, we introduced a virtual events offering and by the end of
2014 were a market leader in virtual events with a 30% market share, and we believe that
leveraging the Cogemat Group network to expand our virtual events offering is a promising
opportunity to continue growing that business line. Moreover, Snai plans to move approximately
500 VLTs to better-performing locations before the end of 2015 and the expanded postacquisition network offers us increased relocation options. We also intend to apply know-how
and best practices from Snai’s and the Cogemat Group’s respective businesses, including, in
particular, Snai’s experience in sports betting and the Cogemat Group’s experience in gaming
machines, to further enhance the combined group’s operations and profitability. Overall, we
believe that an expanded physical network and combined know-how of the Group, will increase
our market share and help us become one of the leading Italian betting and gaming players in
every individual segment and business line in which we operate.
Expand and maximize online channel
Our online channel, launched in 2008, consists of a series of interactive single and multiplayer
websites and downloadable program environments for desktop computers that range from
online arcade-style skills games to casino house settings (introduced in 2011) and slot machines
with specific movie or sports themes. We have introduced new products since the launch of our
online channel, including an online AWP offering, which launched in December 2012. We intend
to continue to innovate with our online, mobile and tablet platforms, introducing new sports
betting activities and games and leveraging our strong brand name to appeal to new
demographics, particularly young adults. We are further training our customer relationship
management teams and we are implementing specific marketing initiatives towards our online
business line. We have gained market share over the last twelve months, particularly in online
sports betting, and we intend to leverage our leading market positions to continue this trend.
189
Strengthen and maintain leading market position in the offline channel
We intend to further reinforce our leading distribution network. Though the online channel has
significantly expanded in recent years, ADM statistics indicate that the offline channel is resilient
and we believe it will remain the reference channel for the foreseeable future for Italian betting
and gaming activities. Our strategy calls for new shop formats with bigger areas dedicated to
real time betting and gaming machines. In the recent auction for the renewal of certain sports
and horse race betting concessions, Snai was awarded 50 additional concessions (in addition to
our expiring concessions that we successfully renewed) which were strategically placed in areas
that offered the most traffic and, therefore, enhanced brand awareness. We also believe that our
strong offline presence in betting and gaming can be instrumental to further fuel the growth of
our online presence. For example, customers in our betting shops can purchase SNAI cards to
spend on our mobile and online platforms and provide a convenient payment option to
encourage traffic towards our sites.
Focus on profitability and cash management
We operate in stable and growing segments of the Italian betting and gaming market and our
business is highly cash generative. We will focus on increasing our revenues through aligning the
incentives of our network partners with those of the Group, utilizing operational efficiencies and
economies of scale afforded by our increased size as a result of the Cogemat Acquisition and
investing in areas of our business which are likely to generate higher profitability (such as
gaming machines and online skill and casino games). We are currently evaluating contractual
arrangements with sports betting partners which would include a reward mechanism based on
quality of the bets rather than on the wagers collected. For example, should the relevant POS
deliver more multiple/bundled bets, we would be well-placed to benefit from a potential
decrease in payouts that such bets typically generate. We further intend to operate our business
in line with our historic trend of limited capital expenditure requirements, and carefully consider
initiatives before committing funds, and make an investment only when we believe it will drive
revenue generation and further enhance our brand and competitive position.
Our history and development
Our predecessor company, Società Anonima Ippodromi Trenno, was incorporated in Italy on
November 7, 1906 to organize and manage horse races. Over time, we extended our operations
to build racecourses for harness horse racing and flat horse racing and provide training centers
for racehorses. In the 1990s, we extended our activities to providing technology and technical
services to horse race agencies. In 1994, we began acting as totalizer for horse race betting on
behalf of UNIRE. In 1996, through the acquisition of a controlling stake in listed horse track
operator Trenno S.p.A., we became a public company. In 2001, we became information
technology and service provider for bingo halls, and, in 2003, we became concessionaire for
Totocalcio and Totogol. In 2004, we became a concessionaire for AWPs. In 2006, we became a
leading concessionaire for sports and horse race betting based on number of sports and horse
race betting concessions in Italy.
In 2006, following the enactment of the Italian law decree No. 223 of July 4, 2006 (the “Bersani
Decree”), Italy began a process of liberalizing betting and gaming and expanding the betting
and gaming network, by allowing each existing Italian and foreign concession holder to apply for
additional betting and gaming concessions and introducing online skill games that until that
time were not permitted in Italy. Pursuant to the Bersani Decree, the Italian regulatory authority
instituted a tender process (the “Bersani Invitation to Tender”) for 16,300 new rights for betting
and gaming points of sale, comprising sports and horse race betting shops and corners. In 2006,
we were awarded 342 sports betting shop rights and 864 sports corner rights as well as 99 horse
race betting shop rights and 3,787 horse race betting corner rights by ADM pursuant to the
Bersani Invitation to Tender. We were also awarded a concession for online sports betting and a
concession for online horse race betting. In 2008, we acquired additional business lines owning
190
seven sports betting concessions, five horse race concessions and sports rights and we also
entered into the online skill games market, in particular offering online poker. In 2009, we
acquired four additional betting concessions, (two sports betting concessions and two horse race
betting concessions). That same year, we were also awarded 303 horse race betting shop
concessions by ADM, of which 138 replaced our historic concessions, pursuant to this tender. In
April 2009, the Italian Parliament approved the introduction of VLTs in Italy. Only existing
concessionaires of AWPs were allowed to participate in the tender process for rights for VLTs and
we successfully applied for 5,052 rights, each allowing us to install one VLT. We completed the
installation of all 5,052 VLTs in 2013.
In March 2011, Global Games, a company owned in equal shares by Global Entertainment S.A. (of
which InvestIndustrial IV L.P. holds a majority participation) and by Global Win S.p.A. (of which
Venice European Investment Capital S.p.A. holds a majority participation) acquired 67.2% of our
shares. For more information regarding our shareholders, see “Principal Shareholders.” In 2011,
we also entered the cash and casino games within the online market. In August 2012, we
launched the use of a mobile application for smartphones and tablets to be used for sports
betting. In December 2012, we launched online AWPs. In 2013, we were awarded 278 sports
betting shop concessions by ADM, of which 228 were renewals and 50 were new concessions and
we launched our virtual events platform. In 2014 we opened 50 new points of sale associated
with the 50 new concessions awarded in 2013, and began a process of identifying VLTs that we
believed were located in lower-performing locations and reallocating them to higher-performing
points of sale.
Segments and business lines
We organize and manage our activities according to the following main business segments:
Concessions, Racecourse Management, Television Services and Betting Collection Services. We
also present a further breakdown of our Concessions segment into three business lines: sports
and horse race betting and virtual events, gaming machines and online skill and casino games.
See “Presentation of Financial Information—Segment and Business Line Information.”
Concessions segment
Our Concessions segment comprises the core activities of our Group and generated €511.7 million
in total revenues for the twelve months ended March 31, 2015, representing 94.6% of our total
revenues for the same period. The following table presents a brief overview of our Concessions
segment and the business lines thereunder:
Concessions
Segment
Business Lines
Product Categories
Concession
Gaming Machines
direct management of
AWPs/VLTs
connection of thirdparty gaming machines
to ADM control system
1 multi-concession for AWPs
March 2022
and VLTs allowing for unlimited
AWPs and 5,052 VLT concession
rights
Sports and horse
race betting and
virtual events
sports betting,
horse race betting,
online sports and horse
race betting and virtual
events
1 multi-concession for public
June 2016
betting (other than horse race
betting) through betting stores
and betting points
1 multi-concession for public
horse race betting through
horse race betting stores and
betting points
191
Expiration
June 2016
Concessions
Segment
Business Lines
Product Categories
Concession
Expiration
1 multi-concession for public
horse race betting through
joint operations
June 2016
1 multi-concession for online
September 2020
sports and horse race betting,
sports and horse race pool
betting and national horse race
betting
1 multi-concession for the sale June 2016
of fixed-odds and totalizer bets
on sporting events, nonsporting events and horse races
Online Skill and
Casino Games
poker
bingo
skill games
online slots and other
online casino games
1 multi-concession for online
skill games, card games
(including tournaments) and
bingo
September 2020
Gaming machines (AWPs/VLTs)
For the twelve months ended March 31, 2015, gaming machines generated revenues of
€288.8 million, which represented approximately 56.4% of total Concession segment revenues for
that period.
As one of 13 gaming machine concessionaries in Italy, we act as a network system operator for
the computerized management of AWPs and VLTs. In 2013, we began acting as an operator or
“gestore,” meaning we also directly-manage and own approximately 3,381 of our AWPs
(12.4% of our total AWP network) consisting of state-of-the-art models exclusively placed in our
betting shops to enhance the customer experience. AWPs can be managed by someone other
than the owner of the machine, while VLTs can only be managed by the owner. In March 2013,
one former participant in the SNAI Concessionaire Network exited the SNAI Concessionaire
Network, because it was due to receive its own concession from ADM to operate VLTs (awarded
in September 2013). Although this operator had over 3,000 machines, management invested in
rebuilding our AWP network through entering into new agreements to enlarge the SNAI
Concessionaire Network and the selective purchase of AWPs, and as a result, notwithstanding the
loss of a large customer, the SNAI Concessionaire network was approximately of 27,253 AWPs as
of March 31, 2015.
Under the Italian regulatory regime, only gaming machines that are linked to ADM control
system are permitted to operate. This system permits games played on the machines to be
controlled and monitored for tax purposes by ADM. As of December 31, 2014, based on the total
estimated number of AWPs in the market, we are the seventh largest out of thirteen licensed
AWPs operators and, based on the number of VLT rights, we are the sixth largest out of thirteen
licensed VLT operators. As a concessionaire, we are responsible for the activation and operation
of a network for the computerized management of AWPs. As of March 31, 2015, we provided
connectivity and tax collection services to a network of 27,253 AWPs, of which 25,210 were
operational throughout Italy, while the remaining machines are in maintenance or, as customary
in this industry, kept as ready inventory by the AWP distributors. Out of the total number of
operational machines, 7,308 were located within our betting shops and corners, and 17,902 were
outside our distribution network. All of our 5,052 VLTs have been deployed as of 2013 and we
are now in the process of relocating them to make sure they are optimally located in our highestperforming points of sale. All gaming machines are connected by means of a computer
192
communication system, which permits all games played on the gaming machines to be controlled
by ADM. See “Regulation” and “—Information Technology.”
AWPs
The following table provides an overview of key performance indicators of our AWP operations
as of and for the twelve months ended March 31, 2015:
March 31,
2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of machines (approximately) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,523.3
193.3
27,253
3,381
With AWPs, the outcome of the game is based on chance, and players bet against the house. By
law, AWPs pay winnings of a maximum of €100 in cash. Each individual game lasts between
7 and 13 seconds and costs €0.50 or less. According to applicable regulations, AWPs currently
have a minimum payout of at least 74% of the aggregate amount of wagers collected across the
network (although many machines are configured for a minimum payout of 75% pursuant to
former regulations which applied through the end of 2012). Of the remaining 26%, 13.0% is paid
to ADM as tax. The remainder constitutes our revenues, from which we deduct 0.3% as
concession fees payable to ADM as well as commissions and fees payable to AWP owners and
managers of betting shops and corners where AWPs have been placed; the subsequent balance
constitutes our contribution margin. Furthermore, we pay an additional 0.5% of turnover to
ADM, representing a security deposit that we recognized in our statement of financial position as
a credit towards ADM. The reimbursement of the security deposit is subject to meeting certain
agreed minimum service levels. We have typically been reimbursed all or substantially all of the
security deposits with ADM in respect of our AWP operations.
Since 2004, we have held a non-exclusive concession to act as a network operator for AWPs,
which was renewed in March 2013 and will expire in March 2022. As concessionaire in the AWP
business, we are permitted to act as network operator for an unlimited number of AWPs. In
2013, we purchased approximately 700 state-of-the-art AWPs (a small percentage of our total
AWP network) exclusively for placement in our betting shops to enhance the customer
experience and in the future we may consider purchasing further AWPs for our betting shops as
we believe having modern AWPs in our betting shops enhance brand value.
VLTs
The following table provides an overview of key performance indicators of our VLT operations as
of and for the twelve months ended March 31, 2015:
March 31,
2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of installed machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,362.4
95.6
5,052
VLTs, which were first approved for use in Italy in 2009, are technologically advanced versions of
traditional AWPs and feature innovative graphics and multiple game options. VLTs allow the
loading of new games remotely without having to modify the hardware of the machine and
have the ability to share a jackpot within the same hall or across the network level. In addition,
VLTs are more user-friendly and allow greater winnings than traditional AWPs. Each individual
game must last at least four seconds and costs between €0.50 and €10.00. Currently, VLTs pay
winnings of up to €5,000 per VLT (and an arcade jackpot of up to €100,000, as well as a
nationwide jackpot of up to €500,000) and by law a minimum payout of 85% of the aggregate
193
amount of turnover across the network (the market average payout through the end of 2014 was
approximately 85%, equal to the minimum payout). Of the remaining 10% to 15%, 5% is paid to
ADM as tax. The remainder constitutes our revenues, from which we deduct 0.3% as concession
fees payable to ADM as well as commissions and fees payable to IT providers and distribution
network partners; the subsequent balance constitutes our contribution margin. Furthermore we
pay an additional 0.5% of turnover to ADM representing a security deposit that we recognized in
our statement of financial position as a credit towards ADM. As of March 31, 2015, we accrued
an amount equal to €17.9 million in respect of the 0.5% receivable accrued for the AWPs and the
VLTs for the twelve months ended March 31, 2015. The reimbursement of the security deposit is
subject to meeting certain agreed minimum services levels. We have typically been reimbursed all
or substantially all of the security deposits with ADM in respect of our VLT operations.
VLTs may only be installed in licensed premises, amusement arcades, and other locations where
betting and gaming are authorized as primary activity. We believe that our extensive network of
licensed premises provides us with a superior platform for the operation and development of this
line of business. VLTs have an average useful life of six years, since software can be updated
remotely.
All of our 5,052 VLTs have been fully rolled as of the end of 2013, and we are currently in the
process of analyzing the performance of our VLTs to determine which points of sale are the
highest performing and then reallocating VLTs in lower-performing points to sale to those new
locations. In 2014 1,450 VLT terminals were moved to what we believe are better-performing
locations. In 2015, we expect to reallocate another 500 VLTs to higher-performing locations.
Sports and horse race betting and virtual events
For the twelve months ended March 31, 2015, sports and horse race betting and virtual events
generated revenues of €172.3 million which represented approximately 33.7% of total
Concession segment revenues.
Sports and horse race betting and virtual events is comprised of fixed-odds betting, most of
which is sports betting, and totalizer betting (pool based betting, most of which is horse race
betting) and virtual events. Consumers are able to place bets at our branded and unbranded
betting shops and betting corners. “Betting shops” are venues dedicated to gaming, while
“betting corners” refer to points of sale located in venues primarily dedicated to activities other
than betting and gaming, such as bars and tobacconists. In July 2013, we renewed our sports and
horse race betting concessions and received 50 additional such concessions and in 2014 opened
50 new points of sale. As of March 31, 2015, our distribution network included 601 sports and
horse race betting shops, 847 sports betting corners and 670 horse race betting corners. As a
concessionaire we are responsible for the establishment of a network to run and monitor bets,
the provision of the odds, the collection of bets, and the collection and payment of taxes due to
ADM on all sports and horse bets. Our current concessions will expire in June 2016. We have
historically been able to renew all our expiring concessions. We also offer online sports and horse
race betting as part of our online operations.
194
The following table provides an overview of key performance indicators of our sports and horse
race betting operations as of and for the twelve months ended March 31, 2015:
March 31,
2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of betting shops and corners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting shops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports betting corners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race betting corners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,291.3
733.1
240.4
317.7
172.3
108.3
22.4
41.6
2,118
601
847
670
We have a comprehensive betting portfolio, including horse race events, virtual events and sports
events such as football and basketball. We also offer a wide range of other sports such as tennis
and volleyball and non-sports events connected with the world of entertainment, music, culture,
and current affairs of national or international importance. The most popular sport on which we
offer bets is football, which represented 87.5% of our total sports betting turnover for the
twelve months ended March 31, 2015. Licensed horse race betting involves betting on horse races
from the official Italian and foreign racecourse programs. We accept a range of different bets,
from simple bets on the outcome of a single event to more complex bets on the outcome of a
number of different events, as well as live bets, which allow consumers to place bets on an event
after the event has started based on constantly changing odds. Bets can be placed in the form of
fixed-odds bets or totalizer bets. The range of events on which bets may be placed is defined for
all players by ADM.
Fixed-odds betting is a form of betting in which the bookmaker pays the player, in the event of a
win, an amount equal to the bet multiplied by the odds fixed at the time the bet was placed. The
maximum prize for a single sports bet ticket cannot exceed €10,000 and €50,000 for a multiple
sports bet ticket. There is no limit on horse race betting. However, we constantly monitor our
overall maximum risk of exposure in line with our risk management policies. See “—Risk
management.” Fixed-odds betting gives rise to either a liability to make a certain payment to a
customer, or the retention by us of the stake placed by such customer. The odds offered in fixedodds betting depend on the nature of the event. We make money where the amounts staked by
customers that are retained are greater than the liability to make payments to customers. In
fixed-odds betting, we bear the risk of losing the bet. Although the liability to make a payment is
in principle unlimited, we are not obliged to accept any bets and may accept bets on certain
conditions only, in order to limit our maximum exposure. See “—Risk management—Bet
acceptance limits.” We believe we offer competitive odds throughout our network as a result of
our team of professionals with years of experience in national and international bookmaking.
Totalizer betting is a form of betting in which bets are pooled together before an event and the
total pool of bets minus a specified percentage is distributed amongst the winning players.
Sports bets are typically placed in the form of fixed-odd bets, and horse race bets are typically
placed in the form of totalizer bets. In totalizer betting, we bear no risk, as there is no obligation
to make payment greater than the total percentage of money staked by players, and earn
revenues from a commission on the volume of bets collected. For a description of the other
games and bets that we offer at our betting shops, please see “—Gaming machines” and
“—Other sports and horse race betting games.”
The majority of our sports and horse race betting rights are operational. As a concessionaire, we
are responsible for the establishment of a network to run and monitor bets, the collection of
195
bets, and the payment of a portion of the volumes collected as taxes to ADM and UNIRE. We
collect and pay taxes due to ADM on sports and horse race betting and virtual events and taxes
due to UNIRE on horse race bets.
Sports bets
Approximately 99% of all sports bets placed with us are fixed-odds bets. We distributed
approximately 81.3% of the total amount collected in sports bets as winnings in the twelve
months ended March 31, 2015, which was higher than the historical average as a result of
exceptionally high payout ratio in the first quarter of 2015 (82.4%). Our fixed-odds betting
products, mainly represented by sports betting, involve betting where winnings are paid on the
basis of the stake placed and the odds quoted, rather than derived from a pool of stake money
received from all customers, and therefore, the payout ratio fluctuates from period to period.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of
SNAI—Factors affecting our results of operations—Sports and horse race betting and virtual
events payout ratio.” We paid 3.5% of the total amount collected in sports betting as taxes to
ADM in the twelve months ended March 31, 2015.
In order to reduce the volatility of overall payouts in our sports betting business, we are currently
evaluating new contractual arrangements and commission levels with our points of sale to
increase commissions for multiple bets which in the past have tended to generate lower payouts,
thus incentivizing our points of sale to offer and sell multiple bets to consumers.
Horse race bets
Approximately 88% of all horse race bets placed with us are totalizer bets for which we are
remunerated by a percentage of turnover. For example, of the total amount collected in horse
race totalizer bets for the three months ended March 31, 2015, 70% was paid in winnings, 13%
was paid to UNIRE, the Italian organization responsible for horse races, and the applicable tax
rate percentage payable to ADM varies depending on the number of events on which a customer
has placed a bet: the current ADM tax rate is 2% for the first seven events and 5% thereafter.
Taxes we pay in relation to our pre-Bersani Invitation to Tender horse race bets concessions
include a guaranteed minimum amount currently calculated on the basis of the average volume
of bets collected in the area where the concession holder is located.
Virtual events
Virtual events are computer-generated, virtual sporting events such as football matches and car,
horse and dog races. Our virtual events are rendered with realistic graphics and include all of the
details of live-action events, including spectator noise and live commentary. The events are
generated by Inspired (a third-party provider) and are broadcast to our POS across three
dedicated SNAI TV channels operated by Teleippica. Approximately 95% of virtual events wagers
are collected offline with the remaining approximately 5% collected online. Each SNAI TV
channel broadcasts a rotating series of events with a different event every five minutes and each
event lasting approximately 2 minutes. In the time between events players place bets on the next
event. Odds and winners for each event are randomly generated by mathematical algorithms
developed by our third party provider with projected payout ratios determined based on an
analysis of historical betting and payout patterns. As of March 31, 2015, we offered virtual events
in all of our POS. Virtual events bets are fixed-odds bets and the current ADM tax rate on virtual
events is 20% of gross gaming revenues.
Online sports and horse race betting and virtual events
In addition to our sports and horse race betting shop concessions, we own an online sports
betting concession and an online horse race betting concession which will expire in 2016. Under
the authority of these concessions, we also offer a small portion of our virtual events online.
196
Online bets, on which we generally record a higher payout ratio, can be placed by customers
through our online betting website via their personal internet access or self-service terminals
located at Punto SNAI shops and corners. In order to bet, customers must first register on our
website and use a prepaid “SNAI card,” which can be recharged both online and at our Punto
SNAI shops and corners. We pay most of our POS managers an average fee equal to 15% of the
gross gaming revenues related to the particular SNAI card. In the fall of 2015 we plan to launch a
new integrated online platform to support our entire online profile including online sports and
horse race betting and virtual events.
Other sports and horse race betting games
In addition to traditional sports and horse race betting, we offer a series of other related
products for which we have obtained concessions at our sports and horse race betting shops and
corners: Ippica Nazionale, Totocalcio, Totogol, and BIG games. Ippica Nazionale is a totalizer bet
on a specific horse race that occurs twice a day from Monday to Saturday and involves picking
the first three, four, five, of a single race, or multiple winners. We receive a commission of 3.45%
of the volume of bets collected for operating Ippica Nazionale.
Totocalcio is a totalizer bet on the outcome of 14 football matches. Totogol involves the
prediction of the number of goals scored in each of 14 proposed matches on a play slip. In the
case of Totogol, players may also win small prizes allocated at random when the pay slip is
validated. We receive a commission of 3.45% of the turnover collected for operating Totocalcio
and Totogol in our distribution network. BIG games are totalizer bets on the outcome of football
matches (BIG Match) and other sports events (BIG Race for ski, motorbike and car races, cycling).
Seasonality
Most sports bets we collect are bets on football games, which for the twelve months ended
March 31, 2015 represented 87.5% of our total sports bets turnover. The Italian football season
runs from late August to mid-May, and, during the summer, we experience a decline in the
volumes of sports bets collected. We experience peaks in sports bets during significant sporting
events that occur at regular intervals, such as the FIFA World Cup, UEFA European Championship,
and the Olympic Games.
As horse races run throughout the year, we do not experience seasonality with respect to horse
race bets. Notwithstanding, interruptions in the horse racecourse schedule due to strikes in the
horse race industry or maintenance at racetracks negatively affect the volumes of horse race bets
collected.
Online skill and casino games
For the twelve months ended March 31, 2015, online skill and casino games generated total
revenues of €18.7 million which represented approximately 3.7% of total Concession segment
revenues.
We are authorized to offer online skill games on our website pursuant to our sports and horse
race online concession. These games are available to holders of a “SNAI card” betting and
gaming account through our website www.snai.it and with support from call center and
television services provided by the companies belonging to the Group.
The following table provides an overview of key performance indicators of our online skill and
casino games as of and for the twelve months ended March 31, 2015:
March 31,
2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of registered users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
197
708.4
18.7
506,796
Online skill and casino games are defined by ADM as any remote game with an element of
chance in which the result of the game depends to a large extent on the skill of the player.
Examples of online skill games are various types of poker tournaments, burraco, tresette,
briscola, scopa, blackjack, backgammon, solitaire card games and dice poker. In addition, we
currently offer poker tournaments and poker cash games. We have entered into a number of
agreements with game suppliers to develop a broader online betting and gaming platform. In
online skill games, customers play against one another. In return for facilitating these games, we
receive a commission from players. In August 2012, we launched an application for smartphones
and tablets for downloading and placing sports bets. As of March 31, 2015, downloads have
totaled approximately 1.5 million. In addition, in December 2012, we launched online and
downloadable AWPs, a series of slot machine games which have been customized to appeal to
different interests and demographics, with themes such as comic book and movie characters,
sports and other fantasy settings. In the fall of 2015 we plan to launch a new integrated online
platform to support our entire online profile including our online skill and casino games.
In online skill and casino games, we act as a host or facilitator for customers who play against
each other. In return for facilitating these games, we charge a one-off entrance fee in the case of
tournaments and will charge a type of commission, in poker known as a “rake,” for facilitating
poker cash games. We are required to distribute a minimum of 80% in winnings for online skill
and casino games and for the twelve months ended March 31, 2015 we distributed
approximately 96.1%, in winnings. We pay taxes of 0.8% for online skill and casino games. For
the twelve months ended March 31, 2015 online skill and casino games generated revenues of
€18.7 million, which represented approximately 3.5% of total revenues for the period.
Racecourse management
We own and manage a harness racecourse and a flat racecourse in Milan San Siro and a harness
racecourse in Montecatini. We also own stakes in racecourses in Rome and Pisa. We receive as a
management fee a percentage of the volume of horse race bets collected at our racecourses for
horse races occurring therein, as well as a percentage of volumes of bets collected from all points
of sale countrywide relating to such horse races. The percentage is based on a schedule and
increases relative to the volume of bets collected. We are also paid a fee by UNIRE based on our
operational efficiency and the quality of our infrastructure. In addition, we earn revenues from
operations such as parking, restaurant services, and merchandise that we, or third parties
employed by us, offer at our racecourses.
Pursuant to an agreement with UNIRE, we manage a training center for flat racing in Milan and
the collection of bets on horse race. Together with UNIRE, we also organize horse races, for
which we receive an annual payment based on the volumes of bets collected.
For the twelve months ended March 31, 2015 our Racecourse Management segment generated
revenues of €6.9 million which represented approximately 1.3% of total revenues for the period.
Television services
We operate a media system related to horse race and sports betting. Pursuant to the new six-year
contract signed with the Ministry of Agricultural Policy and Forestry in May 2013, we are paid
€8.98 million per year to broadcast four channels with mainly horse race programming. We
broadcast horse races from Italian and foreign horse racecourses on channels UNIRE Grey, and
UNIRE Green, UNIRE Blue and UNIRE SAT which also provide information on horse race events to
promote horse race betting. We also broadcast SNAI SAT which provides information on sports
events aimed at promoting sports betting and SNAI TV, which transmits news programs relating
to sports and horse race betting, as well as bet volumes, tips, and forecasts, to SNAI Points. In
addition to television channels, we operate a radio channel, Radio SNAI, which transmits audio
commentary from horse races. Our satellite channels are operated by Teleippica, a wholly-owned
subsidiary of Snai.
198
For the twelve months ended March 31, 2015 our Television Services segment generated
revenues of €9.2 million which represented approximately 1.7% of total revenues for the period.
Betting collection services
We provide collection of betting and gaming data and transmission of such data to the ADM
network and related technical support for the collection of bets. These services are offered to
third party holders of sports and horse race betting concessions (the “Independent Concession
Network”). The contractual arrangements we have entered into with these third parties, include
access to our bookmaking odds for fixed-odds betting, the use of our “Punto SNAI” brand name
and rights to transmit our television channels. As of March 31, 2015, there were 576 sports and
horse race betting shops and corners in the Independent Concession Network.
We provide the members of our Independent Concession Network information on sports events
and horse races and on which bets can be placed. We also calculate and set betting odds prior to
bets being placed at all POS. We also broadcast virtual events to the POS in the Independent
Concession Network. In addition, we provide administrative and technical support, as well as
consultancy services, to third party betting points. Our consultancy services include day-to-day
management advice, tax and regulatory advisory services, and advertising services. In addition to
the services described above, we provide the network connection equipment.
The Independent Concession Network POS sign standardized contracts with us pursuant to which
the betting shops pay a service fee equal to 1.2% of the turnover collected for sports and horse
race bets, and a fee equal to 20% of virtual events net gaming revenues (i.e., gross gaming
revenues less taxes), and the betting corners pay a fixed yearly fee. For the twelve months ended
March 31, 2015 our Betting Collection Services segment generated revenues of €13.1 million,
which represented approximately 2.4% of total revenues for the period.
Distribution network
Our distribution network is one of the largest in Italy and includes betting shops that offer a
variety of sports and horse race betting and virtual events products, as well as a full range of
services to customers. At our sports betting shops and corners, we offer sports betting, Ippica
Nazionale and certain other games offered by ADM. We also operate AWPs and VLTs at such
locations. The geographical distribution of our POS across Italy reduces the risk associated with
the collection of bets on individual events. For additional information, please see “—Risk
management.” In addition to our distribution network, we operate an online platform on which
we offer sports and horse race betting and certain online skill games.
The following table summarizes the formats through which we offer our offline betting
products:
Sports
betting
Description
Betting Shops . . . . .
Betting Corners . . . .
Bars . . . . . . . . . . . . . .
Arcades . . . . . . . . . . .
Horse race
betting
AWPs
VLTs
Outlets exclusively dedicated
to betting and gaming
Corners in kiosks, small shops,
tobacconists
Areas of convenience stores
dedicated to AWPs
Outlets dedicated to gaming
machines
Our betting shops are equipped with both traditional betting counters and self-service terminals,
areas dedicated to AWPs and VLTs, areas for viewing the sports events and horse races on which
bets are being accepted, monitors showing betting odds and event results, printed notices and
self-service terminals, showing betting odds, statistics, and other information useful for
199
completing a betting slip. All of the self-service terminals can be used with a SNAI card, an
electronic betting card that allows customers to manage their individual betting accounts. In
addition to betting facilities, our betting shops offer a range of complementary services,
including the sale of tickets for sports and other events, the sale of telephone cards, and café
services.
We have a strong retail network that trades under the “Punto SNAI” brand. As of March 31,
2015, our retail network included 601 betting shops and 1,517 betting corners are managed and
operated by third parties but utilize concessions owned by Snai (the “SNAI Concessionaire
Network”) and 576 POS (betting shops and corners) in the Independent Concession Network,
including newsstands, bars and tobacconists, many of which are local family-owned businesses.
The main difference between the SNAI Concessionaire Network and Independent Concessionaire
Network is that we manage the sports and horse betting books for the former, whereas the
latter operate their own sports and horse betting books. In each case, the managers of our POS
benefit from specific advertising of Snai products and the delivery of new technical devices which
improve customers’ experience.
Our agreements with SNAI Concessionaire Network POS are exclusive with respect to the
products that we offer; SNAI Concessionaire Network POS may offer additional betting and
gaming that we do not offer (e.g. scratch-and-win). Our agreements with Independent
Concessionaires Network POS are exclusive with respect to the services that we provide under our
Betting Collection Services segment.
The graphic below illustrates our SNAI Concessionaire Network as of March 31, 2015.
Contracts with SNAI Concession Network partners
We have entered into framework service contracts with our SNAI Concession Network POS
pursuant to which third party partners operate shops and corners using the concessions we hold.
Such agreements include an exclusive undertaking for these POS to sell SNAI products, as well as
certain obligations regarding the opening hours and the features of the relevant shops and
corners. The duration of these contracts is generally connected with the duration (and potential
renewal) of the relevant concession and these contracts contain non-compete clauses that extend
for approximately six months (for corners) or twelve months (for shops) after their termination.
We can terminate the contracts prior to their expiration for cause, such as fraudulent behavior by
the manager or owner of the POS, the unauthorized assignment of the contract, a violation of
payment obligations and violations of relevant laws, in which case we can reassign our
concession to another operator. The POS bear all costs and expenses related to the operation of
200
the relevant corners or shops and, in addition, the agreements relating to corners provide that
the POS shall pay to us a fixed yearly fee. Pursuant to these contracts, we typically pay POS fees
based on a percentage of turnover or gaming revenues generated for us and, furthermore, we
provide the POS with the relevant technological equipment (for example, SNAI terminals and
furniture), terminal-related maintenance and support services, as well as training, IT, marketing
and communication services. Upon expiration of these contracts, any right of the partners to use
trademarks and logos relating to SNAI automatically terminates and the POS must return to us
the technical equipment provided as well as any documentation received.
Our SNAI Concession Network partners collect the cash at our terminals and then, on a weekly or
bi-weekly basis, transfer to us such cashed amounts net of, inter alia, the fees we owe them and
the sums paid by them to the winning players. We collect the cash ourselves at POS we directly
manage. We monitor the turnover of each POS through our network connections in order to
determine the respective level of commission we must allocate to the relevant POS operator for
POS we do not directly manage.
Quality assurance
As part of our risk management system, we evaluate the credit of a potential SNAI Concession
Network partner or Independent Concession Network partner before we agree to enter into a
commercial relationship, and we then continually monitor the credit of such partner or retailer
during the term of our contract. If a partner or retailer fails to make a timely payment to us, we
have the ability to remotely disconnect the terminals and gaming machines at the relevant POS
while we investigate the cause and seek remedial action. Additionally, we can prematurely
terminate our relationship with those POS that fail to make timely payments on a recurring basis.
We regularly review our own performance, and our marketing and sales teams, monitor the
performance of our retailers. Members of our sales team visit POS relating to both the SNAI
Concession Network and the Independent Concession Network for quality control and to
optimize product offerings. Our sales teams also selects the distribution channels, evaluate new
POS and provide training to retailers, with whom there is ongoing dialogue through different
communication channels (including an online portal and the gaming terminals). In order to
manage our relationship with retailers, we also help retailers address issues arising from the
introduction of new games and the management of existing games and technical issues relating
to our IT software and hardware.
Competition
We are one of the largest Italian betting and gaming company based on revenues. We compete
with betting and gaming companies, including concessionaires and online and retail operators.
Due to the expansion of distribution networks and the introduction of online games and a number
of new games, the Italian betting and gaming market, which has historically been represented by a
number of small concessionaires and operators, has seen, over recent years, increasing interest from
foreign operators and the expansion of their product portfolio by certain Italian betting and
gaming operators. As a result, the Italian betting and gaming market has become more
competitive, and concessionaries that historically specialized on certain types of bets and games
have expanded into other types of games. Our primary competitors in the Italian betting and
gaming market include Lottomatica and Sisal, respectively, who we estimate to be the first and
second largest betting and gaming companies by revenues in Italy. We also face competition from
a number of other industry participants, especially in the online games business line, which is highly
fragmented and competitive; we believe our main competitors in this area include Lottomatica and
Sisal but also Pokerstar, Eurobet, Bet 365 and BWIN. See “Risk Factors—Risks related to our
business—Liberalization or other changes in the regulatory framework may increase the number of
competitors in the betting and gaming sector, including competitors who are not required to
comply with all the requirements of the Italian regulatory framework.”
201
The table below shows the main operators per business activity in the Italian betting and gaming
market as of the date of this Offering Memorandum.
Game
Concessionaires
AWPs and VLTs . . . . . . . . . . . . . . . . . . . . .
Sports Betting . . . . . . . . . . . . . . . . . . . . . .
SNAI, Lottomatica, Sisal, others
SNAI, Lottomatica, Sisal, Eurobet
Bet 365, others
SNAI, Lottomatica, Sisal, others
SNAI, Lottomatica, Sisal, others
SNAI, Lottomatica, Sisal, others
SNAI, BWIN, Microgame, Lottomatica,
Pokerstars, others
Various
Consorzio Lotterie Nazionali
(Lottomatica)(2)
Lottomatica
Sisal
Other Sports Games . . . . . . . . . . . . . . . . .
Horse Totalizer Bets . . . . . . . . . . . . . . . . .
Other Horse race Games . . . . . . . . . . . . .
Online Skill Games . . . . . . . . . . . . . . . . . .
Bingo . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scratch & Win and Lotteries . . . . . . . . . .
Lotto . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SuperEnalotto . . . . . . . . . . . . . . . . . . . . .
Concession Expiry
2022
June 2012–2016(1)
June 2012–2016(1)
June 2012–2016(1)
June 2012–2016(1)
2016-2020
2013
2019
2016
2018
Source: SNAI and ADM
(1) Some of these concessions, acquired in 2006, expired on June 30, 2012; some other concessions, that we were awarded in
2007, will expire in June 2016.
(2) Consorzio Lotterie Nazionali is controlled by Lottomatica.
We currently operate only in multi-concessionaire segments and thus do not operate in segments
such as Lotto, SuperEnalotto, and Scratch & Win. In 2004, ADM selected ten concessionaires,
including us, to manage the AWP network. In 2009, we were awarded 5,052 rights to operate
VLTs by ADM. In 2013, ADM awarded gaming machines concessions to three new concessionaires.
The table below shows the main operators in Italy based on the number of VLT rights and AWPs
as of December 31, 2014, pro forma for the Cogemat Acquisition.
As of December 31, 2014
VLT Rights
%
AWPs
18.6%
19.7%
17.0%
9.1%
12.9%
7.9%
4.7%
2.7%
4.3%
1.3%
1.2%
0.7%
68,824
63,304
60,064
34,092
31,236
30,613
21,776
17,232
13,808
10,483
6,231
5,510
%
Lottomatica Videolot Rete S.p.A . . . . . . . . . . . . . . . . . . . . .
B Plus Gioco Legale Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SNAI S.p.A./Cogetech S.p.A . . . . . . . . . . . . . . . . . . . . . . . . . .
Sisal Entertainment S.p.A . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gamenet S.p.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HBG S.r.l. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GMATICA S.r.l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Codere Network S.p.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cirsa Italia S.r.l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intralot Gaming Machines S.p.A . . . . . . . . . . . . . . . . . . . . . .
NTS Network S.p.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetWin Italia S.p.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,261
11,953
10,278
5,524
7,805
4,798
2,836
1,609
2,583
770
720
400
19.4%
17.9%
16.9%
9.6%
8.8%
8.6%
6.1%
4.9%
3.9%
3.0%
1.8%
1.6%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,537 100.0% 363,173 100.0%
Source: Management estimates based on ADM data.
We and other competitors in the Italian betting and gaming market also face competition from
illegal activities such as all forms of betting that circumvent public regulation. Italy continues to
have an illegal or “grey” market in betting (e.g., online operators from outside of Italy operating
without an Italian license or Italian online-only operators without a retail license providing
betting services in shops). ADM continues to work to curtail illegal activities. Additionally, at
times we may compete with game operators from other EU member states who operate in the
Italian betting and gaming market without an ADM license based on several decisions of the
European Court of Justice and higher level Italian courts in accordance with EC Treaty rules. See
202
“Risk Factors—Risks related to our business—Liberalization or other changes in the regulatory
framework may increase the number of competitors in the gaming sector, including competitors
who are not required to comply with the requirements of the Italian regulatory framework.”
Risk management
Risk management is critical to our sports betting business. In fixed-odds betting, our odds are
determined so as to provide an average return over a large number of events and thus maintain
a fairly constant gross win percentage over the long-term. Notwithstanding, there is an
inherently high level of variation in gross win percentages event by event and day by day.
In addition, given our extensive betting shops and corners network throughout Italy, and that
the vast majority of sports bets is on football events, the risk of adverse outcomes on single
events (i.e., football games) is naturally mitigated by the tendency of customers to bet on the
team they support, being it often the team of their area. Accepting bets in the two areas enables
us to naturally balance the volume of bets collected on most part of football games during the
Italian football season.
Some of the key attributes of our risk management process include:
Odds compilation
We have established systems and controls to manage the risk of incurring daily losses on a gross
win percentage. We currently collaborate with a number of bookmakers and external
consultants. Initial odds are compiled based on the mathematical chance of an outcome based on
previous results and adjusted for market information. Our bookmakers rely on information in the
media and information available at the events, as well as information from consultants, to
compile the initial odds. The final determination as to the initial odds for an event is made by the
bookmaker who is an expert in the field of the event. Once odds are compiled and published,
real-time risk management processes are applied to monitor and adjust the total level of risk on
each event.
Access to information
Access to market information is needed both before odds are compiled and after odds are
published. We employ a team of bookmakers who determine the odds by relying on information
compiled from our knowledge of the betting and gaming industry, including the sports
concerned and its participants, both to the extent available in the media generally and from
information derived and available at events. We also rely on information about our potential
liabilities from overall betting patterns and the total amount bet on particular outcomes drawn
from our online offerings and betting shops and corners, as well as certain individual bets that
are referred before acceptance or notified subsequently, because of the source or size.
Additionally, we utilize market betting data monitoring services provided by Betradar, a leading
supplier of sports events results, statistics and odds, in order to limit the risk of out-of-market
odds. This allows us to assess the probability of each possible outcome based on a wide range of
up-to-date information, to assess potential exposure on each possible outcome and to determine
whether bet acceptances should be limited on certain possible outcomes.
Bet acceptance limits
Under the applicable rules of Italy we are not permitted to hedge bets to reduce risk. However,
we are under no obligation to accept any bet, and where a bet is considered undesirable, it may
be refused or accepted only in part, with or without adjusted odds. In order to further manage
the risk of incurring daily losses, we tightly control bet acceptance limits. We impose liability
limits on individual events. We set, for example, a maximum cap on bets for individual sport
events, generally set at €1,000 for football matches. When the applicable cap is exceeded, bets
will be accepted only with the prior authorization of our central operating division. In any event,
203
Italian law establishes that the maximum payment for each sports bets is €10,000. Totalizer
events, in contrast, do not have a limit. In addition, we are under no obligation to accept any
bet. All betting shops and corners in our distribution network also have an automatic bet
blocking system that prevents the acceptance of bets on single events when bets on single events
come to represent a certain percentage (generally 25%) of the total bets collected at that
particular POS.
Online offerings
We have systems and controls in place which seek to ensure that we offer gaming products via
the Internet only to customers located in Italy. The systems and controls include monitoring and
analyzing information provided by potential customers’ registered addresses (in order to access
our website each customer must have an Italian fiscal code and an Italian address) and customers’
payment methods, as well as a geo-locator filtering technology that identifies the location of
each user trying to log onto our website. We do not currently accept bets or wagers from
customers that we determine to be located outside of Italy. See “Risk Factors—Risks related to
our business—The technological solutions we have in place to block access to our online services
by players in certain jurisdictions may prove inadequate, which may harm our business and
expose us to liability.”
Responsible gaming
Responsible gaming is an ongoing commitment, and we strive to design and provide safe, legal,
and balanced forms of entertainment. We only operate in regulated businesses, offering
products that comply with high standards of reliability and integrity. Some of the key tenants of
our commitment include: the protection of children and measures to prevent underage play;
responsible marketing, geared towards promoting a responsible gaming model with the aim of
providing the recipients with clear and comprehensive information so that they can make an
informed choice with due care and responsibility; and the prevention of forms of excessive
gaming and support for players.
To raise awareness for responsible gaming we have developed the brand Play to Win—But Don’t
Lose Yourself (Gioca Per Vincere—Non ti Perdere), which is only displayed at our betting
locations and our website. Additionally, all betting locations display posters announcing the
prohibition on gaming for minors (under 18 years of age). Additionally, both our betting
locations and our website, www.snai.it, include the 14 rules for responsible gaming and provide
information so that gamers in need can request help. In 2011, we also published a Social Report
setting forth our views on, among other things, responsible gaming.
Information technology
Our IT system is managed in-house by a team of IT professionals who are supported by external
manufacturers and suppliers. Certain of the hardware that comprises our IT systems is owned by
Snai and other hardware is owned by third parties and leased by the Group.
Our IT system is comprised of the following:
AWP and VLT systems. Our AWPs terminals are connected to our network infrastructure and a
specific certified software acts as a gateway to permit ADM to directly query the machines
through it. Our system collects data related to the games and send such data continuously to
ADM’ system for further processing and analysis. In order to transmit data to our system and
then to the ADM/SOGEI server, AWPs terminals are connected to an ADM-certified router while
VLTs are connected in real-time to the central system to permit a game to be played. Similarly,
our central system is connected to the ADM/SOGEI network and shares data in real time, allowing
ADM/SOGEI to constantly record, monitor and control the status of gaming machine devices,
including the games offered, jackpots and financial details for the previous day. Additionally, we
remotely control all of our VLTs through the specific platform system. We contract maintenance
to third party services.
204
Text and audio systems. We operate text and audio systems that provide real-time information
by satellite to our betting shops and corners. In the event of a fault in the satellite receiving
equipment or a satellite failure, a back-up network system is available to provide this
information.
Video system. We also operate a video system, which transmits live television pictures and audio
commentaries of and data relating to horse races and sports events by satellite to each betting
shop as well as broadcasts of virtual events provided to us by a third party. The video system
service is currently provided by Teleippica.
Sportsbook systems. A high performance server manages the screen-based sports betting
information system for betting shops and corners that are part of the our network as well as
back-end application servers carry out bet settling and client accounting. We have developed our
own terminals for placing such bets.
Internet betting system. The front-end web servers managing the web based betting information
system accessible on our website as well as back-end application servers carry out bet settling,
client accounting and event management functions. The complete system configuration is
replicated providing robust business continuity arrangements.
Betting risk management system. Our betting risk management system provides real-time
information on estimated liabilities on an event-by-event basis. All bets collected online,
together with the majority of bets collected at our betting shops and corners and referrals and
notifications from all betting shops and corners, are entered into a consolidated field book that
provides a real-time overview of our estimated liabilities.
We constantly monitor and update our IT system in order to ensure compliance with the highest
standards of reliability, business continuity, performance, and scalability (i.e., the ability of the
system to grow proportionally to the business needs of the group without having to reconfigure
the entire system).
Our IT systems are inspected by ADM and are connected in real time to the central system and
the central gaming accounts database of SOGEI, a company owned by the Italian Ministry of
Economy and Finance that is generally responsible for the operation of the tax IT system.
Bet processing and data management
Betting data and transactions are managed in real time by several online controls before being
sent to an ADM system responsible for transaction validation and recording. For each betting
shop, we generate at least six daily reports, including reports to be delivered to ADM, and
additional weekly reports and yearly reports. These reports are supported by a scalable software
application architecture and hardware also oriented towards scalability (multiplexed servers, with
parametric management to ensure scalability and usability).
Service quality
Service quality is monitored and promoted by our internal team responsible for hardware and
software repair of our terminals, substitution and upgrade and the support of external providers.
In particular, we regularly perform analysis and maintenance activities on our IT systems,
including systems analysis, project and design activity, focusing on service evolution and business
needs; and analysis of reliability, performance, and customer satisfaction. To support our service
quality in IT matters, we have implemented the ITIL Best Practices for IT operations.
205
Security
We are ISO 27000 certified for our information security management system. In order to provide
a high level of security in the collection of bets and in the performance of services, we have
adopted, among others, the following security measures:
Betting Terminal Security. Each betting terminal uses a custom and encrypted application
protocol, which is checked by the main business applications, to identify and deny the processing
of operations from obsolete or unidentified devices.
Business Server LAN Security. Every workstation of our LAN is protected by login access, tracing,
and audit systems.
Computer rooms and main sites security. Our computer rooms are protected by an anti-intrusion
system, which detects and allows entrance to authorized personnel only. The sites are monitored
also via a remote control system, connected to an external security service provider, responsible
for our site control and 24-hours surveillance.
Business continuity
Most of our material IT systems related to our Concessions segment are fully duplicated. A
backup data center is located in Montecatini, Pistoia, Italy and is linked to the main data center.
The back-up data center also acts as a site for bench testing and proposed changes to systems are
thoroughly tested to ensure no interruptions to service. Fiber optic links connecting large disc
arrays are used to replicate the business data of the sportsbook betting in real time between the
sites. The disaster recovery backup system for our sports and horse race betting and virtual events
system provided by the Novomatic platform is hosted at the facility of Telecom Italia in Florence
and we are evaluating further disaster recovery and backup procedures for other sports betting
platforms. For most of our business lines, we have implemented disaster recovery plans with a
strong focus on business continuity. We regularly inspect, monitor and test our business
continuity arrangements. See “Risk Factors—Risks related to our business—Our information
technology system and network are subject to damage and interruption caused by human error,
problems relating to the telecommunications network, natural disasters, sabotage, viruses and
similar events.”
Marketing
We aim to leverage our expansive distribution network to reach a broad customer base. We
integrate our marketing and communication efforts with the requirements of our different
business lines. Our marketing and communication strategy also involves promoting and
supporting our extensive social responsibility program.
Our marketing approach is focused on three main activities:
Brand Management. The goals of brand management activities are: strengthen our brand in
order to support our entire products portfolio and to extend the brand recognition.
Products development. We promote the betting and gaming through the offer of bonuses on
sports bets and in an effort to instill customer loyalty. We recognize that the consumer is the key
of our success and this objective informs our approach in our marketing decisions.
We are planning to increase the diversity of our products portfolio through the introduction of
virtual events (if the regulatory framework allows) and upgrading our gaming machine areas in
our stores and corners. Finally, we are developing co-marketing activities and we aim to achieve
new target of customers.
206
Digital channel development. We operate a growing online channel and in order to further
increase our presence online and strengthen relationships with customers, we are improving
customer relationship management activities to manage the customer life cycle and strengthen
our presence online through advertisements and promotional activities to draw traffic to our
websites.
Supplier relationships
We have a number of key suppliers who provide products and services to the group.
Hewlett-Packard, IBM, Oracle, Sybase and Telecom Italia support both our online and retail
betting and gaming services. The Novomatic Group and the Spielo platform are our main
suppliers for our gaming machines. Game Account, Gioca Online, Playyo and Playtech are our
main suppliers for our online gaming platform. Teleippica is the main provider of television
pictures, audio and data into our betting shops and corners. We believe that there are sufficient
providers of key software inputs required to operate our business that we are not overly
dependent on any one such supplier. We have also entered into a long-term contract with
Inspired to provide us with broadcasts of virtual events.
Intellectual property
We are the holder of the certain trademarks and patents. We are not dependent on patents and
licenses granted by third parties other than the licenses pursuant to which we operate betting
and gaming activities. The software that we use for accepting and managing sports and horse
race bets is developed by us, and the software that we use for accounting, tax, and commercial
management is purchased by us from standard suppliers. Moreover, we are not dependent on
commercial, financial or industrial contracts or new manufacturing processes.
Insurance
We face risks of accident in our operations, including risk of fire and risks related to third party
claims. We maintain comprehensive insurance policies with respect to, among other things,
property damage and theft and robbery of electronic equipment. We believe that our insurance
coverage is in accordance with that of other similar companies and is adequate for our needs.
Employees
The following table shows the average number of Snai’s employees by category expressed in full
time equivalents for the periods indicated.
For the Year Ended December 31,
2012
2013
2014
Executives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid-level employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Production workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
633
78
22
581
71
27
598
65
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
731(1)
674(2)
690(3)
(1) Includes 153 part-time employees and 15 employees on maternity leave.
(2) Includes 103 part-time employees and 6 employees on maternity leave.
(3) Includes 107 part-time employees and 22 employees on maternity leave.
All of our employees are located in Italy. Relations with our mid-level employees and production
workers are subject to the national collective bargaining agreement for the metalwork industry,
except for a small portion of our mid-level employees, who are subject to the collective
bargaining agreement for commerce and services. We have entered into an agreement with
mid-level employees and production workers that supplements the terms of the national
collective bargaining agreement. Relations with our executives are subject to the national
207
collective bargaining agreement for executives in the commerce industry. Our subsidiaries
Trenno and Mac Horse S.r.l. are subject to the collective bargaining agreement for commerce, the
collective bargaining agreement for companies involved in races, and the collective bargaining
agreement for industrial graphics, respectively.
We believe that our relationship with our employees is generally good. During the last three
years, we have not experienced any strikes that have significantly influenced our business.
We have no agreements for employees to participate in the share capital of SNAI S.p.A.
Properties
We are headquartered in Porcari (Lucca, Tuscany) and our headquarters are leased from
ING Lease (Italia) S.p.A. Upon expiration of the twelve-year lease agreement on June 15, 2016, we
have the option to purchase the property for €0.7 million. As of March 31, 2015, we had made
provisions of €0.7 million against the payment of the option to purchase.
We believe that our facilities meet our present needs and that our properties are generally well
maintained and suitable for their intended use. We believe that we have sufficient capacity to
satisfy the demand for our services in the foreseeable future. We continuously evaluate the
composition of our portfolio of properties in light of current and expected market conditions and
demand. The historical cost of our properties which include our two horse racecourses described
below (comprising the large part of the value of our real estate portfolio) and our headquarters
in Porcari was €143.0 million as of March 31, 2015.
Horse racecourses
The Issuer owns two horse racecourses where horse races and other equestrian events take place.
One horse racecourse is located in Milan (Ippodromo di San Siro Trotto e Galoppo) and it
encompasses over 150 hectares located near the city center and adjacent to the Milan San Siro
football stadium. Our other horse racecourse is located in Montecatini Terme (Pistoia, Tuscany)
(Ippodromo di Trotto di Montecatini) and it encompasses approximately 12 hectares located in
the historic Tuscan town of Montecatini Terme. Both horse racecourses are leased by our
subsidiary Trenno pursuant to lease agreements by which Trenno manages these facilities. We
consider our horse racecourses to be non-core assets for our operations. Our horse racecourse
properties are subject to the future security undertaking in the Existing Senior Secured Notes
Indenture to pledge a mortgage on such properties in the event that certain changes in Italian
tax law occur.
Environmental matters
We are not aware of any environmental problems that could reasonably be expected to have a
material adverse effect on our ability to use our material fixed assets. Notwithstanding, the area
where the San Siro training center and the San Siro flat racecourse are located is currently subject
to environmental restrictions by the Parco Sud di Milano and the Italian Ministry for Cultural
Heritage and Activities, pursuant to which the properties must be maintained as sports and
recreation centers and cannot be sold without their approval.
In addition, Snai is aware that certain of its properties contain asbestos, which Snai regularly
monitors, by means of a monitoring plan which is shared with the competent authorities.
However, changes to asbestos regulations and/or the deterioration of our properties containing
asbestos could subject Snai to certain risks. See “Risk Factors—Risks related to our business—We
may incur liability and costs in connection with asbestos-containing materials present at certain
of our facilities.”
208
Legal proceedings
We are subject to various legal proceedings arising in the ordinary course of our business. Except
as set forth below, we believe that none of the legal proceedings to which we currently are a
party, if adversely decided, are likely to have a material adverse effect on our business, financial
condition, or results of operation. Unless indicated otherwise, no provisions have been
recognized for the legal proceedings described below.
Pending litigation regarding the Italian Stability Law of 2015
Administrative proceeding against the Italian Stability Law of 2015
The Italian Stability Law of 2015 requires us to pay our proportionate amount of the Stability
Fee. The proportionate amounts of the Stability Fee due by VLT and AWP concessionaires and
operators for 2015 were quantified by the Decree. According to the Italian Stability Law of 2015
and the Decree, VLT and AWP concessionaires are responsible for remitting the entire portion of
the Stability Fee represented by all VLTs and AWPs operated relating to their concessions,
whether or not those machines are operated directly by the concessionaire. Concessionaires must
remit payment of the entire portion of the Stability Fee assigned to them by the Decree, and are
individually responsible for seeking contribution from all partners operating VLTs and AWPs by
virtue of their concession. According to the Decree, our pro rata portion of the Stability Fee for
2015 was determined to be €37.8 million payable in two installments: 40% of the total due
before April 30, 2015 and 60% due by October 31, 2015. In accordance with the requirements of
the Italian Stability Law of 2015 and the Decree, we (i) requested that our partners contribute to
us the portion of the Stability Fee represented by the VLTs and AWPs operated by them under
our concessions and (ii) sought to renegotiate the contracts governing our relationships to reflect
certain technical changes required by the Italian Stability Law of 2015.
On February 13, 2015, we (joined by all other VLT and AWP concessionaires) challenged the
Decree before the Administrative Court (Tribunale Amministrativo Regionale, the “TAR”) for the
Region of Lazio arguing, inter alia, that the section of the Italian Stability Law of 2015 imposing
the Stability Fee violates the Italian Constitution and European law and that, as written, the
Italian Stability Law of 2015 does not require concessionaires to bear the responsibility of paying
any portion of the Stability Fee attributable to machines operated under their concessions by
partners that the concessionaire is unable to collect, in advance, from such third parties. The
partners from whom we requested contribution in respect of the amount of the Stability Fee
related to VLTs and AWPs operated by them under our concessions, joined our challenge of the
Decree and cross-claimed against us challenging both our requests for contribution and
renegotiation of the contracts governing our relationships. The filing parties requested a
temporary injunction suspending the obligation to pay the Stability Fee pending a decision on
the merits, which was rejected by the TAR. A hearing on the merits of all claims was held on
July 1, 2015 and a ruling is pending.
On April 30, 2015, we timely paid €11.1 million of the €15.1 million due under our first
installment the Stability Fee to the Italian Ministry of Economy and Finance (the “MEF”). To settle
all amounts owed under the first installment, the remaining €4.0 million (which represents
amounts owed to us by our partners but that we were unable to collect) was deducted from the
security deposit held by ADM (equal to 0.5% of our gaming machine gross revenues) thereby
reducing the amount that will be refunded to us. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations of Snai.”
Civil proceeding concerning the Italian Stability Law of 2015
In addition to cross-claiming against us in the administrative proceeding, our partners operating
VLTs and AWPs under our concessions filed a claim against us in the Civil Court of Florence
(Tribunale Civile di Firenze) requesting a ruling that, inter alia: (i) they do not have an obligation
to contribute to the payment of the Stability Fee; (ii) certain behaviors of the concessionaires in
209
relation to the Italian Stability Law of 2015 violate antitrust law and are therefore prohibited;
(iii) requests to renegotiate the contracts governing their relationships with us do not comply
with the duty of good faith; and (iv) we may not deny access to the gaming machines network
based on non-contribution by our partners. The Civil Court of Florence did not grant the
temporary injunctive relief originally sought by such plaintiffs. A hearing was held on July 6,
2015, and the ruling is pending.
Malfunctioning of Barcrest VLT Platform
On April 16, 2012, we experienced a malfunctioning of our Barcrest gaming system (one of the
VLT platforms we used at the time) with an anomalous peak of allegedly winning “jackpots” (of
various nominal amounts, both within the regulatory limit of €500,000 and also for some far
greater amounts, including up to €9.5 million). Approximately 242 alleged jackpot winning
tickets were issued by the VLTs, in an aggregate total of approximately €410 million. Based on
our current knowledge of the malfunction (which results also from a technical analysis that we
have commissioned and which was concluded in January 2015), among the 242 alleged winnings
displayed by the machines, 183 were printed by players. As a result of these circumstances and an
ADM order to deactivate the system, we immediately deactivated the Barcrest gaming system to
perform the necessary verifications and inspections. The verifications performed by independent
IT technicians confirmed that no jackpot winnings were generated by the Barcrest system on
April 16, 2012.
Claims for alleged winning tickets from April 16, 2012 based on malfunctioning Barcrest VLT
Platform
As of the date of this Offering Memorandum, there are 85 pending proceedings in progress
commenced by players who were using VLTs on the Barcrest platform on April 16, 2012 (and who
printed out their tickets), requesting an aggregate amount of approximately €215 million. The
85 proceedings relate to 122 separate tickets, of which 69 are below the regulatory limit of
€500,000. In addition, two requests for mediation were communicated to us.
These proceedings were initiated through various legal instruments: ordinary proceedings;
requests for payment injunctions (decreti ingiuntivi); requests for summary proceedings pursuant
to Art. 702-bis of the Italian Code of Civil Procedure; and in one case, a petition for preventive
seizure (sequestro conservativo). Ten proceedings began with claimants obtaining ex parte
immediately enforceable payment injunctions and, in some of these cases, writs of attachment
over certain current accounts held by Snai, the main details of which can be summarized as
follows: (a) in two proceedings, the relevant players obtained payment of €500,000 each through
immediate enforcement prior to the suspension of the injunctions by the judge. In one of those
cases, after the injunction was suspended and the payment was made, we obtained an
attachment (“sequestro conservativo”) over the claimant’s assets for an amount equal to
€650,000; (b) in another proceeding, the €500,000 injunction was suspended after we made a
judicial deposit of €500,000 (the Court concluded the proceeding by declaring its lack of
jurisdiction and ordered the release of the guarantee deposit with consequent return of the
corresponding amount to us, and after December 31, 2014, we obtained the repayment of the
corresponding amount paid in the guarantee deposit); (c) in the other seven proceedings, the
authorization to enforce was suspended upon a summary examination of our defenses. In five of
the ten cases, the enforcement procedure started by the claimants was discontinued in two and
suspended in the other three.
In addition to the 85 pending proceedings:
• Two cases have become time-barred due to inactivity of the player; and
• Ten settlements were entered into, two of which occurred before litigation proceedings had
started and the remaining eight with counterparties that were in litigation.
We refused to make payouts of such tickets, on the basis that payment of the amount indicated
in the tickets is not due to the players, since no jackpot was validly obtained at any time during
210
the day on April 16, 2012 and the issuance of the tickets was due to a malfunctioning of the
Barcrest VLT platform. Therefore, in all the aforementioned proceedings, we appeared and will
appear before a court challenging both de facto and de iure the requests of payment.
On February 19, 2015 we, together with Barcrest Group Limited, its controlling company, The
Global Draw Limited (a subsidiary of NASDAQ-listed Scientific Games Corporation, the indirect
owner of the Barcrest Group Limited) and Scientific Games Corporation entered into an
agreement for the settlement of a series of pending cases which arose between such parties as a
result of the Barcrest incident occurred on April 16, 2012. As a consequence of such settlement,
we waived the action started in October 2012 against Barcrest Group Limited and The Global
Draw Limited before the Court of Rome and we reached an agreement with the above
mentioned companies on pending cases and the payment of damages and costs already borne.
ADM proceedings
Claims regarding breach of minimum service levels
On May 27, 2008 ADM brought a proceeding for the alleged breach of certain service levels
required for the AWPs network (i.e. delay in network responses to ADM queries on gaming
volumes). ADM has appointed a technical commission in order to identify the criteria to
determine, among other things, the size of the penalty for this alleged fourth violation. In July
2009, the technical commission issued a report stating, among other things, that in the event
that ADM should impose a penalty on the Concessionaires, the amount should not exceed 10%
of their annual revenues from providing interconnection services. The commission’s report
further stated that the annual revenues of the Concessionaires should be considered to be
around 0.3 % of the “coin in” (amounts wagered). Subsequently, the Council of State issued a
statement to the effect that if the penalties were imposed on the Concessionaires, the amount
should not exceed 11% of their annual revenues from providing interconnection services, which
is considered to amount on average to approximately 0.25% and 1.2% of “coin in.” In October
2010, Snai and the other Concessionaires entered into a further amendment to the concessions
originally granted in 2004. Pursuant to the amendment, the penalties imposed as a consequence
of violations of the concession shall not exceed 11% of a concessionaire’s actual compensation.
On February 17, 2012, ADM calculated the penalty for Snai alleged breach of certain service levels
to amount to approximately €8.4 million. We filed our appeal against the determination of ADM
in April 2012 on the substantive legal grounds used to set aside the first three alleged violations,
as well as on the basis that the proposed penalty was improperly calculated. On May 24, 2012,
the TAR suspended the fourth penalty as a matter of law pending a determination by the court
on the merits of the case. The hearing to consider the merits of the case was held on February 20,
2013. On June 17, 2013, the TAR ruled in our favor and voided the notice under which the fourth
penalty was issued. On January 28, 2014, ADM appealed this ruling before the Council of State.
The appeal was heard on May 26, 2015 and a ruling is pending.
Maintenance agreement proceedings
In June 2005, we entered into an agreement with Omniludo S.r.l. (“Omniludo”) for the
installation, management, and maintenance of AWPs (the “Maintenance Agreement”). In
September 2007, Omniludo commenced a legal action against us in the Court of Lucca for alleged
breaches of the Maintenance Agreement and, in particular, for breaches of its alleged exclusive
right to install, manage, and maintain AWPs for which we have concessions. Omniludo seeks
damages from us in an amount of €100 million in addition to a request for a court order that we
cease and desist from any continuing breaches and that we disconnect from our points of sale all
AWPs provided by other suppliers. Omniludo also requested that the court order provide for
penalties in an amount of €10,000 for each day we fail to comply with such court order and
penalties of €100,000 for breach of their exclusivity rights after the issuance of such court order,
in each case per AWP installed by a competitor of Omniludo. In November 2010, we initiated
legal proceedings against Omniludo in the Court of Lucca, based upon the grievous breaches of
211
the obligations Omniludo had assumed under the Maintenance Agreement, seeking termination
of the latter and damages of €40 million to compensate us for lost profits and damage to our
image and goodwill. We also requested that the two cases be consolidated. On June 26, 2012,
the Presiding Judge of the Court of Lucca determined that the substantive requirements had
been satisfied and ordered that the two cases be consolidated. By an order dated August 2, 2012,
the two cases were called to a hearing of December 11, 2013. The Court of Lucca rejected both
the claim filed by Omniludo as well as the claim brought by us. Omniludo appealed the decision
of the Court of Lucca seeking damages from us in an amount of approximately €111 million. The
first hearing on the appeal is scheduled for October 15, 2015. We believe Omniludo’s requests
are without merit and we intend to defend against them.
Administrative proceeding for the revocation of certain sports and horse race betting rights
awarded under the Bersani Invitation to Tender
By means of several orders, ADM declared that, with respect to 107 permits and rights we were
awarded as part of the Bersani Invitation to Tender, the permits were revoked and the rights
were forfeited because these rights were not activated within the timeframe set forth in the
relevant concession or because we had suspended gaming activity relating to these rights
without authorization. In addition, with respect to three additional rights we were awarded
pursuant to the Bersani Invitation to Tender, ADM gave us notice of orders to initiate
proceedings to cause these permits to be revoked and these rights to be forfeited. We have filed
a timely appeal relating to these orders with the TAR.
Pending litigation regarding payments to ADM of certain minimum guaranteed amounts
In 2010, we were notified by ADM of an injunction requesting that we pay additional amounts to
integrate the minimum guaranteed amounts due to ADM in connection with horse race betting
activities for the year 2009 with respect to 204 bet acceptance points for an aggregate amount of
€7.4 million. We submitted an application to the TAR seeking the suspension and subsequent
cancellation of ADM decisions requiring those payments with a view to accelerating the
resolution of the dispute. The first hearing has not yet been scheduled by the TAR, also due to
the fact that, on January and June 2012, we received 226 demands from ADM for payments of
minimum guaranteed amounts for the years 2006, 2007, 2008, 2009 and 2010, totaling €24.9
million.
We submitted applications to the TAR seeking suspension and cancellation of such ADM
demands of payment dated January and June 2012 too. On March 2012, the TAR suspended the
effectiveness of the January 2012 notices issued by ADM. With respect to ADM’ demands of June
2012, since such demands were expressly issued pursuant to Law Decree No. 16/2012
(subsequently converted into Law 44/2012)(“Law 44/2012”) we challenged them before the TAR
seeking their suspension and cancellation and raising the question of an alleged non-compliance
to constitutional principles of the new Law 44/2012.
On January 30, 2013, the TAR upheld our objections as to the alleged lack of constitutionality of
Law 44/2012 and ordered the suspension of the proceedings and the submission of the case file
to the Constitutional Court. At the same time, the TAR declared that the original proceedings
related to the initial notices of January 2012, could not be pursued, due to lack of interest in the
lawsuit. Throughout the constitutionality trial, the enforceability of the injunctions was
suspended such that ADM was not in a position to enforce the challenged injunctions. In the
meantime, on June 6, 2013, we were notified by ADM of 98 demands for payment for the
supplement to the minimum guarantees referring to 2012 for a total amount of approximately
€3.3 million. We have appealed these orders before the TAR, seeking their cancellation. On
November 20, 2013, the Constitutional Court ruled in our favor citing inconsistency of the
demands with the Italian Constitution, which limits the settlement of pending cases on
guaranteed minimum amounts to “not higher than 5 per cent.” By rulings dated July 10 and
July 24, 2014 concerning both cases brought by us before the TAR, the TAR acknowledged the
212
unconstitutionality of Law 44/2012 and cancelled the payment orders of the guaranteed
minimum amounts related to years 2006-2012. The deadline for ADM to file an appeal has
passed. ADM is now entitled to issue new payment requests on the basis of a re-calculation of
the minimum guaranteed amounts, which must be made taking into consideration the outcome
of the courts’ decisions. As of the date of this Offering Memorandum ADM has not issued new
payment requests.
ADM administrative proceeding on alleged breaches of the rules regarding the physical
arrangement of gaming machines
On June 2012, ADM ordered all concessionaires to pay €300 for each machine that, on the basis
of a survey conducted by ADM for the period January to August 2011, exceeded the limits set
forth under the rules on the number of gaming machines that can be present in a certain area.
Based on ADM’s assessment and calculation, we would be required to pay fines of approximately
€1.8 million. We believe ADM has made a number of mistakes in extracting and calculating the
data relating to, among other things, the types of point of sale involved in the survey and their
dimensions, in terms of square meters. Moreover, in its survey, ADM does not seem to have taken
into account stolen, seized and substituted gaming machines. On August 5, 2013, ADM issued an
administrative act, confirming the fines against the concessionaries. After careful consideration,
we decided to challenge ADM deliberation before the TAR. Therefore, we are waiting for the
hearing for the discussion of the case.
Submission of accounts by slot concessionaires
On July 1, 2012, the Public Prosecutor served us, and the other concessionaires, with a technical
report of the reporting judge of the Judicial Section of the Court of Audit of the Region of Lazio
challenging the reliability of the accounts relating to the period from 2004 to 2009 that had
previously been duly approved by ADM. Such report states that accounts for the period from
2004 to 2009 were not complete and were not based on fully reliable data claiming that most of
the AWPs were installed but not properly connected to the central system. At a hearing on
January 17, 2013, the Court of Audit held that accounts must be rendered pursuant to the
accounting scheme provided by the Court of Audit on December 2012 and the court adjourned
to May 16, 2013. On June 14, 2013, the Court of Audit deemed that a decision cannot be issued
with regard to the case because it was not in a position to evaluate the available data
(improcedibilità). Furthermore, the Court of Audit submitted the case to the Public Prosecutor for
a determination as to any administrative responsibility. We appealed the ruling before the Court
of Auditor’s Jurisdictional Section which, by a ruling dated April 15, 2015, partially granted the
appeal and stated, inter alia, that the Court of Audit could not conclude the proceeding by
stating that it was not in a position to evaluate the available data; the Court of Auditor’s
Jurisdictional Section also ordered a new evaluation of the accounts, to be based on data that we
have already provided to the competent office of the Court of Audit of the Lazio Region.
Proceeding regarding the di Majo award
At the end of the 1990s, a dispute arose between various horse race betting service providers and
the Italian Finance and Agriculture Ministries regarding alleged payment delays and breaches by
those Ministries. The matter resulted in the issuance in 2003 of the “di Majo award” (named for
the arbitration tribunal chaired by Professor di Majo). The ruling found that the Ministries were
liable and ordered them to compensate the concession holders. The compensation assigned to us
for the period ending June 2006 was €2.3 million. The compensation for subsequent years has yet
to be determined in its entirety. The Ministries concerned appealed the decision in the Court of
Appeal in Rome. On June 22, 2010, the trade association Assosnai sent ADM a proposal for a
settlement of the dispute, under which the concession holders’ claims against the Ministries
would be offset against their liabilities towards ADM (with an express waiver of the interest
accrued on the claims, currency adjustments, and any pending enforcement actions), and the
Ministries would abandon the challenge against the award brought before the Court of Appeal
213
in Rome. ADM authorized (in a communication) the offsetting of the claims from the di Majo
award. Within the context of this agreement, we are also acting on behalf of third party
concession holders and have acquired from them their rights arising under the di Majo award for
an amount equal to €19.1 million. Pursuant to agreements with the third party concession
holders, an amount of €16.2 million was transferred to an escrow account that will be redeemed
and will be paid to third party concession holders when the di Majo award is definitively settled.
A portion of the remaining amount was used by third party concession holders to settle trade
receivables owed to us. On November 21, 2013, the Court of Appeal of Rome voided the di Majo
award stating that the administrative courts, as opposed to the arbitration tribunal, have
jurisdiction over the matter. On May 21, 2014, we initiated our appeal of the Court of Appeal
decision before the Italian Supreme Court (Corte di Cassazione) and, on June 10, 2014, our appeal
was filed with the competent Italian Supreme Court’s clerk. We intend to continue this litigation
in order to obtain a definitive decision that is in our best interest. The outcome of such
proceeding is inherently uncertain and, until a final decision is adopted by the Italian Supreme
Court, we may be subject to potential claims by ADM, including a possible request for payment
of the amounts offset. As of March 31, 2015, a total amount of €17.9 million was used to offset
payables to ADM at that date. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of Snai—Net Financial Indebtedness.”
Litigation with Ainvest Private Equity S.r.l.
On March 14, 2012, Ainvest Private Equity S.r.l. (“Ainvest”) brought claims against us in the Court
of Lucca seeking payment of approximately €4.0 million brokerage and success fees related to the
refinancing of certain of our bank loans. We duly gave notice of appearance and objected to
these claims. Following a hearing dated February 15, 2013, the judge ordered the translation of
certain foreign-language documents submitted by Ainvest. The proceedings were reassigned to a
new judge in April 2013, following which the new judge will evaluate the discovery requests of
the parties at the next hearing, including the request by Ainvest to forego the translation
imposed by the previous judge. At the hearing held on October 11, 2013, the new judge
confirmed the translation order issued by the previous judge and adjourned the case to May 16,
2014 for the swearing of the translator. On May 16, 2014, the judge gave the translator 180 days
to complete the translation, and adjourned the case to June 16, 2015. On June 16, 2015, the
parties discussed the discovery requests and the judge adjourned the case until December 2,
2015, and January 27, 2016 for the examination of the witnesses.
Odds on October 2, 2012
As a result of an anomaly that occurred on October 2, 2012, sporting events were offered and the
relevant fixed-odds, but with erroneous rates (only for a few minutes) that involved the type of
bet known as Under Over 5.5 and Under Over second half 0.5. A few players took advantage of
the error and these players placed a series of simple and systematic bets using both the online
channel and the offline channel. Twenty-one players initiated legal proceedings seeking payment
of the winnings attained, equal to approximately €1.7 million. As of the date of this Offering
Memorandum, 20 of these proceedings had been settled and one proceeding (for a value of
approximately €111,000) remains pending. Moreover, six additional players have sought the
payment of winnings equal to approximately €700,000. However, as of the date of this Offering
Memorandum, they have not initiated legal proceedings in relation to those requests. In
addition, in three cases, the players filed a complaint with the Commission for transparency of
gaming at ADM, requesting payment of the winnings. By decision no. 4/2013, no. 5/2013 and no.
6/2013 published on April 29, 2013, the Commission granted the claims and payment has been
sought by ADM. On November 14, 2013, we challenged the order filed by ADM requesting us to
proceed with the payment to one of the complainants. On March 21, 2014, ADM issued a notice
in relation to its payment request acknowledging that the Commission for Transparency of
Gaming at ADM was decommissioned by law and suspending any action as regards to the failure
to enforce the decision of such Commission. Considering the nature and the substance of the
ADM notices, we decided not to appeal them.
214
Cogemat Group Business
We have not yet completed the Cogemat Acquisition and, therefore, neither own nor control the
Cogemat Group. This Offering Memorandum includes certain information about the Cogemat
Group, including standalone financial information and financial information that presents Snai
and the Cogemat Group pro forma for the Transactions, the repayment of the Series B Notes and
the Azzurro Repayment. Such information is based on the Cogemat Group’s estimates and
assumptions, which are based on a significant number of factors, some of which may be beyond
the Cogemat Group’s control. See “Forward Looking Statements,” “The Acquisition” and “Risk
Factors—Risks related to the Cogemat Acquisition.” Any information concerning the Cogemat
Group is based on documents, information and representations provided to us and our advisers
by the Cogemat Group. While we have conducted due diligence on the Cogemat Group and have
no knowledge that would indicate that any statement contained herein, based upon such
information provided by the Cogemat Group, is inaccurate, incomplete or untrue, we cannot
independently verify the accuracy, completeness or truthfulness of all such information or verify
that there has not been any failure by the Cogemat Group to disclose events, developments or
circumstances that may have occurred, but which are unknown to us, which may affect the
significance or accuracy of any such information.
Overview of the Cogemat Group and the Cogemat Acquisition
The Cogemat Group is among the leading gaming machine companies in Italy, with a network, as
of March 31, 2015, of approximately 35,000 AWPs, 5,003 active VLTs and 186 POS. In addition to
its gaming and betting network, the Cogemat Group provides IT and betting services to thirdparty betting retailers. It also offers convenience payment services (branded “PayMat”) such as
mobile phone top-ups, PayMat prepaid payment cards and bill payment services. For the twelve
months ended March 31, 2015, the Cogemat Group generated total revenues of €437.9 million,
Cogemat Adjusted EBITDA of €42.2 million and as of March 31, 2015 the Cogemat Group’s total
assets were €270.0 million.
The Cogemat Group represents a strategically important acquisition for us. It strengthens our
market positions across our primary business lines, expands our distribution network, further
diversifies our product portfolio, provides new revenue-generating businesses and increases our
scale and operational efficiencies.
History of the Cogemat Group
The Cogemat Group has operated in the Italian gaming machine market segment since 2004,
when AWPs were first legalized in Italy, and the Cogemat Group was one of the first ten
authorized Italian gaming machine concessionaires. In 2005, the Cogemat Group expanded its
business by providing betting services to independent Italian bookmakers pursuant to an ADM
concession. Due to the liberalization of the Italian betting market in 2006, the Cogemat Group
became a concessionaire for the collection of sports and horse racing bets, and also began
offering betting online in the same year. In 2008, the Cogemat Group strengthened its online
gaming position through the introduction of new online poker games on its proprietary online
gaming website. To strengthen the Cogemat Group’s presence in the Italian betting retail
market, the Cogemat Group acquired Ladbrokes Italia Group in 2010, adding 82 new dedicated
sports and horse race betting shops and 51 sports betting corners to its retail network. In 2010,
the Cogemat Group also launched its iZiPlay brand and the Cogemat Group was awarded licenses
to install 5,226 VLTs. The Cogemat Group continued to broaden its product offerings by
launching online cash and casino games in 2011 and online slot games in 2012. In early 2013, the
Cogemat Group’s concession to act as gaming machine network operator was renewed and
extended until 2022 and the Cogemat Group acquired 50 new betting licenses.
Cogetech was founded in 2004 by a group of Italian gaming entrepreneurs and GTECH
Corporation, a leading gaming operator and technology provider. In 2006, GTECH Corporation
was acquired by Lottomatica S.p.A., and the Cogemat Group acquired GTECH Corporation’s 35%
215
stake in Cogetech, thus becoming Cogetech’s sole shareholder. In 2009, OI Games 2 S.A. acquired
a controlling stake in the Cogemat Group. Currently, OI Games 2 S.A. holds a 72.2% stake in the
Cogemat Group’s business with members of its management team as well as certain AWP
operators and retailers holding 24.8% and OI Games S.A. holding the remaining 3.0%. OI Games
2 S.A. is owned in equal shares by International Entertainment S.A. (of which Investindustrial IV
L.P. holds a majority participation) and by OI Games S.A. (of which Orlando Italy Special
Situations SICAR S.C.A. holds a majority participation). On a look-through basis, Investindustrial
IV L.P. and its affiliates have a non-controlling participation in Cogemat with certain veto rights
on shareholders matters. Investindustrial IV L.P. is a closed-end investment fund which has
exhausted its investment period. Orlando Italy Special Situations SICAR S.C.A. indirectly holds a
controlling interest in Cogemat.
In 2009, the Cogemat Group entered into a joint venture with Intralot Holdings International
Limited, named Jackpot S.p.A., and in 2010, the Cogemat Group entered into a joint venture with
Casinos Austria (Swiss) AG, named Azzurro Gaming S.p.A., which the Cogemat Group operated
on the basis of revenue-sharing agreements with the respective joint venture partners.
Leveraging on the Cogemat Group’s partners’ existing retail networks, the Cogemat Group
installed its VLTs in its partners’ points of sale.
Both joint ventures have been terminated. The Cogemat Group sold its shares in Jackpot S.p.A. to
Intralot Holdings International Limited in September 2011. The Cogemat Group subsequently
entered into a cooperation agreement with Jackpot S.p.A. to act as retailer for its VLTs pursuant
to which Jackpot S.p.A. made an advance payment to the Cogemat Group in the amount of
€5.3 million to secure its obligations as retailer of the Cogemat Group’s VLTs. In June 2013, the
Cogemat Group exercised its option to become 100% owner of Azzurro for a total of
€18.0 million, which was fully paid pursuant to the Azzurro Repayment on June 30, 2015.
Concessions segment
The Cogemat Group offers its customers the following products and services: (i) connection
services for gaming machines (AWPs and VLTs), (ii) betting and betting services, (iii) online
gaming and (iv) payment services. The following table provides an overview of the Cogemat
Group’s products and concessions as of March 31, 2015:
Concessions Segment
Business Lines
Product Categories
Concession
Expiration
Gaming Machines
direct management of
AWPs/VLTs
connection of thirdparty gaming machines
to ADM control system
multi-concession for AWPs
and VLTs allowing for
unlimited AWPs and 5,226
VLT concession rights
March 2022
Sports and horse race
betting and virtual
events
sports betting,
horse race betting,
online sports and horse
race betting and virtual
events
2 multi-concessions for public
betting (other than horse
race betting) through betting
stores and betting points
June 2016
3 multi-concessions for public
horse race betting through
horse race betting stores and
betting points
June 2016
1 multi-concession for public
horse race betting through
joint operations
June 2016
216
Concessions Segment
Business Lines
Product Categories
Concession
Expiration
1 multi-concession for online
sports and horse race betting,
sports and horse race pool
betting and national horse
race betting
June 2016
1 multi-concession for the
sale of fixed-odds and
totalizer bets on sporting
events, non-sporting events
and horse races
June 2016
Online Skill and
Casino Games
poker
bingo
skill games
online slots and other
online casino games
1 multi-concession for online
skill games, card games
(including tournaments) and
bingo
June 2016
Payment Services
prepaid telephone gift
cards
PayMat payment card
payment of utility bills
n/a
n/a
Gaming machines (AWPs/VLTs)
As one of 13 gaming machine concessionaries in Italy, the Cogemat Group acts as a network
system operator for the computerized management of AWPs and VLTs by connecting AWPs and
VLTs to the network of ADM, the Italian gaming regulator. The Cogemat Group also acts as an
operator, or “gestore,” meaning it also directly manages some of the AWPs for which it provides
connection services. AWPs can be managed by someone other than the concessionaire, while
VLTs can only be managed by the concessionaire. Accordingly, most of the Cogemat Group’s
customers for AWP connection services are AWP operators and, for the AWPs that the Cogemat
Group manages directly, retailers displaying its machines. As concessionaire for VLTs, the
Cogemat Group directly manages its VLTs and enters into revenue-sharing agreements with
retailers who display the Cogemat Group’s machines. In certain cases, the Cogemat Group utilizes
VLT intermediaries that, among other things, help the Cogemat Group locate new points of sale
and collect cash from connected VLTs. See “Industry—Gaming machines.” For the twelve months
ended March 31, 2015, the Cogemat Group generated revenues of €412.6 million from its gaming
machine operations.
Under the Italian regulatory regime, only gaming machines that are linked to ADM control
system are permitted to operate. This system permits games played on the machines to be
controlled and monitored for tax purposes by ADM. As of March 31, 2015, the Cogemat Group
provided the required interconnection services to approximately 35,000 AWPs, which the
Cogemat Group estimates represent about 9.6% of such machines in operation in Italy and
directly managed 5,003 VLTs, which the Cogemat Group estimates represent approximately 9.8%
of such machines in operation in Italy. The Cogemat Group also directly manages approximately
816 AWPs.
The AWPs for which the Cogemat Group provides connection services are spread across
approximately 10,000 points of sale. Additionally, the Cogemat Group directly manages 5,003
VLTs at approximately 525 points of sale. AWPs are located in the Cogemat Group’s iZiPlay sports
and horse race betting shops and sports betting corners as well as in unaffiliated third-party
points of sale such as coffee shops, bars and gaming arcades. The Cogemat Group does not
directly operate unaffiliated points of sale but offers its products on the basis of non-exclusive
service contracts with these third-party operators.
217
AWPs
The following table provides an overview of key performance indicators of the Cogemat Group’s
AWP operations as of and for the twelve months ended March 31, 2015:
March 31,
2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,316
292.2
35,000
816
With AWPs, the outcome of the game is based on chance, and players bet against the house. By
law, AWPs pay winnings of a maximum of €100 in cash. Each individual game lasts between 7
and 13 seconds and costs between €0.50 and €1.00. According to applicable regulations, AWPs
currently have a minimum payout of at least 74% of the aggregate amount of wagers collected
across the network (although many machines are configured for a minimum payout of 75%
pursuant to former regulations which applied through the end of 2012). Of the remaining 26%,
13.0% is paid to ADM as tax. The Cogemat Group pays an additional canone equal to 0.3% of
turnover and remits a 0.5% security deposit to ADM. From the remaining amount of
approximately 12.2% of turnover, the gestore receives a fee of approximately 11.8% of turnover,
and in cases where the Cogemat Group only provides network connection services for AWPs, the
Cogemat Group receives a fee of approximately 0.5% of turnover. The 0.5% security deposit
which forms part of the canone is subsequently reimbursed to the Cogemat Group by ADM, in
whole or in part, once a year, subject to the Cogemat Group’s compliance with certain service
and quality requirements. All AWPs for which the Cogemat Group provides network connection
services are remotely monitored at the Cogemat Group’s data center located at Via Goito, Rome.
The AWPs connected to the Cogemat Group’s network are mainly located in third-party owned
coffee shops and bars, the Cogemat Group’s iZiPlay sports and horse race betting shops and
sports betting corners, as well as gaming arcades. The Cogemat Group collects cash representing
the amount of taxes due to ADM and its fees from those points of sale that display the AWPs for
which the Cogemat Group acts as gestore every 15 days through direct debit procedures and wire
transfers. AWPs have an average useful life of six years for the machine and three years for the
software.
Since 2004, the Cogemat Group has held a non-exclusive concession to act as network operator
for AWPs, which was renewed in March 2013 and will expire in March 2022. As concessionaire in
the AWP business, the Cogemat Group is permitted to act as network operator for an unlimited
number of AWPs, in compliance with ADM’s regulations.
VLTs
The following table provides an overview of key performance indicators of the Cogemat Group’s
VLT operations as of and for the twelve months ended March 31, 2015:
March 31,
2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,939
120.4
5,003
VLTs, which were first approved for use in Italy in 2009, are technologically advanced versions of
traditional AWPs and feature innovative graphics and multiple game options. VLTs allow the
loading of new games remotely without having to modify the hardware of the machine and
have the ability to share a jackpot within the same hall or across the network level. In addition,
VLTs are more user-friendly and allow greater winnings than traditional AWPs. Each individual
game must last at least four seconds and costs between €0.50 and €10.00. Currently, VLTs pay
winnings of up to €5,000 per VLT (and an arcade jackpot of up to €100,000 as well as a
218
nationwide jackpot of €500,000) and are subject by operation of law to a minimum payout of
85% of the aggregate amount of turnover across the network (the market average payout
through the end of 2014 was approximately 85%, equal to the minimum payout). Of the
remaining 10% to 15%, 5% is paid as tax to ADM, and the Cogemat Group pays an additional
canone consisting of a 0.3% of turnover and remits a 0.5% security deposit to ADM similar to
AWPs. The Cogemat Group operates its VLTs on the basis of revenue-sharing agreements with
retailers and VLT software providers who receive a share of the related revenues. Consequently,
of the remaining approximately 5.2% of turnover, Cogemat pays a percentage of turnover as fee
to the retailer and software provider. The remaining amount is the Cogemat Group’s commission.
The Cogemat Group collects cash representing the amount of taxes due to ADM and the
Cogemat Group’s fee from the points of sale that display its VLTs every seven days through direct
debit procedures. Unlike AWPs, VLTs can only be placed in dedicated spaces such as the Cogemat
Group’s iZiPlay sports and horse race betting shops, bingo halls and designated gaming arcades.
VLTs have an average useful life of six years, as software can be updated remotely.
Concessions for the operation of VLTs are also non-exclusive and concessionaires are granted
rights to operate VLTs on a machine-by-machine basis. The Cogemat Group currently holds rights
to act as network system operator for 5,226 VLTs. The Cogemat Group’s concession for the
operation of VLTs was renewed in March 2013 and will expire in March 2022. The Cogemat
Group does not expect that further VLT concessions will be awarded to concessionaires other
than the existing ones prior to the maturity of the current concessions.
Betting
The Cogemat Group allows consumers to place bets based on sports, horse racing, virtual events
and certain social events at 186 iZiPlay-branded sports and horse race betting shops and sports
betting corners. “Betting shops” are venues dedicated to gaming, while “betting corners” refer
to points of sale located in venues primarily dedicated to activities other than gaming, such as
bars and tobacconists. Additionally, the Cogemat Group offers online sports and horse betting as
part of its online operations. See “—Online betting.” For the twelve months ended March 31,
2015, the Cogemat Group generated revenues of €19.8 million from its betting operations.
The following table provides an overview of key performance indicators of the Cogemat Group’s
betting operations as of and for the twelve months ended March 31, 2015:
March 31,
2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sport bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sport bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Horse race bets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virtual events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Betting Collection Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of iZiPlay points of sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports and horse race betting shops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sports betting corners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140.6
69.5
27.2
43.9
19.8
11.4
3.3
4.0
1.1
186
116
70
Offline betting
As of March 31, 2015, the Cogemat Group’s network of iZiPlay sports and horse race betting
shops consisted of 186 points of sale, of which 70 sports betting corners and 116 sports and horse
race betting shops. Additionally, all of the Cogemat Group’s iZiPlay sports and horse race betting
shops offer AWPs, VLTs and access to the Cogemat Group’s Convenience Payment Services. The
Cogemat Group directly manages 3 iZiPlay sports and horse race betting shops (“directly
219
operated betting shops”) and associates with qualified business partners in connection with 113
iZiPlay sports and horse race betting shops (“affiliated betting shops”) pursuant to franchise-like
contractual arrangements. These agreements terminate upon the termination of the relevant
concession. The Cogemat Group’s sales department continuously monitors the performance of
the Cogemat Group’s affiliated sports and horse race betting shops. Both directly operated and
affiliated iZiPlay sports and horse race betting shops only offer iZiPlay products.
Additionally, as of March 31, 2015, the Cogemat Group’s betting retail network comprised 70
sports betting corners. The Cogemat Group’s sports betting corners are typically located inside
coffee shops and bars where the Cogemat Group’s customers can also access the Cogemat
Group’s sport and horse betting products, AWPs and the Cogemat Group’s Convenience Payment
Services. The Cogemat Group’s sports betting corners are managed by a partner and operate
under the Cogemat Group’s iZiPlay brand pursuant to franchise-like agreements with the
Cogemat Group. The Cogemat Group’s iZiPlay sports betting corners only offer iZiPlay products.
The Cogemat Group has a comprehensive betting portfolio, including horse racing and sports
events such as football and basketball, as well as a wide range of secondary sports such as tennis
and volleyball and, to the extent permitted by ADM’ regulations, non-sports events. The
Cogemat Group accepts a range of different bets, from simple bets on the outcome of a single
event to more complex bets on the outcome of a number of different events, as well as live bets,
which allows consumers to place bets on an event after the event has started based on constantly
changing odds. Bets can be placed in the form of fixed-odds bets or totalizer bets. The range of
events on which bets may be placed is defined for all players by ADM.
Fixed-odds betting is a form of betting in which the bookmaker pays the player, in the event of a
win, an amount equal to the bet multiplied by the odds fixed at the time the bet was placed. The
maximum prize for a single sports bet ticket cannot exceed €10,000 and €50,000 for a multiple
sports bet ticket. There is no limit on horse betting. However, the Cogemat Group constantly
monitors its overall maximum risk of exposure in line with its risk management policies. See “—
Risk management.” Fixed-odds betting gives rise to either a liability to make a certain payment
to a customer, or the retention by the Cogemat Group of the stake placed by such customer. The
odds offered in fixed-odds betting depend on the nature of the event. The Cogemat Group
makes money where the amounts staked by customers that are retained are greater than the
liability to make payments to customers. In fixed-odds betting, the Cogemat Group bears the risk
of losing the bet. Although the liability to make a payment is in principle unlimited, the Cogemat
Group is not obliged to accept any bets, and may accept bets on certain conditions only, in order
to limit its maximum exposure. See “—Risk management—Bet acceptance limits.” The Cogemat
Group believes it offers competitive odds throughout its network as a result of the Cogemat
Group’s team of professionals with years of experience in national and international
bookmaking.
Totalizer betting is a form of betting in which bets are pooled together before an event and the
total pool of bets minus a specified percentage is distributed amongst the winning players. In
totalizer betting, the Cogemat Group bears no risk, as there is no obligation to make payments
greater than the total percentage of money staked by players, and the Cogemat Group earns
revenues from a commission on the volume of bets collected. The Cogemat Group offers totalizer
betting only in connection with horse races.
All of the Cogemat Group’s sports bets turnover is generated by fixed-odds bets. Approximately
8.8% of the Cogemat Group’s horse bets turnover is generated by fixed-odds bets.
For the twelve months ended March 31, 2015, the Cogemat Group distributed approximately
78% of the total amount collected in offline sports bets as winnings and paid 4.3% of the total
amount collected in sports betting as taxes to ADM. The remaining amount were the Cogemat
Group’s revenues. In cases where bets are placed at a sports betting corner or at an affiliated
sports and horse race betting shop (as opposed to at a directly managed sports and horse race
betting shop or on the Cogemat Group’s website), the Cogemat Group also pays the sports
betting corner or affiliated sports and horse race betting shop, as applicable, a commission.
220
The most popular event on which the Cogemat Group offers bets is football, which in 2014
represented approximately 95% of its total sport bets turnover. The Italian football season runs
from late August to mid-May, and, during the summer, the Cogemat Group experiences a decline
in the volume of sports bets collected. The Cogemat Group experiences peaks in sports bets
during significant sports events that occur at regular intervals, such as the FIFA Football World
Cup, the UEFA European Football Championship and the Olympics.
Approximately 92% of all horse race bets placed with the Cogemat Group are totalizer bets for
which the Cogemat Group is remunerated by a percentage of turnover. For example, of the total
amount collected in horse race totalizer bets for the three months ended March 31, 2015, 71.0%
was paid in winnings, 13.6% was paid to UNIRE, the Italian organization responsible for horse
races, and the applicable tax rate percentage payable to ADM varies depending on the number
of events on which a customer has placed a bet: the current ADM tax rate is 2% for the first
seven events and 5% thereafter. In cases where bets are placed at a sports betting corner or at an
affiliated sports and horse race betting shop (as opposed to at a directly owned sports and horse
race betting shop or on the Cogemat Group’s website), the Cogemat Group also pays the sports
betting corner or affiliated sports and horse race betting shop, as applicable, a commission. The
amount of the commission depends on the amount of bets collected. As horse races run
throughout the year, absent a strike or other disturbance, seasonality has a much smaller effect
on the Cogemat Group’s business compared to, for example, football betting.
In December 2013, the Cogemat Group launched the virtual events product offering service on its
betting network. As of 31 March 2015, 156 POS offer virtual events. For the twelve months ended
March 31, 2015, the Cogemat Group generated €4.0 million in revenues from virtual events.
Virtual events are computer-generated, virtual sporting events such as football matches, darts
competitions and car, horse and dog races. The Cogemat Group’s virtual events are rendered
with realistic graphics with and include all of the details of live-action events, including spectator
noise and live commentary. The events are generated by a third party provider, and are streamed
to the Cogemat Group’s POS via the internet to the Cogemat Group’s POS. The streaming service
broadcasts a rotating series of events with a different event every five minutes and each event
lasting approximately 2 minutes. In the time between events players place bets on the next
event. Odds and winners for each event are randomly generated by mathematical algorithms
developed by the Cogemat Group’s third party provider with projected payout ratios determined
based on an analysis of historical betting and payout patterns. As of March 31, 2015, the
Cogemat Group offered virtual events in all of its POS. Virtual events bets are fixed-odds bets,
and the current ADM tax rate on virtual events is 20% of gross gaming revenues.
The Cogemat Group has been a non-exclusive concessionaire in the betting market since 2006
and as of March 31, 2015, operates 186 sports and horse betting shops and corners. As a
concessionaire, the Cogemat Group is responsible for the establishment of a network to run and
monitor bets, the provision of the odds, the collection of bets, and the collection and payment of
taxes due to ADM on all sports and horse bets. The Cogemat Group’s current concessions will
expire in June 2016. Historically the Cogemat Group has been able to renew all of is betting
concessions.
Online betting
The Cogemat Group also offers its customers the ability to place bets online on its website or
through applications on their mobile phones or tablets. Customers can place bets on the same
events and with the same odds, payout and other terms as available at the Cogemat Group’s
iZiPlay sports and horse race betting shops and sports betting corners. The Cogemat Group pays
taxes to ADM at the same rate for online betting as for land-based betting. However, because
customers can only place bets on the iZiPlay website, the Cogemat Group does not pay any
commissions to third parties, other than those associated with the promotion and marketing of
the Cogemat Group’s online services.
221
Of all fixed-odds sports bets placed with us, approximately €8.0 million, or 11.6% are placed on
the iZiplay website.
For the twelve months ended March 31, 2015, the Cogemat Group distributed approximately
87.0% of the total amount collected in offline sports bets as winnings and the Cogemat Group
paid 3.3% of the total amount collected in sports betting as taxes to ADM. The remainder is the
Cogemat Group’s revenues.
The Cogemat Group operates its online betting business on the basis of a non-exclusive
concession for the remote collection of sports and horse race bets which will expire in June 2016.
Online skill and casino gaming
The Cogemat Group offers customers the ability to play a variety of online games either directly
on its iZiPlay.it website, or via its proprietary iZiPlay gaming applications on their mobile phones
or tablets. Additionally, the Cogemat Group’s customers can access its online games by
downloading a third-party developed gaming client onto their computers. The Cogemat Group’s
range of online offerings includes online poker cash, poker tournaments, casino games, skill
games and bingo. The Cogemat Group currently offers all online games permitted by ADM. The
Cogemat Group has entered into a number of agreements with game suppliers to develop an
even broader online gaming platform. For the twelve months ended March 31, 2015, the
Cogemat Group’s online gaming products (excluding online betting) generated revenues of
€1.1 million.
The following table provides an overview of key performance indicators of the Cogemat Group’s
online skill and casino games as of and for the twelve months ended March 31, 2015:
March 31, 2015
Turnover (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (in million €) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.0
1.1
For online poker cash and poker tournament games, the Cogemat Group acts as a host for
customers who play against one another. In return for the Cogemat Group’s services, the
Cogemat Group charges a variable fee in the case of poker cash and a fixed fee in the case of
poker tournaments. The Cogemat Group operates its online games business on the basis of a
non- exclusive concession for the remote collection of online poker cash, poker tournaments,
casino games, skill games and bingo. ADM generally does not require holders of an online
concession to also hold a concession to offer the game at physical sites. Accordingly, the Cogemat
Group is able to offer products such as online bingo. The Cogemat Group’s online gaming
concession will expire in June 2016.
The Cogemat Group’s core online gaming IT infrastructure consists of a sophisticated gaming
account system, designed and produced internally, which provides all services necessary for the
interaction between the player and products, and securely stores all information about the
player’s activity. Players can therefore monitor their gaming activity via a specific section of the
iZiPlay website and view their games history and winnings.
Online betting and gaming platforms are subject to certification by specialist third-party
inspection bodies authorized by ADM and registered on a special list. Certification must be issued
when a new platform is launched, and is renewed annually. Players can view information on the
security and functionality of online gaming and betting applications on the iZiPlay website. The
Cogemat Group has adopted security protocols for software and data, and the Cogemat Group’s
online gaming and betting IT infrastructure is redundant in order to ensure high levels of
reliability and is protected by disaster recovery tools. Support and upgrades are handled by a
dedicated in-house IT team. The Cogemat Group recently changed online platform providers for
its online poker games to improve service.
222
The Cogemat Group develops the software for its iZiPlay mobile phone and tablet applications in
close cooperation with its software partners, Aristocrat, Spielo and Novomatic. Additionally, the
Cogemat Group currently has agreements in place with leading providers of online technology
and associated services, such as ActiveGames, Microgaming and iSoftBet, to provide the Cogemat
Group with market leading technology and gaming content. This includes the ability for
customers to use a wide variety of payment cards and methods and the delivery of up-to-date
games content and branded games. The Cogemat Group also employs a credit risk management,
or CRM, system and tools with which to leverage the Cogemat Group’s considerable databases of
past and present customers, and manage new customers to the sites.
Betting Collection Services
The Cogemat Group also provides betting services, including bookmaking, marketing and ITrelated services to their own group as well as to approximately 100 third-party betting shops,
corners and independent bookmakers through its proprietary BetSolutions platform.
Through its proprietary B2B platform BetSolutions, the Cogemat Group provides information on
sports events and horse races on which bets can be placed and also calculates and set betting
odds prior to bets being placed. Information on its BetSolutions platform is constantly updated in
real time, and the Cogemat Group provides connection services to ADM who reviews and verifies
the bets placed at the point of sale. The Cogemat Group also acts as bookmaker in the case of
fixed-odds bets. Additionally, the Cogemat Group provides administrative and technical support,
such as network connection services.
The Cogemat Group provides these services pursuant to standardized contracts. Such contracts
terminate upon termination of the relevant concession. The Cogemat Group leases cash register
terminals, routers and server connection tools to its affiliated sports and horse race betting shops
and corners and also provides the owners with marketing materials. The Cogemat Group leases
routers and server connection tools to its 102 third-party sports and horse race betting shops. The
Cogemat Group receives a fee from its affiliated sports and horse race betting shops and corners
as well as the owners of the third-party point of sale, with the fee from the Cogemat Group’s
affiliated sports and horse race betting shops and corners being higher than the fee from the
third-party points of sale.
Convenience Payment Services
The Cogemat Group offers consumers the ability to buy national and international telephone
cards and prepaid gift cards and the ability to top-up their mobile phones at approximately 5,600
points of sale across Italy, including iZiPlay sports and horse race betting shops and corners, as
well as at third-party points of sale that also offer AWPs for which the Cogemat Group provides
connection services, such as bars and coffee shops. Through an agreement with Poste Italiane,
who provides the service platform, the Cogemat Group also provides its customers with the
ability to pay certain utility bills, fines and TV licenses fees. Additionally, the Cogemat Group has
entered into a partnership agreement with a third-party licensed payment institution, and
distributes to customers its prepaid PayMat payment card, which allows them to withdraw cash
and make payments all over the world through the MasterCard payment system. The Cogemat
Group’s PayMat card can also be linked to a customer’s iZiPlay online gaming account to cash out
winnings from its online games, as well as from VLTs to avoid bank transfers. Customers can
purchase and recharge their PayMat card at any point of sale bearing the PayMat logo.
The Cogemat Group has been providing convenience payment services in Italy since 2006. Some
of the Cogemat Group’s convenience payment services partners include mobile phone providers
and telephone companies such as TIM, Vodafone, Wind, H3G, PosteMobile, Carrefour, IDT,
Mediaset Premium, Digimobil, as well as utilities and other payment services, such as PaySafeCard
and UKASH. The Cogemat Group also offers a number of gift card brands, including Alitalia,
Groupon, Mondadori, RCS and L’Espresso. Contracts with such partners are annual contracts.
Upon termination of the contract, the Cogemat Group evaluates whether it would be beneficial
to the Cogemat Group’s business to renew the contract.
223
Customers can access the Cogemat Group’s convenience payment services at approximately 5,600
points of sale, including the Cogemat Group’s iZiPlay-branded sports and horse race betting
shops and corners. Points of sale that offer the Cogemat Group’s convenience payment services
are equipped with payment terminals which utilize its proprietary software. The owner of a
point of sale may either purchase the terminal from the Cogemat Group or lease it in exchange
for a monthly fixed fee. In cases where the Cogemat Group does not directly manage the point
of sale, the Cogemat Group pays the owner a commission based on transaction volume for topups, phone cards and gift cards and a commission for payment transactions.
To manage the Cogemat Group’s credit risk vis-à-vis the Cogemat Group’s retailers, the Cogemat
Group requires third-party points of sale to make a deposit with the Cogemat Group prior to
offering any convenience payment services. After the third-party point of sale has made the
required deposit, it may offer convenience payment services up to the amount of the deposit.
Once a point of sale has utilized the total amount of its deposit, it cannot accept further
payments for services until it has made a new deposit. Every time a point of sale collects a
payment from a customer (i.e., for a mobile top-up or for payment of a bill) the Cogemat Group’s
IT system automatically notifies the Cogemat Group of the amount received by the retailer, and
the Cogemat Group reduces that retailer’s deposit by an amount equal to the customer’s
payment less the point of sale’s commission. The Cogemat Group simultaneously delivers to the
convenience payment services partner (i.e., the mobile phone provider, utility company or other
billing company) such reduced amount less the Cogemat Group’s commission so that it may credit
the customer’s account. The Cogemat Group does not receive a commission from the customer
and credit the customer’s account with an amount equal to the face value of the bill or top-up.
The convenience payment services provider pays the Cogemat Group a commission based on the
amount recharged on a PayMat card.
Distribution Network
The Cogemat Group has entered into affiliation contracts with qualified business partners for the
operation of some iZiPlay sports and horse race betting shops and iZiPlay sports betting corners.
These affiliation contracts regulate, among other things, the amount of the commission the
Cogemat Group’s partners receive, the exact location of the shop or corner and the grounds for
termination of the affiliation agreement. Such agreements terminate upon the termination of
the relevant concession.
The Cogemat Group’s partners and retailers at affiliated iZiPlay POS as well as unaffiliated thirdparty points of sale are responsible for, among other things, collecting cash and transferring
these payments to the Cogemat Group, net of their commission, on a weekly or semi-weekly
basis. All the cash collected is transferred to the Cogemat Group via direct debit or wire transfer.
The Cogemat Group collects the cash itself at its directly managed sports and horse race betting
shops and sports betting corners. As part of the Cogemat Group’s risk management system, the
Cogemat Group evaluates the credit of a potential partner or retailer before it agrees to enter
into a commercial relationship, and the Cogemat Group then continually monitors the credit
worthiness of such partner or retailer during the term of its contract. If a partner or retailer fails
to make a timely payment to the Cogemat Group, the Cogemat Group has the ability to remotely
disconnect the gaming machines at the relevant point of sale while the Cogemat Group
investigates the cause and seek remedial action. Additionally, the Cogemat Group can
prematurely terminate its relationship with those points of sale that fail to make timely
payments on a recurring basis.
The Cogemat Group’s marketing and sales teams monitor the performance of the Cogemat
Group’s retailers. The Cogemat Group’s sales department is centrally coordinated and supervised
at its Rome executive office. Members of the Cogemat Group’s sales team periodically visit the
points of sale for quality control and to optimize product offerings. They also select the
distribution channels, evaluate new point of sale openings and provide training to retailers, with
whom there is ongoing dialogue through different communication channels (including e-mails
and, for AWP operators, the Cogemat Group’s online portal). In order to manage its relationship
224
with retailers, the Cogemat Group also helps retailers address issues arising from the introduction
of new games and the management of existing games and technical issues relating to the
Cogemat Group’s IT software and hardware.
Points of sale fees
In addition to the fixed commissions for the Cogemat Group’s bets and games which vary by
product, the Cogemat Group collects a fee from its iZiPlay affiliated sports and horse race betting
shops and corners which is based on their turnover. In return, the Cogemat Group provides
certain services such as maintenance, advertising and technological support services. The
Cogemat Group also collects a fixed monthly fee from those points of sale that lease the
Cogemat Group’s convenience payment services terminals. See “—Cogemat Group products—
Convenience Payment Services.”
Competition
Like Snai, the Cogemat Group competes with gaming companies, including concessionaires and
online and retail operators, as well as with other providers of convenience payment services. See
“Snai’s Business—Competition” and “Industry” for further information.
In the Cogemat Group’s Convenience Payment Services business, it primarily competes with the
other gaming concessionaires active in the Convenience Payment services market, Lottomatica
and Sisal.
Risk management
Risk management is important to the Cogemat Group’s businesses, and particularly fixed-odds
betting. A bookmaker’s odds are determined so as to provide an average return to the
bookmaker over a large number of events and therefore, over the long term, the amount staked
by customers on betting less amounts won by customers has remained reasonably constant;
however, there is an inherent level of variation by event and by day. There is no certainty of
generating a positive return and from time to time the Cogemat Group experiences significant
wins or losses with respect to individual events or betting outcomes.
The risk of incurring daily losses is significantly reduced by the averaging effect of taking a large
number of individual bets over a considerable number of events. In addition, given the
geographical distribution of the Cogemat Group’s sports and horse race betting shops and sports
betting corners across Italy, and that the vast majority of sports bets is on football events, the risk
of adverse outcomes on single events (i.e., football games) is mitigated by the tendency of
customers to bet on the team they support which are typically the teams located in their area.
Because the Cogemat Group’s retail betting distribution network usually allows the Cogemat
Group to collect bets in the areas where relevant Italian football teams are based as well as
online, the Cogemat Group is able to naturally balance the volume of bets collected on many
football games during the Italian football season.
In addition to such natural mitigating factors, the risk of incurring losses is also controlled
through the Cogemat Group’s risk management process. Some of the key attributes of the
Cogemat Group’s risk management process include: a) computerized risk control systems; b)
continuous monitoring of the risk by a dedicated team of bookmaking risk managers; c) limits to
the acceptance of high bids by retailers without prior authorization of its bookmaking risk
managers’ team; and d) possibility of suspending bets.
Odds compilation
The Cogemat Group employs an experienced team of odds compilers and bookmaking risk
managers. Initial odds are compiled from the mathematical chance of an outcome based on
previous results and then adjusted for any market information. For horse racing and sports
225
events, the odds are compiled by specific individuals within the team with in-depth knowledge of
the sport. The process also uses information from consultants, sports websites, news gathering
agencies and other betting markets. Once odds are compiled and published, real-time risk
management processes are applied to monitor and adjust the total level of risk on each event.
The odds compilation and bookmaking processes are run through the Cogemat Group’s
BetSolutions platform.
Access to information
Access to market information is needed both before odds are compiled and after odds are
published. The Cogemat Group employs a team of bookmakers who determine the odds by
relying on information compiled from the Cogemat Group’s knowledge of the gaming industry,
including the sports concerned and its participants, both to the extent available in the media
generally and from information derived and available at events. The Cogemat Group also relies
on information about its potential liabilities from overall betting patterns and the total amount
bet on particular outcomes drawn from its online offerings and sports and horse race betting
shops and corners, as well as certain individual bets that are referred before acceptance or
notified subsequently, because of the source or size. Additionally, the Cogemat Group utilizes
market betting data monitoring services provided by Betradar, a leading supplier of sports
betting data, in order to limit the risk of out-of- market odds. This allows the Cogemat Group to
assess the probability of each possible outcome based on a wide range of up-to-date
information, to assess potential exposure on each possible outcome and to determine whether
bet acceptances should be limited on certain possible outcomes.
Bet acceptance limits
Under the applicable rules of Italy, the Cogemat Group is not permitted to hedge bets to reduce
risk. However, the Cogemat Group is under no obligation to accept any bet, and where a bet is
considered undesirable, it may be refused or accepted in part, with or without adjusted odds. The
Cogemat Group constantly monitors its overall maximum risk of exposure and seek to limit its
total exposure by setting limits on stake value and potential liability which the Cogemat Group
communicates to its sports and horse race betting shops and sports betting corners. Unusual
betting patterns and high bids are notified to the Cogemat Group’s bookmaking risk managers’
team for prior authorization. The Cogemat Group’s online offering operates in a similar way with
agents referring bets to risk managers above a set limit for the event or customer. The online
sports betting systems contain an automatic procedure whereby liability limits are pre-set by
management on individual events for customers generally and, if appropriate, for specific
customers. Generally, the maximum prize for a single sports bet ticket cannot exceed €10,000 and
€50,000 for a multiple sports bet ticket. There is no limit on horse betting.
Online offerings
The Cogemat Group has systems and controls in place which seek to ensure that the Cogemat
Group offers gaming products via the internet only to customers located in Italy. The systems and
controls include monitoring and analyzing information provided by potential customers’
registered addresses (in order to access the Cogemat Group’s website each customer must have
an Italian fiscal code and an Italian address) and customers’ payment methods, as well as a geolocator filtering technology that identifies the location of each user trying to log onto the
Cogemat Group’s website. The Cogemat Group does not currently accept bets or wagers from
customers that it determines are located outside of Italy.
Responsible gaming
Responsible gaming is an ongoing commitment, and the Cogemat Group strives to design and
provide safe, legal, and balanced forms of entertainment. The Cogemat Group’s iZiPlay teams are
available at each of its betting shops and corners to answer questions about responsible gaming,
226
and the Cogemat Group encourages players to assess their own gambling habits and their risk
profile by taking online self-assessment tests available on the Cogemat Group’s website. Upon
request, the Cogemat Group also temporarily suspends a user’s game account for a minimum of
six months during which the user cannot connect to deposit money, place bets or play online
games.
The Cogemat Group has signed a sponsorship agreement with the Italian Society for Intervention
on Compulsive Disorders (“SIIPAC”), the first organization in Italy to study and investigate the
phenomenon of pathological gambling, in order to offer an effective intervention program not
only to those who are affected but also to family members. Under this agreement, the Cogemat
Group’s management team is in regular contact with SIIPAC to discuss developments in the
gaming industry and the Cogemat Group has provided funds for SIIPAC’s research studies. The
Cogemat Group has also received the recognition of international certification on responsible
gaming from Global Gambling Guidance Group, an organization established by an international
group of experts that deals with issues related to responsible gambling with rules and protocols
at the forefront of Europe, confirming the quality, professionalism, accurateness and truthfulness
of the information contained in the Cogemat Group’s gambling website.
Information technology
The Cogemat Group operates a number of proprietary IT systems in order to support its business.
The Cogemat Group’s information technology is generally developed and managed in-house by a
team of more than 40 employees in the Cogemat Group’s IT department, who also receive
external support from manufacturers and suppliers, often under support agreements tailored to
the Cogemat Group’s specific needs. The Cogemat Group operates approximately 200 servers
(physical and virtual). The Cogemat Group owns the hardware that comprises its IT systems. Upon
termination of the relevant concession, the Cogemat Group must return 80 of the 200 servers to
ADM.
The primary components of the Cogemat Group’s information technology system include the
following:
• AWP and VLT systems: The Cogemat Group’s AWP and VLT systems connect the Cogemat
Group’s AWPs to ADM’s network and collect data related to the games managed by the
machines, installed in shops, bars and other locations, in addition to sports and horse race
betting shops. The data collected is sent to ADM’s system for further processing and analysis
relating to income and taxes. ADM system may query the machines through its IT system.
Additionally, the Cogemat Group remotely controls all of its VLTs through its IT system. The
Cogemat Group also operates fully equipped maintenance laboratories for the overhaul of its
terminals and AWPs. In 2014, the Cogemat Group had a communication success rate equal to
99.3% of AWP connections. The Cogemat Group also develops VLT software relating to
reporting, commercial services in-house.
• Websites: Cogetech.it is the Cogemat Group’s corporate website, and it provides general
information on the Cogemat Group’s gaming and services activities. The Cogemat Group also
operates a separate website, IZiPlay.it, which is the Cogemat Group’s B2C online betting and
gaming platform. In addition, through its online betting platform, the Cogemat Group offers
B2B services to major online betting companies, such as facilitating the integration of
authorized concessionaires into ADM system and providing electronic transmission of betting
transactions and sportsbook data.
• Mobile phone and computer tablet applications: The Cogemat Group has developed
sophisticated integration applications for mobile phones and computer tables which give the
Cogemat Group’s customers access to its online games and bets.
• Sportsbook systems: Through a proprietary network, the Cogemat Group distributes sport
betting information from its central platform to its sports and horse race betting shop
customers’ display systems. Additionally, the Cogemat Group provides online services, such as
bet settlement and client accounting. The network also allows each retail outlet to access the
Cogemat Group’s applications for reporting services and bet management.
227
• Betting risk management system: The Cogemat Group’s betting risk management system
provides real-time information on estimated liabilities on an event-by-event basis. All bets
collected online, together with the majority of bets collected at the Cogemat Group’s sports
and horse race betting shops and corners and referrals and notifications from all sports and
horse race betting shops and corners, are entered into a consolidated field book that provides
a real-time overview of its estimated liabilities.
• Payment services information technology: Through the Cogemat Group’s IT system, the
Cogemat Group collects payments for mobile phone top-ups and to municipal governments
and utilities, credits the customer’s account with the relevant service provider and remits the
appropriate amount of payments.
The Cogemat Group’s proprietary management enterprise systems are certificated in accordance
with ISO 9001:2008 for, among other things, the remote collection and operational management
of online games and services data, software design and development, distribution of material
and equipment to points of sale and technical support for equipment at points of sale.
The Cogemat Group’s IT systems are inspected by ADM and are connected in real time to the
central system and the central gaming accounts database of SOGEI, the technical arm of the
Italian Ministry of Economy and Finance that is generally responsible for assessing the taxation
on games and bets and for providing the standards and compliance guidelines for
concessionaires’ IT systems.
Through its integrated IT system, the Cogemat Group manages cash flows representing the total
turnover as well as payments made by its customers to utility and third-party convenience
services providers. Once turnover and payments are collected at the Cogemat Group’s points of
sale, the Cogemat Group’s IT system reliably transmits the payment information to utility and
convenience services providers and to the Italian treasury. The Cogemat Group’s IT system
provides real-time cash balance information to management. Through automatic direct debit,
the Cogemat Group’s system credits its account with amounts owed to the Cogemat Group by
retailers, including the cash collected by the retailer for games and convenience payment
services.
The Cogemat Group has a proprietary, high availability data center in Goito, and its material
information technology systems are duplicated for disaster recovery purposes. Separate systems
and infrastructure are employed for bench testing and proposed changes to systems are
thoroughly tested to avoid interruptions to service. Fully documented and tested disaster
recovery plans, based on the standards imposed by ADM, are in place with a focus on business
continuity. All the above arrangements are inspected regularly. The Cogemat Group monitors
and updates its information technology system in order to promote high standards of reliability,
business continuity, performance and scalability.
Under its concession agreements, the Cogemat Group is obligated to transfer the software
making up its AWP and VLT networks to ADM upon the expiration of the concessions.
Marketing
The Cogemat Group integrates its marketing and communication efforts with the requirements
of its different business units. The Cogemat Group aims to leverage its expansive distribution
network to reach a broad customer base; for example, the Cogemat Group has used TV and radio
broadcasts in the past to promote its brand and products. The Cogemat Group’s marketing and
communication strategy also involves promoting and supporting its social responsibility program.
Additionally, the Cogemat Group supports social initiatives through its iZiLove Foundation.
“iZi”-Brand
The Cogemat Group believes that its iZi-brands are well established and recognized in Italy.
Specifically, all the Cogemat Group’s AWPs bear its iZiSlot logo and all the Cogemat Group’s VLTs
bear its iZiVLT logo. Additionally, the Cogemat Group’s sports and horse race betting shops and
228
corners all bear the iZiPlay brand. The Cogemat Group launched its PayMat Convenience Payment
Services brand in 2005. To enhance brand awareness among consumers, the Cogemat Group
engages in targeted sponsoring activities, such as sponsoring Genoa C.F.C. (jersey sponsor until
2013/14 football season), A.C. Milan, S.S. Lazio and other football premier league teams in the
2015/16 football season which the Cogemat Group intends to continue in the future.
The Cogemat Group’s key brands include the following:
Supplier relationships
The Cogemat Group has established relationships with numerous business partners, including for
the provision of hardware, software, gaming materials, logistics services, call center services,
marketing and market research. As part of its quality management system, the Cogemat Group
carries out an evaluation and accreditation process for all the Cogemat Group’s business partners
who supply materials, services and supplies that directly influence customers and processes,
before entering into any business relationship with them. In addition, all the Cogemat Group’s
suppliers are contractually required to adhere to the Cogemat Group’s code of ethics which
requires them, among other things, to promote responsible gaming in compliance with the law.
By monitoring compliance with delivery times and other specifications, along with compliance
with technical and administrative requirements, the Cogemat Group is able to perform an overall
analysis of the business partner. This allows performance to be monitored at regular intervals
and offer opportunities for improvement.
The Cogemat Group relies on partnerships with leading international companies, such as
Novomatic, an integrated gaming company producing gaming equipment and operating gaming
outlets, SPIELO International, a designer, manufacturer and distributor of top-performing games,
cabinets, central systems and associated software to gaming markets around the world, and
Aristocrat, a premium manufacturer of AWPs and supplier of innovative technologies and
services to the international gaming industry for the provision of software relating to the
operation of its VLTs as well as gaming machine maintenance and support services. The Cogemat
Group has also entered into a long-term contract with Inspired to provide the Cogemat Group
with broadcasts of virtual events.
The Cogemat Group operates with a number of partners in its Convenience Payment Services
segment, including leading operators in the fixed and mobile telephony sector and in the digital
and satellite TV market, as well as gift card providers such as Alitalia, Groupon and L’Espresso.
Additionally, the Cogemat Group has entered into an agreement with Poste Italiane to accept
payment of certain bills, fines and TV license fees. Through an agreement with a licensed thirdparty payment institution, the Cogemat Group also sells PayMat-branded prepaid Mastercards.
These agreements have initial terms of one year and, after the expiration of the initial term the
agreement renews on a monthly basis with each party having the right to terminate the
agreement by giving 90-days’ written notice.
Innovation
The Cogemat Group operates a special department dedicated to business development and
innovation. In connection with any new product or new feature of an existing product, the
229
Cogemat Group’s business development department is in charge of international supplier
scouting, negotiating terms of potential agreements in cooperation with the responsible business
units for each project, and coordinating internal resources up to the launch of the new product
or service into the market. After launch, operations are usually managed by the respective
business unit teams. The business development department is also in charge of identifying new
potential business areas and new business models with the goal of expanding the Cogemat
Group’s existing activities. Additionally, the department is involved in the Cogemat Group’s bolton acquisition activities and, to this end, cooperates with several other departments, such as
business unit managers, legal, finance and planning departments.
Intellectual property
The Cogemat Group has a number of brands, logos, websites and other intellectual property
which the Cogemat Group seeks to protect from third-party infringement through the
registration of trademarks and through certain other means of trade secret protection, including
licenses, confidentiality and non-disclosure agreements as well as through other contractual
provisions. The Cogemat Group believes the strength of each of these brands, and the protection
of the associated intellectual property, is an important factor in the success of its business.
The Cogemat Group must comply with the legal, tax and management obligations related to the
registration of its trademarks and is obligated to transfer the rights in such trademarks to ADM
upon the expiration of the concession.
Insurance
The Cogemat Group faces risks of accident in its operations, including risk of fire, risks related to
third-party claims and risks related to its sophisticated IT infrastructure. The Cogemat Group
maintains comprehensive insurance policies with respect to, among other things, IT and property
damage and theft and robbery of electronic equipment and cash contained in gaming machines,
as well as business interruption and several insurance policies regarding its employees and
managers.
Employees
The following table shows the average number of the Cogemat Group’s employees by category
expressed in full time equivalents for the periods indicated.
For the Year Ended December 31,
2012
2013
2014
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clerical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
22
423
3
12
20
331
3
12
20
256
2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
457
366
290
All Cogemat Group employees are located in Italy and are subject to a national collective
bargaining agreement for the services industry which will expire at the end of 2017. Additionally,
the Cogemat Group’s managers are subject to a national bargaining agreement for managers of
the services industry which expired at the end of 2013 and which will remain in effect until a new
agreement is signed. Specifically, these collective bargaining agreements regulate regular and
additional salaries, working hours and termination rights.
During the last three years, the Cogemat Group has experienced labor stoppages that have
disrupted its activities for a total of approximately 30 days.
230
Properties
The Cogemat Group leases its primary executive office, which is located at Piazza della
Repubblica 32, 20124 Milan (seventh and eighth floors), and the relevant lease agreements are
set to expire in June 2016 (eighth floor) and in June 2019 (seventh floor). The Cogemat Group
also leases an executive office at Via Goito 58/A, 00185 Rome pursuant to a lease agreement
expiring in June 2019, and two warehouses for the storage of gaming machines at Via di Vittorio
33/30 and 33/26, Peschiera Borromeo (Milan). Furthermore, as of March 31, 2015, the Cogemat
Group leased and directly managed 3 iZiPlay sports and horse race betting shops in Italy.
Legal proceedings
Cogemat is not subject to legal proceedings. Consequently, this section only sets out the legal
proceedings of some of the entities of the Cogemat Group. In particular, Cogetech is subject to
various legal proceedings. On the basis of current information, the Cogemat Group does not
expect that the actual claims, lawsuits and other proceedings to which the Cogemat Group is
subject, or potential claims, lawsuits and other proceedings relating to matters of which the
Cogemat Group is aware, will ultimately have a material adverse effect on the Cogemat Group’s
business, results of operations, financial condition or liquidity. However, given the large or
indeterminate amounts sought in certain of these actions, and the inherent unpredictability of
litigation, it is possible that an adverse outcome in certain matters could, from time to time, have
a material adverse effect on the Cogemat Group’s business, results of operations or cash flows in
particular periods.
The Cogemat Group believes that it has fully complied with all its contractual and legal
obligations or have viable defenses, including that any non-compliance was due to circumstances
out of the Cogemat Group’s control, and it intends to continue to defend the below claims. The
Cogemat Group has not set aside any funds or reserves in the financial statements in respect of
the following legal proceedings and claims, except for approximately €1.2 million for Cogetech
Gaming’s proceedings relating to the minimum guaranteed amounts due to ADM in connection
with horse betting activities (see “—Pending litigation regarding payments to ADM of certain
minimum guaranteed amounts”).
Pending litigation regarding the Italian Stability Law of 2015
Administrative proceeding against the Italian Stability Law of 2015
The Italian Stability Law of 2015 requires the Cogetech to pay its proportionate amount of the
Stability Fee. The proportionate amounts of the Stability Fee due by VLT and AWP
concessionaires and operators for 2015 were quantified by the Decree. According to the Italian
Stability Law of 2015 and the Decree, VLT and AWP concessionaires are responsible for remitting
the entire portion of the Stability Fee represented by all VLTs and AWPs operated relating to
their concessions, whether or not those machines are operated directly by the concessionaire.
Concessionaires must remit payment of the entire portion of the Stability Fee assigned to them
by the Decree, and are individually responsible for seeking contribution from all partners
operating VLTs and AWPs by virtue of their concession. According to the Decree, Cogetech’s pro
rata portion of the Stability Fee for 2015 was determined to be €47.0 million payable in two
installments: 40% of the total due before April 30, 2015 and 60% due by October 31, 2015. In
accordance with the requirements of the Italian Stability Law of 2015 and the Decree, Cogetech
(i) requested that its partners contribute to it the portion of the Stability Fee represented by the
VLTs and AWPs operated by them under the Cogetech’s concessions and (ii) sought to
renegotiate the contracts governing the Cogetech’s relationships to reflect certain technical
changes required by the Italian Stability Law of 2015.
On February 9, 2015, Cogetech (joined by all other VLT and AWP concessionaires) challenged the
Decree before the Administrative Court (Tribunale Amministrativo Regionale, the “TAR”) for the
Region of Lazio arguing, inter alia, that the section of the Italian Stability Law of 2015 imposing
the Stability Fee violates the Italian Constitution and European law and that, as written, the
231
Italian Stability Law of 2015 does not require concessionaires to bear the responsibility of paying
any portion of the Stability Fee attributable to machines operated under their concessions by
partners that the concessionaire is unable to collect, in advance, from such third parties. The
partners from whom Cogetech requested contribution in respect of the amount of the Stability
Fee related to VLTs and AWPs operated by them under the Cogetech ’s concessions, joined
Cogetech ’s challenge of the Decree and cross-claimed against Cogetech challenging both
Cogetech’s requests for contribution and renegotiation of the contracts governing Cogetech’s
relationships. The filing parties requested a temporary injunction suspending the obligation to
pay the Stability Fee pending a decision on the merits, which was rejected by the TAR. A hearing
on the merits of all claims was held on July 1, 2015; the ruling is pending.
On April 30, 2015, Cogetech timely paid €12.2 million of the €18.8 million due under its first
installment the Stability Fee to the Italian Ministry of Economy and Finance (the “MEF”). To settle
all amounts owed under the first installment, the remaining €6.6 million (which represents
amounts owed to Cogetech by its partners but that Cogetech was unable to collect) was
deducted from the security deposit held by ADM (equal to 0.5% of the Cogetech’s gaming
machine gross revenues) thereby reducing the amount that will be refunded to us. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of
Cogemat—Financial indebtedness” for more information.
Civil proceeding concerning the Italian Stability Law of 2015
In addition to cross-claiming against the Cogemat Group in the administrative proceeding, the
Cogemat Group’s partners operating VLTs and AWPs under the Cogemat Group’s concessions
filed a claim against the Cogemat Group in the Civil Court of Milan (Tribunale Civile di Milano)
requesting a ruling that, inter alia: (i) they do not have an obligation to contribute to the
payment of the Stability Fee; (ii) certain behaviors of the concessionaires in relation to the Italian
Stability Law of 2015 violate antitrust law and are therefore prohibited; (iii) requests to
renegotiate the contracts governing their relationships with the Cogemat Group do not comply
with the duty of good faith; and (iv) the Cogemat Group may not deny access to the gaming
machines network based on non-contribution by its partners. The Civil Court of Milan did not
grant the temporary injunctive relief originally sought by such plaintiffs. A hearing was held on
July 6, 2015, and the judge adjourned the case until October 7, 2015. The Cogemat Group intends
to oppose the claim.
ADM proceedings
Claims Regarding Breach of Minimum Service Levels
The proceedings brought by ADM in October 2008 for the alleged breach of certain service levels
required for the AWP network (i.e., delay in network responses to ADM interrogations on
gaming volumes) are still pending. ADM has appointed a technical commission in order to
identify the criteria to determine, among other things, the size of the penalty for this alleged
fourth violation. In July 2009, the technical commission issued a report stating, among other
things, that in the event that ADM should impose a penalty on the Concessionaires, the amount
should not exceed 10% of their annual revenues from providing interconnection services. The
commission’s report further stated that the annual revenues of the Concessionaires should be
considered to be around 0.3% of the “coin in” (amounts wagered). Subsequently, the Council of
State (Consiglio di Stato) issued a statement to the effect that if the penalties were imposed on
the Concessionaires, the amount should not exceed 11% of their annual revenues from providing
interconnection services, which is considered to amount on average to approximately 0.25% and
1.2% of “coin in.” In October 2010, Cogetech and the other Concessionaires entered into a
further amendment to the concessions originally granted in 2004. Pursuant to the amendment,
the penalties imposed as a consequence of violations of the concession shall not exceed 11% of a
concessionaire’s actual compensation.
On January 27, 2012, ADM calculated the penalty for Cogetech’s alleged breach of certain service
levels to amount to approximately €7.6 million. Cogetech filed its appeal against the
232
determination of ADM on March 29, 2012, on the substantive legal grounds used to set aside the
first three alleged violations, as well as on the basis that the proposed penalty was improperly
calculated. In particular, the Cogemat Group believes that: (i) the basis on which the penalty has
been calculated includes not only the profit of Cogetech from its activity as concessionaire, but
also improperly includes the profit of Cogetech from its activity as operator of the network;
(ii) ADM did not suffer any damages and did not present any proof of any damage; (iii) ADM
failed to comply with certain administrative law principles on fairness of procedures and
proportionality of sanctions; and (iv) the ruling does not properly consider the previous ruling of
the Council of State on June 6, 2011 which vacated the three alleged violations and related
penalties and affirmed, inter alia, the absence of negligence or breach by Cogetech. Following a
hearing on May 10, 2012, the Administrative Court suspended the fourth penalty as a matter of
law pending a determination by the court on the merits of the case. The hearing to consider the
merits of the case was held on February 20, 2013. On June 17, 2013, the Administrative Court
ruled in Cogetech’s favor and voided the notice under which the fourth penalty was issued. On
January 30, 2014 ADM lodged an appeal against such ruling before the Council of State. The
appeal hearing was held on May 26, 2015; the ruling is pending.
Pending litigation regarding payments to ADM of certain minimum guaranteed amounts
On December 23, 2011 and June 15, 2012, Cogetech Gaming, together with other
concessionaires, was notified by ADM of certain orders requesting the payment of additional
amounts to supplement the minimum guaranteed amounts due to ADM in connection with horse
and betting activities in relation to the period from 2006 to 2011. Cogetech Gaming and the
other concessionaires have challenged the new requests. The previous requests received from
ADM for the payment of the minimum guaranteed amounts for the period from 2006 to 2011
were temporarily suspended by the Administrative Court pending implementation of a so-called
“safeguard measure” set out in Decree No. 223 of 4 July 2006 (“Decree No. 223”). When Decree
No. 16/2012 came into effect as Law No. 44/2012, any reference to such “safeguard measure” was
cancelled. As a result, the concessionaires raised the question of an alleged non-compliance to
constitutional principles of the new Law 44/2012. On January 30, 2013, as a consequence of the
appeals of the concessionaires, the Administrative Court suspended the proceedings initiated by
ADM and submitted the case to the Constitutional Court. The hearing before the Constitutional
Court was scheduled on October 8, 2013. In the meantime, in June 2013, ADM notified Cogetech
Gaming of additional orders requesting the payment of additional amounts for approximately
€300.000 to supplement the minimum guaranteed amounts due to ADM in connection with
horse and sport betting activities; Cogetech Gaming has appealed these orders before the TAR
Lazio, seeking their cancellation. On November 18, 2013, the Constitutional Court acknowledged
the illegitimacy of the article 10, par. 5, letter b, of the Law Decree no. 16/2002, turned into Law
no. 44/2012, limited to the expression “no more than 5 per cent” (“non superiore al
5 per cento”). By ruling no. 7324/2014 dated July 10, 2014 the TAR Lazio acknowledged the
unconstitutionality of Law 44/2012 and cancelled the payment orders of the guaranteed
minimum amounts related to years 2006-2011. The deadline for ADM to file an appeal against
the decision has passed. ADM is now entitled to issue new payment requests on the basis of a recalculation of the minimum guaranteed amounts to be performed by ADM taking into
consideration the outcome of the Courts’ decisions. As of the date of this Offering Memorandum,
ADM has not issued new payment requests. In relation to the proceeding before the TAR
concerning the orders issued in June 2013, Cogetech Gaming is waiting for the hearing for the
discussion of the case.
ADM’s administrative proceeding on alleged breaches of the rules regarding the physical
arrangement of gaming machines
On June 21, 2012, ADM ordered all concessionaires to pay €300 for each machine that, on the
basis of a survey conducted by ADM for the period January to August 2011, exceeded the limits
set forth under the rules on the physical arrangement of gaming machines. Based on ADM’
assessment and calculation, Cogetech would be required to pay fines of approximately €2 million.
233
After requesting and obtaining access to the documents used by ADM for their assessment and
calculation, Cogetech filed its counter deductions on January 31, 2013. The Cogemat Group
believes ADM has made a number of mistakes in extracting and calculating the data relating to,
among other things, the types of point of sale involved in the survey and their dimensions, in
terms of square meters. Moreover, in its survey, ADM does not seem to have taken into account
stolen, seized and substituted gaming machines. On August 5, 2013, ADM issued an
administrative act, confirming the fines against the concessionaries. After careful consideration,
Cogetech decided to challenge ADM’s deliberation before the Administrative Court. Therefore,
Cogetech is waiting for the hearing for the discussion of the case.
Submission of accounts by slot concessionaires
On August 2, 2012, the Public Prosecutor served the Concessionaires, including Cogetech, with a
technical relation of the reporting judge of the Judicial Section of the Lazio Region Department
of the State Auditor challenging the reliability of the accounts relating to the period from 2004
to 2009 that had previously been duly approved by ADM. Such relation contests that accounts
rendered for the period from 2004 to 2009 were not complete and were not based on fully
reliable data claiming that most of the AWPs were installed but not properly connected to the
central system. At a hearing on January 17, 2013 the Department of the State Auditor held that
accounts must be rendered pursuant to the accounting scheme provided by the United Sections
(Sezioni Unite) of the Department of the State Auditor on December 13, 2012. Cogetech
prepared a new set of accounts drafted pursuant to such accounting scheme provided by the
United Sections of the Department of the State Auditor on December 13, 2012. On July 27, 2013,
the Department of the State Auditor deemed that a decision cannot be issued with regard to
such case because it was not in a position to evaluate the available data. Furthermore, the
Department of the State Auditor submitted the case to the Public Prosecutor to ascertain any
administrative responsibilities of Cogetech. Cogetech appealed the ruling before the Court of
Auditor’s Jurisdictional Section, which, by ruling dated June 8, 2015, partially granted the appeal
and stated, inter alia, that the Court could not conclude the proceeding stating that it was not in
a position to evaluate the available data; the Court of Auditor’s Jurisdictional Section also
ordered a new evaluation of the accounts. Such evaluation will be based on data that the
Cogemat Group has already provided to the competent office of the Court of Audit of the Lazio
Region.
Litigation with Prestige Potenza S.r.l.s.
On April 28, 2014, Prestige Potenza S.r.l.s. (“Prestige Potenza”) brought an action against
Cogetech Gaming before the Court of Milan, requesting (i) the termination of an asset transfer
agreement between Cogetech Gaming and Prestige Potenza regarding a gaming center as a
result of a breach by Cogetech Gaming and (ii) the payment of damages arising from such breach
for approximately €18.6 million. In particular, it is alleged that Cogetech Gaming did not comply
with certain contractual obligations and proposed that Prestige Potenza resort to an unlawful
practice in order to start the operation of the gaming center in the temporary absence of the
license required by law.
Cogetech Gaming believes the claims to be groundless and has opposed them and filed a
counterclaim, requesting the termination of the agreement as a result of a breach by Prestige
Potenza as well as damages for €860,000. The last hearing was held on June 16, 2015. Cogetech
Gaming is awaiting the scheduling of the next hearing.
Litigation with Prestige Barbera S.r.l.s.
On June 9, 2014, Prestige Barbera S.r.l.s. (“Prestige Barbera”) brought an action against
Cogetech Gaming before the Court of Milan, requesting (i) the termination of an asset transfer
agreement between Cogetech Gaming and Prestige Barbera regarding a gaming center as a
result of a breach by Cogetech Gaming and (ii) the payment of damages arising from such breach
for approximately €12.6 million. In particular, it is alleged that Cogetech Gaming did not comply
234
with certain contractual obligations and proposed Prestige Barbera to resort an unlawful practice
in order to start the operation of the gaming center in the temporary absence of the license
required by law.
Cogetech Gaming believes the claims to be groundless and has opposed them and filed a
counterclaim, requesting the termination of the agreement as a result of a breach by Prestige
Barbera as well as damages for €450,000. The next hearing is scheduled for September 23, 2015.
Litigation with Lottomatica Scommesse
On May 14, 2013, Cogetech brought an action before the Court of Rome against Lottomatica
Scommesse, GTECH Sweden Interactive AB (formerly, Boss Media AB), GTECH S.p.A. and
Mr. Giovanni Puoti. The dispute arose after Lottomatica Scommesse, by availing itself of the
sanctions procedure set forth by the regulation annexed to the agreement between Cogetech
and Lottomatica Scommesse regarding the Pokerclub gaming system (the “Pokerclub
Agreement”), requested Mr. Puoti (as the independent expert appointed pursuant to the terms
of the Pokerclub Agreement) to ascertain alleged breaches by Cogetech and invoked the early
termination of the Pokerclub Agreement, with the consequence that, pursuant to Mr. Puoti’s
assessment being favorable to Lottomatica Scommesse, the players holding a Cogetech gaming
account were eventually deprived of the possibility to play on the Pokerclub gaming system with
those players who hold a gaming account managed by Lottomatica Scommesse. Consequently,
Cogetech filed a lawsuit seeking the annulment of Mr. Puoti’s assessment and the payment of all
damages suffered in connection with the conduct of Lottomatica Scommesse and the other
defendants. The defendants opposed Cogetech’s claim and, in particular, Lottomatica Scommesse
filed a counterclaim seeking the payment of damages for an amount of approximately
€3.0 million (including liquidated damages as well as damages resulting from the early
termination of the Pokerclub Agreement due to Cogetech’s alleged breaches). Cogetech is
awaiting the scheduling of the next hearing.
2015 Audit on Cogetech Gaming by the Italian Tax Authority
On June 8, 2015 the Italian Tax Authority (Department of the Province of Milan—Section for
Controls) notified Cogetech Gaming of the commencement of a tax audit related to: (i) direct
taxes (imposte dirette), VAT and IRAP with reference to the tax period (periodo di imposta) from
January 1, 2012 to December 31, 2012 and (ii) certain other former and subsequent operations.
The audit began on June 15 and is currently ongoing. Since the tax audit only recently began, we
are not in a position to estimate its effects on our operations or any potential additional taxes,
penalties or fees for such periods.
2015 request for information to Cogetech by the Italian Tax Authority
On June 26, 2015, the Italian Tax Authority notified Cogetech of a request for information
regarding the fiscal year 2013. Such request is based on an alleged inconsistency between
Cogetech’s income (as declared for tax purposes) and the costs incurred by such company in 2013,
but the relevant documentation was not duly attached to the Italian Tax Authority’s notice.
Therefore, Cogetech requested that the Italian Tax Authority send a new notice and, when the
requested documentation is received, Cogetech intends to provide any requested clarifications.
As this request for information is incomplete and very recent, Cogetech is not in a position to
estimate its effects on its operations or any potential additional taxes, penalties or fees in
connection therewith.
2015 requests for information to Cogetech Gaming by the Italian Tax Authority
On May 28, 2015, the Italian Tax Authority notified Cogetech Gaming of two requests for
additional information regarding the fair value of two POS sold by means of a transfer of business
unit (cessione di ramo d’azienda) by Cogetech Gaming in 2013. Cogetech Gaming provided the
Italian Tax Authority with the requested documentation and, in two meetings with the Italian Tax
Authority held on June 24, 2015 and on July 14, 2015, Cogetech Gaming provided clarifications
235
over the evaluation of the transferred POS. In addition, during the meeting held on July 14, 2015,
Cogetech Gaming was informed that the Italian Tax Authority is also examining five additional
transactions regarding five POS sold by means of a transfer of business unit (cessione di ramo
d’azienda) by Cogetech Gaming in 2013 and, in this respect, a meeting has been scheduled for
July 27, 2015 so that Cogetech may provide information to the Italian Tax Authority in connection
therewith. It cannot be excluded that the Italian Tax Authority may further extend its examinations
of additional transactions. Since these requests for information are very recent, Cogetech Gaming is
not in a position to estimate their effects on its operations or any potential additional taxes,
penalties or fees in connection with such transactions.
236
Regulation
The following paragraphs provide a brief description of the main European and Italian
regulations that govern the activities carried out by the Group. References and discussions to
treaties, laws, regulations and other administrative and regulatory documents are entirely
qualified by the full text of such treaties, laws, regulations and other administrative and
regulatory documents themselves.
Regulation of gaming activities
The Italian legal framework regulating the betting and gaming market is complex and is aimed
at striking a balance between compliance with principles and general guidelines established at
an EU level (in particular the principles of freedom of establishment (Article 49 of the Treaty on
the Functioning of the European Union “TFEU” —ex Article 43 of the European Community
Treaty “EC Treaty”) and freedom to provide services (Article 56 TFEU—ex Article 49 of the EC
Treaty) and the protection of the Italian treasury’s financial interest and the maintenance of
public order.
The competent authority in the area of public gaming
The Italian state has a monopoly on the right to organize and run gaming, betting and sports
pools, for which there is any kind of prize and for which payment of a sum of money is required
to participate. The Italian Ministry of Economy and Finance can manage these activities either
directly or through third-party regulators.
The management of gaming, betting and sports pools, including the management of the
applicable taxes (other than direct taxes and VAT), is carried out by ADM, which is an agency
established by the MEF. ADM regulates, inter alia, (i) the specific games and bets which may be
offered in the Italian betting and gaming market, (ii) the minimum and maximum wagers that
may be charged by operators, (iii) the payout ratio of winnings, (iv) the compensation paid to
concessionaires and (v) the number of points of sale.
Conditions to carry out a gaming activity
Anyone intending to carry out a gaming activity is required by Italian law to obtain the
following:
(a) a concession awarded by ADM in compliance with European Community and Italian
national public procurement rules; and
(b) a police license to run the betting, gaming machines and bingo activities in each single
point of sale, which is granted in accordance with Italian Royal Decree No. 773 of June 18,
1931, approving the consolidated text of public safety laws, as amended (Testo unico delle
leggi di pubblica sicurezza, the “TULPS”), which may be granted only to concessionaires or to
those authorized by the Government ministries or authorities that are entitled by law to
organize and manage betting, and/or to persons or entities appointed by the concessionaire
or authorized holder based on the concession or authorization.
Additional permits (such as authorizations and nihil obstat) may be required according to specific
legal provisions and ADM regulations.
The concessions are awarded by ADM by public tender, through which the concessionaires are
selected. The concessionaires and ADM enter into a concession agreement, the terms of which
are set by ADM and cannot be negotiated. The concession agreement regulates, amongst other
things, the permitted activities under the concession, the concessionaire’s obligations toward
ADM, the duration of the concession and the concession fee, the conditions for assignment of
the concession to third parties, the testing of the technical equipment necessary to carry out the
gaming activity that is covered by the concession, the form and the amount of guarantees to be
237
granted by the concessionaire in favor of ADM, the conditions for revocation or early termination
of the concession by ADM and the penalties for failure of the concessionaire to comply with its
obligations under the concession agreement.
A police license is granted by location, is personal and subject to revocation or suspension in
cases of violations committed by the authorized person. Persons who have a criminal record or
who are unable to demonstrate good character cannot obtain a police license. Additionally,
police licenses can be revoked if the authorized person subsequently fails to satisfy the
application criteria. Police licenses may impose special conditions, based on location, to protect
the public interest. Once the police license has been granted, the licensee must ensure at all
times that police have unrestricted access to the premises on which the activity subject to the
authorization is exercised.
Carrying out gaming activities without fulfilling the relevant licensing requirements is a criminal
offense. However, a concessionaire may assign the activity of collecting and accepting horse and
sports bets to third parties, in compliance with the TULPS and the concessions.
Regulatory framework relating to our concessions
Betting
Historically, the Comitato Olimpico Nazionale Italiano (“CONI”) and the Italian Ministries of
Finance and Agricultural Policy and Forestry have awarded concessions (the “Ordinary
Concessions”) for accepting sport bets (the “Ordinary Sports Concessions”) and horse race bets
(the “Ordinary Horse Racing Concessions”), each concession having a duration of six years,
renewable once for an additional six years. After the renewal period elapses, new concessions are
awarded by means of a public tender process. Snai held 228 Ordinary Sports Concessions and 100
Ordinary Horse Racing Concessions. The original expiry of such concessions was scheduled for
June 2012. Subsequently, Article 10, paragraph 9-novies, Law Decree No. 16 of March 2, 2012
converted by Law No. 44/2012, ordered the continuation of betting acceptance operations until
the date of execution of the agreements for access to the concession awarded under the tender
procedure provided under paragraph 9-octies of the same article. The relevant bid phase was
concluded in May 2013 and on September 4, 2013, Snai entered into ordinary Concession no.
4501, through which it was awarded with 278 rights for the acceptance of both sports and horse
race bets; this concession will expire on June 20, 2016. Concession no. 4501 also includes certain
financial requirements with which we must comply. See “—Gaming machines.”
Ordinary concessions
Ordinary Concessions include, amongst others, bets on horse races carried out as part of the
official program of Italian and foreign racecourses, contests linked to Olympic sports events
(including football, basketball, cycling, alpine skiing, cross-country skiing, tennis, sailing and
volleyball) and motor sports (motor racing and cycling). Since their introduction, ordinary
concessions have been expanded to allow betting on an extended list of games, and include the
possibility to operate both horse race and sports betting on the same premises provided that no
more than two concessionaires collect the different bets and provided both concessionaires are
represented by a single operator who holds a police license.
Ordinary sports concessions
Currently, Ordinary Sports Concessions are awarded by ADM. Ordinary Sports Concessions are
regulated by Italian Ministerial Decree No. 111 of March 1, 2006, which contains the following
key provisions:
(a) Operators Entitled to Collect Bets. The operators entitled to the collection of bets are the
concessionaires selected by ADM in compliance with national and EU principles. The
characteristics of the distribution networks of the concessionaires are set forth by ADM’
decrees. Bets are either collected at designated points of sale or remotely i.e. through mobile
238
or fixed telephone channels, the internet or interactive television. ADM can authorize
concessionaires to open temporary points of sale to allow for bets which are linked to, for
example, special events, to be accepted. Generally, any form of intermediation in the
collection of bets, i.e., the unauthorized or irregular collection of bets by persons other than
the concessionaires, is prohibited.
(b) Permitted Bets and ADM’s Official Programs. The type of bets covered by the concession
are fixed-odds bets on sports events (other than horse races) and non-sports events, including
single bets that are made in reference to the single result of a sole event and multiple bets,
so-called “martingala,” that are made in reference to the results of more than one event.
The characteristics of the types of bets, as well as the list of permitted sports and non-sports
events on which bets can be placed, are prescribed by ADM. Based on the official ADM
program, the concessionaire prepares the program of acceptance of bets which contains the
odds associated with each predicted result for the events on which bets are allowed. The
concessionaire’s program must be displayed at the points of sale and, with respect to bets
which are placed remotely, the concessionaire must make its program available through the
collection channels (i.e., mobile or fixed telephone channels, internet or interactive
television). The concessionaire is required to communicate any variation to its program to
the public immediately. Concessionaires are permitted to offer different odds for bets carried
out at an offline point of sale when compared to bets placed remotely. Fixed-odds bets are
those for which the sum to be cashed in case of winning is previously agreed between the
participant and the concessionaire of the bets.
(c) Miscellaneous Provisions. Additional relevant provisions include:
a. the minimum bet amount is €2.0;
b. with respect to fixed-odds bets on events other than horse race, Article 4,
paragraph 1, letter b) point 3 of Italian Legislative Decree No. 504 of December 23, 1998,
as subsequently amended, provides for the imposition of a one-off tax at rates for each
bet that vary from 2% to 8% depending on the net turnover generated by the fixedodds bets during the preceding 12-month period;
c. the exclusion of the operations connected with the exercise and collection of bets
from VAT;
d. maximum winnings for a single sports bet ticket cannot exceed €10,000, and for a
multiple sports bet ticket, €50,000;
e. provisions for the control of compliance with the applicable provisions, for example by
means of inspections at the concessionaires’ premises, the point of sale and on the
remote systems used by the concessionaires through ADM. In case of violation of the
applicable regulation, ADM issues measures of suspension of the remote collection
between the national totalizer and the concessionaire and, in cases of serious violation,
can terminate the concession;
f. provisions for the disbursement of winnings through the national totalizer, normally
at the point of sale or, for remote bets, according to the terms of payment indicated by
ADM;
g. provisions for the certification of the acceptance of the bet, which takes place
exclusively by the receipt of a participation issued by the game terminal, according to
the data provided by the national totalizer. The acceptance of remote bets is registered
in accordance with the procedures set forth by ADM. Remote bets are irrevocable; and
h. provisions for the maximum term during which requests for reimbursements and
winnings can be made, which is currently set at 90 days from the date of the result of
the last events which were the object of the bet. The amounts not requested within this
term will be paid to the Italian treasury.
239
Ordinary horse racing concession
Currently, Ordinary Horse Racing Concessions are awarded by ADM. Ordinary Horse Racing
Concessions are primarily regulated by Presidential Decree No. 169/1998, which contains
provisions on horse race bets at totalizer and at fixed-odds. The key provisions governing
Ordinary Horse Racing Concessions are:
(a) Concessions for the Exercise of Horse Race Bets. The concessions for the exercise of fixedodds and totalizer horse race bets are awarded by public tender to persons and companies
with appropriate and demonstrated technical, professional and financial prerequisites,
based, inter alia, on the following criteria: (i) transparency of the proprietary asset and
efficiency of the management of the single points of acceptance of bets; (ii) strengthening
the network for the collection and acceptance of bets; rational and balanced distribution on
the territory according to programmed and controllable parameters; (iii) homogeneity and
balance of the remuneration set forth for the various categories of concessionaires;
(iv) guarantee of competition and market freedom by provision of parameters aimed at
avoiding the abuse of dominant positions; and (v) provision of a centralized real-time control
of the bets and of the relevant financial flows. For the management of the bets, the
concessionaire must adopt remote tools that comply with the technical specifications
determined by the MEF. The right to collect bets directly at horse races is reserved for the
owner of the race track. The transfer of the concession is allowed upon prior consent by
ADM, in cooperation with the Ministry of Agricultural Policy and Forestry . The cooperation
is required because ADM has jurisdiction over horse race betting, while the Ministry of
Agricultural Policy and Forestry has jurisdiction over other horse race related matters (such as
horse races, race courses, and horse studs).
(b) Revocation of the Concessions. ADM, together with the Ministry of Agricultural Policy
and Forestry , may revoke the concession in the following cases: (i) inability to comply with
the requirements necessary for the award of the concession; (ii) interruption of the activities
for causes other than force majeure; (iii) violation of certain legal provisions concerning the
stockholders and the communication to the MEF of the transfer of shares or quota of the
concessionaire and particularly of the prohibition of intermediation in the collection of bets;
and (iv) violation of the provisions of Presidential Decree No. 169/1998 and of the decrees
that regulates the type of permitted bets. The concessionaire who has been subject to a
procedure of revocation (and managers and partners that exercise the control over the
company that holds the concession subject to revocation pursuant to Article 2359 of the
Italian Civil Code) cannot participate directly or indirectly in the tender process for the award
of new concessions for three years following the date of publication of the relevant act.
(c) Permitted Horse Race Bets and Official Program of the Races. Bets can be made at
national totalizers or at fixed-odds. Bets at totalizers are those where the overall amount,
net of the amount of a one-off tax withdrawal, is divided amongst the winners. The bets at
fixed-odds are those where the sum to be cashed in case of winning is previously agreed
between the customer and the manager of the bets. Such bets cannot be carried out at the
counters and agencies within the race courses. The MEF, also upon proposal by ASSI and in
cooperation with the Ministry of Agricultural Policy and Forestry , sets forth the types of bets
permitted, which includes bets that can be placed by telephone or via remote connection,
the number of the bets that can be placed and the limitations on amounts that can be bet.
The official program of the races, prepared by ASSI, is verified annually by the Ministry of
Agricultural Policy and Forestry , upon prior consultation with the MEF. Law No. 135/2012
and its implementing decree issued by the MEF jointly with the Ministry of the Agricultural
Policy and Forestry on January 31, 2013, provides for the transfer of the functions of ASSI to
the Ministry of Agricultural Policy and Forestry and to ADM.
(d) Miscellaneous Provisions. Additional relevant provisions include the following:
a. bets can be collected exclusively at race courses, horse race betting agencies and
betting offices. Any form of intermediation is prohibited;
240
b. the receipt, certified by the acceptance systems, is the only proof of participation in
the bet and cannot be replaced by any other form of proof; and
c. each holder of Ordinary Horse Racing Concessions is subject to the payment of a
withdrawal contribution (quota di prelievo) on pre-tax revenues (introito lordo) derived
from totalizer and fixed-odds horse race bets to ASSI, at the rates currently set forth by
the Italian Ministerial Decree of February 15, 1999. The ASSI contribution is used to
support the horse race industry, including the remuneration of the TV services for
reproduction of the images of the races in the points of sale or through other channels
(e.g., internet) and which are of practical use to the consumers to place their bets.
Bersani concessions
Upon implementation of Law Decree No. 223 of July 4, 2006 (converted into law by
Law No. 248/2006) (the “Bersani Decree”) on liberalization and reorganization of the public
gaming sector and the subsequent Bersani Invitation to Tender, we have been awarded
two concessions for public gaming based on events other than horse races (the “Bersani Sports
Concessions”) and on horse race events (the “Bersani Horse Racing Concessions”) and for the
establishment of the relevant distribution networks and related operation.
The Bersani Decree
The Bersani Decree confirmed the current licensing system of the gaming sector, based on
concessions, and the Italian state and ADM as competent authorities in the area of public
gaming. The Bersani Decree structures the new concessions as giving the right to open betting
corners, contains provisions that widen the range of operators which are entitled to participate
in the tenders for the awarding of concessions, and provides for principles aimed at reorganizing
the sports and horse race games with a view to eliminating the distinction between operators of
the two types of bets.
In particular, with the explicit purpose of fighting irregular and illegal gaming, tax evasion and
evasion in the gaming sector and in order to ensure the safety of the players, the Bersani Decree
introduced the following provisions:
(a) Remote gaming and regulation of the characteristics of the points of sale. The Bersani
Decree provided, inter alia, that the following should have been the subject matter of
specific regulations: (i) remote bets at fixed-odds with forms of direct interaction between
the single players; (ii) remote skill games with cash prizes (giochi di abilità a distanza con
vincita in denaro), in which the outcome depends mainly upon the skill of the players (in this
respect, the Bersani Decree points out that the single tax rate for remote skill games is set at
an amount equal to 3% of the sum wagered, and that card games of any kind are regarded
as skill games if they are organized as a tournament and in the event that the stake is
exclusively constituted by the sole amount required for registration); and (iii) the
requirements that the point of sale, having as its main activity the sale of public game
products, must satisfy. The aforementioned provisions concerning skill games were
implemented by Italian Ministerial Decree No. 186 of September 17, 2007.
(b) Bersani Sports Betting Concessions. Pursuant to the Bersani Decree, ADM must set forth
the new terms of the distribution of bets on events other than horse races, in compliance
with the following key criteria: inclusion, among public games, of: (i) totalizer bets and
fixed-odds bets on events other than horse races; (ii) sports pools; (iii) totip sports pools;
(iv) horse race bets under Article 1, paragraph 498, of Law No. 311 of December 30, 2004
(Vincente nazionale and Accoppiata nazionale); (v) any other public game based on events
other than horse race; (vi) possibility of gaming collection on events other than horse race by
operators that exercise the gaming collection in an EU Member State, by operators of
member states of the European Free Trade Association and operators of other states, only if
in possession of the requisites of reliability defined by ADM; (vii) exercise of the betting
collection by means of points of sale having as main activity the marketing of public game
241
products (which can be attributed sole selling rights exercise of certain types of bets)
(“Betting Shops”) and points of sale having as an accessory activity the marketing of public
game products (“Betting Corners”); (viii) provision for the establishment of at least 7,000
new points of sale of which at least 30% must be Betting Shops; (ix) determination of the
maximum number of points of sale for each municipality in proportion to the inhabitants
and in consideration of the points of sale already established; (x) award of the points of sale
upon prior call of one or more public tenders opened to all gaming operators, where the
tender basis cannot be lower than (1) €50,000 for each Betting Shop and (2) € 17,500 for each
Betting Corner; and (xi) acquisition of the possibility to collect remote gaming, including skill
games with cash prizes.
(c) Bersani Horse Race Concessions. Pursuant to the Bersani Decree, ADM must set forth the
terms for the distribution of horse race games, in compliance with the following criteria:
(i) inclusion, amongst horse race games, of totalizer and fixed-odds horse race bets, sports
pools, totip sport pools, horse race bets under Article 1, paragraph 498, of Law No. 311 of
December 30, 2004 and any other public game; (ii) the possibility of gaming collection on
horse race events by operators that exercise the gaming collection in an EU Member State, by
operators of member states of the European Free Trade Association and operators of other
states, only if they satisfy ADM criteria; (iii) exercise of the betting collection by means of
Betting Shops and Betting Corners; (iv) provision for the establishment of at least 10,000 new
points of sale of which at least 5% must be Betting Shops; (v) determination of the maximum
number of points of sale for each municipality in proportion to the inhabitants and in
consideration of the points of sale already granted; (vi) award of the points of sale upon
prior call of one or more public tenders opened to all gaming operators, where the tender
basis cannot be lower than (1) €30,000 for each Betting Shop and (2) €7,500 for each Betting
Corner; (vii) acquisition of the possibility to collect remote gaming, including skill games with
cash prizes; and (viii) definition of the terms of safeguard of the concessionaires for the
collection of bets on horse race events regulated by Presidential Decree No. 169/1998.
Implementation of the Bersani Decree
In implementing the above provisions of the Bersani Decree, ADM carried out two public tenders
concerning the granting of the Bersani Sports Concessions and the Bersani Horse Racing
Concessions. In particular, the subject of the tenders was the assignment of the rights for the
opening of Betting Shops and Betting Corners for gaming activities and activation of remote
gaming networks. The tenders held pursuant to the Bersani Decree assigned 16,300 rights to
open (i) 500 horse race Betting Shops, (ii) 9,500 horse race Betting Corners, (iii) 1,900 sports
Betting Shops, and (iv) 4,400 sports Betting Corners, as well as the right for the establishment of
remote horse race or sports betting networks.
The Bersani Concessions were awarded to several operators, including us. On April 6 and May 28,
2007, Snai and ADM executed two Bersani Concession Agreements, one for each type of right
awarded (rights concerning the exercise of bets on horse race events and rights concerning bets
on sport events). The term of these concessions (originally expiring on December 31, 2015) has
been extended until June 30, 2016 by Directorial Decree of September 7, 2007, No. 2007/49R/
Giochi/UD.
Licensing requirements for the exercise of remote skill games with cash prizes
The Bersani Decree also introduced remote games of skill in Italy, including remote card games,
such as online poker, that satisfy the following requirements: (i) which are organized in the form
of a tournament (except as otherwise provided by ADM) and (ii) for which the relevant stake is
represented by the sole amount paid for registration in Italy.
The requirements to exercise remote skill games with cash prizes are regulated by the Bersani
Decree and by Italian Ministerial Decree No. 186 of September 17, 2007 (the “Regulation”) as
well as by implementing ADM’ decrees and circular letters. The management of remote skill
242
games, as currently exercised, is subject to (i) the concessions set out in the Bersani Decree; (ii) an
authorization issued by ADM after verification of the security standards of the skill game
platform structure; and (iii) an authorization of the skill game plan pursuant to the Regulation.
The gaming operators entitled to file the request for authorizations to exercise skill games
(including online poker) with ADM pursuant to the Regulation are all holders of the Bersani
Concessions. ADM simplified the authorization procedures for those concessionaires that intend
to use skill game platforms and skill game plans and that are already authorized, favoring these
over other concessionaires, upon the condition that a copy of the relevant authorizations be
attached to the applications.
As part of the current temporary regime, concessionaires authorized to operate remote skill
games pursuant to Directorial Decree of March 21, 2006 can offer sessions of remote skill games
only to those consumers who have entered into a game account agreement with them which has
been subsequently approved by ADM. In order to execute the agreement, the operator must
check the player’s personal details, age, and fiscal code. Only one agreement per player per
concessionaire can be executed. In case of the termination or withdrawal of the agreement, the
execution of a new agreement with the same player is not allowed for 30 days from the date of
termination.
ADM measures aimed at the closing down of illegal websites
Article 1, paragraph 50, of Law No. 296/2006, provides that, in line with the principles stated by
Article 38 of the Bersani Decree and with the purpose of fighting the spread of illegal games and
tax evasion in the gaming sector, as well as to ensure public order and the protection of players,
ADM should set forth ways to eliminate the offering of games, betting and sports pools with
cash prizes, by means of telecommunication networks, without concessions, authorizations,
licenses or other permits or which are, in any case, offered in violation of the existing legal
framework.
ADM Directorial Decrees No. 1034/CGV of January 2, 2007, May 29, 2007 and June 10, 2008,
implementing provisions of the Bersani Decree, introduced a set of fines for website operators
not complying with ADM standards, ranging from €30,000 to €180,000 per ascertained violation.
A list of the websites removed for not being in compliance with applicable legal standards is set
out on ADM’ official website.
“Giorgetti” Concession
In 1999, the Italian Government decided to increase the number of horse race betting center in
Italy from 329 to 1,000, by offering 671 new licenses by tender and by renewing the 329 existing
ones (“Historic Horseracing Concessions”). In particular, with the Italian Ministerial Decree dated
December 21, 1999, the Italian authorities provided for the renewal of Historic Horseracing
Concessions (of which 298 held by Snai), for a period of six years effective from January 1, 2000,
without their being put out to competition.
On July 24, 2001, the European Commission initiated infringement procedures against Italy
pursuant to Article 226 of the EC Treaty, in which the renewal of the Historic Horseracing
Concessions were challenged on the basis that they were carried out without inviting any
competing bids, in breach of the general principles of EC competition law and freedom of
establishment as set out in the EC Treaty.
In response, the Italian Government adopted Law Decree No. 452/2001 (converted into law by
Law No. 16/2002), providing that the Historic Horseracing Concessions were to be reallocated by
way of a Community call for tenders, and that they would remain valid until that reallocation
had been finalized. The European Commission was unsatisfied with the implementation of the
provisions of Law No. 16/2002 and issued a reasoned opinion on October 16, 2002 asking the
Italian Republic to adopt the necessary measures to comply with the reasoned opinion within
two months from its receipt. By letter of December 10, 2002, the Italian Government responded
243
that it had to conduct a detailed assessment of the financial status of the existing concession
holders before issuing a call for tenders. Subsequently, UNIRE’s resolution No. 107 of October 14,
2003, by implementing Article 8, paragraph 13, of Law No. 200/2003, in light of the financial
difficulties encountered by the sector, provided for the renewal of the Historic Horseracing
Concessions until 2012, in favor of those concessionaires who had signed the agreement for the
settlement of their debts in relation to the Historic Horseracing Concessions.
As a result of the continuing failure of the Republic of Italy to comply with the European
Commission’s reasoned decision No. 1999/5352 of October 16, 2002, the Commission appealed to
the European Court of Justice (“ECJ”). In its conclusions presented on March 29, 2007, Advocate
General Sharpston asked the ECJ to reach the conclusion that the Republic of Italy failed to fulfill
its obligations under Article 226 of the EC Treaty.
On September 13, 2007, the ECJ confirmed the conclusion of the Advocate General, that by
renewing the 329 Historic Horseracing Concessions without inviting any competing bids, Republic
of Italy failed to fulfill its obligations under Articles 43 and 49 EC Treaty and, in particular,
infringed the general principle of transparency and the obligation to ensure a sufficient degree
of advertising. Therefore, pursuant to Article 4-bis of Law Decree No. 59 of April 8, 2008,
converted into law by Law No. 101 of June 6, 2008, as further implemented by Article 1-bis of
Law Decree No. 149/2008 (converted into law by Law No. 184/2008 and amended by Article 2,
paragraph 49 and 50 of Law No. 203/2008) the Government revoked all Historical Horseracing
Concessions, including the 134 held by us and the four held by Agenzia Ippica Monteverde di
Maugliani Susanna & C.SNC (“AIM”). On February 3, 2009 and February 9, 2009, in line with the
ECJ’s judgment, ADM published a call for the tender of the 329 Historic Horseracing Concessions
in the European Union Official Journal and in the Italian Official Journal. The purpose of the
public tender was to award concessions for the exercise of horse race public gaming, by opening
and managing 3,000 horse race Betting Corners. We participated to the tender procedure by
means of AIM and obtained, in May 2009, the awarding of a concession composed by No. 303
rights to open selling points (the “Giorgetti Concession”). On November 11 2010 AIM has been
merged into Snai which took over the Giorgetti Concession in March 2011. Giorgetti Concession
will expire on June 2016.
CTD Regulations
CTDs are betting shops located in Italy and operated by foreign-licensed online gaming operators
on the basis of the EU principle of freedom of services. CTDs operate outside of the Italian
gaming tax regime.
The Italian Stability Law of 2015 and ADM Directorial Decree No. 4084/2015 set forth, inter alia, a
procedure allowing CTDs in operation in Italy as of October 30, 2014 are entitled to legitimize
their operations in Italy.
In particular, the Italian Stability Law of 2015 prescribes, inter alia, that CTDs wishing to
legitimize must:
• submit an application to ADM, by January 31, 2015 to cure their tax exposure and connect their
operations to the ADM servers through a legitimate ADM betting concessionaire;
• pay a one-time €10,000 fee;
• execute with ADM by February 28, 2015 the applicable operational rules set forth by ADM
through Directorial Decree No. 4084/2015; and
• pay, by June 30, 2015 and November 31, 2015 unpaid taxes from prior years, which shall be
reduced by one-third and forgiven of all interest and penalties.
By satisfying the above conditions, CTDs will be authorized to offer their games through 2016
when they will then be eligible to apply for an Italian gaming license. The Italian Stability Law of
2015 also increases the sanctions applicable to CTDs that do not adhere to the above-mentioned
procedure.
244
Gaming machines
We hold one of the thirteen concessions for the operation of the network for the remote
management of legal games by means of gaming machines, also referred to as AWP and VLTs,
regulated by TULPS, as well as related activities and functions.
We were initially awarded a concession to act as a network operator of gaming machines in
2004. The concession expired in December 2011 but was subsequently extended until the
conclusion of the public tender for the award of the concession for the subsequent period. On
February 15, 2013, ADM awarded to Snai the new concession for the operation of the network
for the remote management of legal games by means of gaming machines and connected
activities and functions (the “Gaming Machine Concession”). The agreement governing the
Gaming Machine Concession was executed by Snai and ADM on March 20, 2013 and will expire
on March 20, 2022.
Only machines equipped with a certification of compliance with the applicable provisions issued
by ADM and which are connected to ADM network are allowed to be operated in Italy. To
comply with ADM requirements, gaming machines must be equipped with an element of chance
(i.e., random or dependent on chance or luck) as well as a skill element that allow the consumer
to choose a gaming strategy, by selecting their preferred gaming option at the start of or during
the game. Applicable law requires that the cost of the game does not exceed € 1 and that the
minimum duration of any game is four seconds. Monetary winnings must not exceed €100 in any
one play. The machine must calculate the winnings in an unpredictable way over a cycle of a
maximum of 140,000 games. The payout ratio must not fall below 74% of turnover. In addition,
the Gaming Machine Concession sets forth, inter alia, specific financial covenants and capital
requirements as set out in Italian Ministerial Decree No. 1845/2011 of June 28, 2011 (“Decree
1845”) that we must comply with in order to obtain and maintain such concession. In respect of
the financial covenants, we are required to maintain for all the duration of the concession a ratio
not higher than 4:1 between our net financial indebtedness and our total shareholders’ equity
(each as defined in Decree 1845, which under certain circumstances allows add backs to
shareholders’ equity related to off balance sheet guarantees procured in favor of ADM) and,
pursuant to our Gaming Machine Concession, if we fail to maintain such ratio for three
consecutive years, ADM is entitled to terminate such concession. Decree 1845 also (i) establishes
certain capital adequacy requirements, measured on the basis of certain economic and financial
indicators, which are tested annually and evidenced in a report we submit to ADM together with
our financial statements and (ii) introduces certain moral and professionalism requirements that
our chairman, managers and agents must meet.
Gaming machines, as well as other betting and gaming activities, may only be played by adults
over the age of 18 and the shopkeeper or manager of the point of sale can be subject to
administrative sanctions in case of a violation of the age restriction.
Legal framework governing the gaming machines network
Law No. 289 of December 27, 2002, as subsequently amended by the Bersani Decree, allowed for
the introduction of new gaming machines, by regulating the following:
Nihil obstat
In order to operate a gaming machine in Italy a manufacturer or importer of the machines must
obtain the following licenses from ADM:
(a) a certification of compliance with technical and electronic systems of identification and
control of gaming machines in accordance with the requirements set forth by ADM for each
type of gaming machine that the manufacturer intends to manufacture or import. This is to
ensure that the machines can be controlled remotely, regardless of location or barriers
between the regulator receiving and reviewing the data and the machine; and
245
(b) nihil obstat for the machines to be distributed, each of which is to be identified by a
serial number, upon self-certification that the machines comply with the model specifications
certified by ADM.
The manager of machines produced or imported after January 1, 2003, must obtain a further
nihil obstat by indicating the serial number of each machine as well as the details of the relevant
authorizations of the importer or manufacturer. A pre-condition for the issuance of such
additional nihil obstat is the possession of a valid police license provided by TULPS.
The gaming machines network
Each concessionaire is required to ensure that its gaming machine network complies with the law
and must immediately communicate to ADM and other relevant authorities any potential noncompliance in its gaming machines. Upon the malfunctioning of a gaming machine, the
concessionaire is under an obligation to disconnect the non-compliant machine from the network
by giving notice to ADM and other relevant authorities. The concessionaire must verify that the
shopkeeper blocks non-compliant machines.
Additionally, the concessionaire is required to fulfill its administrative obligations relating to
gaming machines and to calculate the one-off tax withdrawal (prelievo erariale unico, “PREU”)
and pay the relevant sums for the machines connected to the network that are managed by such
concessionaire, as required by the relevant ADM decree. Furthermore, the concessionaire must
carry out all other activities and functions required for the correct and effective management of
the machines and must ensure the ordinary and extraordinary maintenance of the network,
according to the process indicated by ADM, with the purpose of ensuring the maintenance of the
technical and market value of the network owned by ADM.
Gaming Machine Concession fee and concessionaire remuneration
In 2005, Law No. 266/2005 amended the existing framework. Currently, the Gaming Machine
Concession provides the concessionaire pays to ADM a separate concession fee (currently
contractually fixed at a rate of 0.3% of turnover) as well as remits to ADM a security deposit in
the amount of 0.5% for each gaming machine for which a nihil obstat or a serial number is
provided by ADM to guarantee the level of the service and the number of machines installed.
The 0.5% deposit is returned to the concessionaires in the subsequent year (usually within the
first six months), upon fulfillment of certain conditions and in proportion to the level of
compliance achieved.
Video lottery terminals
Article 12, paragraph 1, letter l), of Law Decree No. 39 of April 28, 2009 (concerning state of
emergency measures in the Abruzzo Region following the recent earthquake) (the “Abruzzo
Decree”), allowed ADM to implement the testing and operation of gaming systems consisting of
(i) the remote control of the game by means of VLTs in dedicated premises, (ii) remote and
random winning combinations and (iii) the restitution of a minimum payout of 85% of the
collected sums. To implement VLTs, ADM was delegated powers to define, amongst other things,
the rules of the games, the procedures, requirements and authorization required for the
installation of the VLTs and the taxation rates on collected sums.
Pursuant to Article 21, paragraph 7, of Law Decree No. 78/2009 (converted into law by Law
No. 102/2009), ADM called a public tender for the award of concessions to act as a network
system operator for, inter alia, gaming machines and VLTs. A total of twelve concessions were
awarded the rights to install and operate VLTs in Italy as of 2013. The operation of VLTs is
currently governed by the Gaming Machines Concession executed in 2013, which will expire on
March 20, 2022.
246
The gaming machines market currently includes 13 concessionaires (including the Group),
including one concessionaire that is operating pursuant to an extended concession granted by
ADM and a further three concessionaires that must install a minimum number of AWPs by
September 2013 in order to accrue rights to deploy VLTs.
Since February 2010, ADM Decree No. 43593 of January 22, 2010 provides the legal framework
applicable to VLTs. Pursuant to the decree, VLTs and related gaming systems must be connected
to a control system and control network which is operated by an authorized network system
operator. The games played on the VLTs must be capable of remote monitoring for regulatory
and tax purposes. ADM decree also sets forth requirements for the testing and commissioning of
gaming systems, the operating parameters for the games and a timetable for the introduction of
VLTs into the Italian market.
The minimum and maximum costs per individual game are set at €0.5 and €10.0, respectively.
Payment for games may be made by coin, tickets, prepaid cards, “smart” cards in respect of
registered gaming accounts or the reinvestment of previous winnings. The decree sets the
maximum payout for VLT games at €5,000 per game; however, this amount is higher in the case
of jackpots which are set at a maximum payout of €100,000 per gaming room and at
€500,000 per gaming system. Pursuant to the decree, no less than 85% of turnover must be paid
to players, and up to a maximum of 4% of payout can be paid to players in the case of jackpots.
Pursuant to ADM Decree No. 30011 of July 27, 2011, VLTs can only be installed in bingo halls,
betting agencies during sports events, agencies for totalizer and fixed-odds betting on horse
races, in gaming shops with the primary business activity of marketing public gaming products,
public gaming rooms specifically established for the conduct of lawful gaming that provide a
separate area for games reserved for underage players, and establishments dedicated exclusively
to VLTs and gaming machines. VLTs can be installed in these premises only on the condition that
the premises hold the specific gaming license in accordance with the Italian regulatory
framework. The decree provides that the maximum number of video VLTs that can be installed
and operated on any of these premises must be limited by reference to a proportion of the
premises’ surface area and/or to the total number of gaming or other betting machines hosted.
The PREU tax levied on the amount wagered on VLTs was set at 4% in 2012 and 5% from 2013
onwards, plus an additional 6% on the quota of winnings exceeding €500. The application of the
additional 6% of PREU tax was temporarily suspended by a preliminary injunction of the
Administrative Regional Court of Lazio, dated January 13, 2012, and is still pending. In addition,
as is the case for gaming machines, each concessionaire pays a separate fee to ADM in the
amount of 0.3% of turnover and remits a 0.5% deposit that is returned upon satisfaction of
certain conditions. See also “—Gaming Machine Concession fee and concessionaire
remuneration.”
Covenants and other undertakings under our VLT and gaming machines concession
The agreement with ADM governing our VLT and AWP concession contain certain covenants,
undertakings and other requirements that we must comply with, including, among others,
(i) capital maintenance requirements, including when required by ADM; (ii) financial statements
delivery requirement (within 15 days of their approval); (iii) prevention of conflicts of interest of
directors; (iv) financial maintenance covenants (adeguati requisiti di solidita` patrimoniale),
including the requirement that our ratio of net financial position to net assets does not exceed 4
to 1 and (v) restrictions with respect to the distribution of dividends. If a concessionaire fail to
comply with the terms of our concession, ADM could revoke or suspend the concession.
Stability Fee owed pursuant to the Italian Stability Law of 2015
The Italian Stability Law of 2015 requires VLT and gaming machines concessionaires and
operators to pay their proportionate amount of the Stability Fee. The proportionate amounts of
the Stability Fee due by VLT and gaming machines concessionaires and operators for 2015 were
247
quantified by the Decree. According to the Italian Stability Law of 2015 and the Decree, VLT and
gaming machines concessionaires are responsible for remitting the entire portion of the Stability
Fee represented by all VLTs and gaming machines operated relating to their concessions, whether
or not those machines are operated directly by the concessionaire. Each concessionaire is
responsible for seeking contribution for their portion of the Stability Fee from all operators
operating VLTs and gaming machines relating to their concessions, and must remit their Stability
Fee payments in their entirety, whether or not they have received full contribution from their
indirect operators. According to the Decree, the pro rata portion of the Stability Fee for 2015 is
payable in two installments: 40% of the total due before April 30, 2015 and 60% due by
October 31, 2015.
Further aspects of the regulatory framework
Changes to the gaming concession legal framework regarding the exercise and remote
collection of bets and games
The current legal and regulatory framework of public games outlined above has been
consolidated into Article 24, paragraphs 11-26 of Law No. 88 of July 7, 2009 (the “2008
Community Law”), which was passed by the Italian Parliament in order to ensure compliance of
the Italian regulation with the principles of freedom of establishment (Article 49 TFEU) and
freedom to provide services (Article 56 TFEU). The 2008 Community Law has determined the need
to merge the existing concessions (see “—GDA (giochi a distanza) Concession”) and that is
expected to introduce significant integrations and changes to the process, requirements and
conditions for the exercise of the games in the future, as described below.
The purpose of this new regulation is to curtail the spread of irregular and illegal games and
betting and to ensure the protection of consumers and of public order, the protection of minors
as well as the avoidance of infiltration of organized crime into the gaming sector. Additionally,
the new regulatory framework aims to modify and integrate the existing Italian regulatory
framework to comply with Articles 49 and 56 TFEU (Article 43 and 49 EC Treaty), the provisions of
the TULPS and the principles of non-discrimination, necessity, proportionality and transparency,
with a view to open the Italian market to further competition from abroad.
In particular, the concessions for the exercise and remote collection of certain public games can
directly be issued by ADM upon the filing of an application by gaming operators that meet
specific requirements and comply with certain economic obligations rather than being assigned
by public tender only. See “—Regulation of certain aspects of the gaming sector.” Additionally,
the new regulatory framework provides that current concessionaires may broaden their range of
activities carried-out by filing an application to ADM. The 2008 Community Law entitles ADM to
integrate the provisions illustrated below by means of ADM’ directorial decrees. Said provisions
have been, in part, implemented by ADM’ directorial decrees on the basis of a specific feasibility
project in accordance with Article 24, paragraph 26 of 2008 Community Law.
Regulation of certain aspects of the gaming sector
Pursuant to Article 24, paragraph 12, of 2008 Community Law, ADM is entitled to introduce
detailed regulations, in compliance with the provisions of the 2008 Community Law, relating to
following public games, listed under Article 24, paragraph 11 of the 2008 Community Law:
(a) fixed-odds and totalizer bets on sports events, including virtual sports events and horse
race events and on non-sports events;
(b) horse race and sport pools;
(c) national horse race games;
(d) skill games;
248
(e) fixed-odds bets with direct interaction between the players;
(f) bingo;
(g) numeric games at the national totalizer; and
(h) lotteries at instantaneous and deferred drawing.
Requirement that written formal contracts with certain retail partners and managers are
executed and submitted to ADM upon request
Pursuant to the agreement governing our VLTs and AWPs concessions, concessionaires are
required to execute formal contracts with, among others, each of their third party retail partners,
including owners and operators of AWPs, (any such third party has to be included in the list held
by ADM pursuant to Decree of the Italian Ministry of Finance no. 31857 dated September 9,
2011), and provide copies thereof to ADM upon request. ADM requested to all concessionaires to
comply with such requirements by September 20, 2013. A concessionaire’s failure to comply with
this requirement could result in ADM imposing annual sanctions and administrative penalties of
up to 11% of the actual compensation a concessionaire receives for the network connection
services provided for VLTs and AWPs in the year in which such violations occurred or are alleged
to have occurred.
Condition for the exercise of numeric games at the national totalizer and lotteries by other
concessionaires
The remote collection of the public games indicated by Article 24, paragraph 11 of the 2008
Community Law, letters (g) and (h), can be carried out by those concessionaires authorized to
provide the same games through offline channels (i.e., on a non-remote basis) upon ADM
authorization. In addition, said concessionaires must obtain a license issued by the current
holders of the concessions for the remote collection of the abovementioned public games. Such
license must provide that said concessionaires pay a commission not lower than the one
recognized by the managers of the points of sale of such games that are part of the offline
collection network of the current sole holder of the respective concessions.
Conditions for the issuance of new concessions
The exercise and remote collection of the public games indicated in Article 24, paragraph 11,
letters a) to f) of 2008 Community Law is permitted to (i) operators that fulfill certain
requirements and that undertake the obligations described below in favor of which ADM shall
issue a nine-year concession; and (ii) operators that already hold a concession for the exercise and
collection of one or more public games by means of offline and/or remote networks.
Notwithstanding the foregoing, ADM may limit new concessions to a maximum of 200 for fixedodds or totalizer bets on sport events, including virtual sports events, and including horse race
events, as well as non-sports events.
We have successfully participated in all public tenders for multi-concessions and we have 100%
track record of successfully renewing such concessions that we seek to maintain.
New concessions in favor of new operators
Subject to compliance with the following requirements and conditions, new concessions can be
issued to operators as indicated in the section entitled “—Conditions for the issuance of new
concessions” above:
(a) the operator must exercise the activity (including remotely) of managing and collecting
games in one of the member states of the European Economic Area, where the operator
must have been registered or where they have located a business office, based on a valid and
effective authorization issued according to the legal system of such state, with an overall
249
turnover, connected to the gaming activity, of no less than €1,500,000 during the last two
fiscal years closed before the date of submission of the application;
(b) if the requirements indicated under (a) above are not satisfied, the operator must (i) have
a technical infrastructural capacity not lower than that required by the technical
specification signed by the current concessionaires, as certified by a technical report signed
by a third independent party; and (ii) set up a first demand two-year bank or insurance
guarantee in favor of ADM in an amount of no less than to €1,500,000;
(c) the operator must be set up as a corporation (società di capitali) with registered office in
one of the member states of the European Economic Area, prior to the issuance of the
concession and execution of the relevant concession agreement;
(d) the chairman, managers and agents of the operators must meet certain specific ethical
and professional requirements;
(e) the technological hardware and software infrastructure for the exercise of the gaming
activity which is the subject matter of the concession must be located in one of the states of
the European Economic Area;
(f) the operator must pay to ADM a one-off fee, covering the entire duration of the
concession, as contribution to the expenses for the technical and administrative management
by ADM of the licensed activity, in an amount equal to €300,000 plus VAT for skill game
concessions. This amount can be increased every three years based on the index of national
consumer prices for the general public (NIC) published by ISTAT; and
(g) the operator must execute a specific deed of undertaking.
Condition for the exercise of new games by existing concessionaires
Existing concessionaires that apply for a concession for the exercise and remote collection of
those games that are listed in Article 24, paragraph 11, letter a) to f) (i.e., all games mentioned in
“—Regulation of certain aspects of the gaming sector” with the exception of the numeric games
at national totalizer and lotteries) to broaden or complete their existing offering of games they
are already entitled to provide and exercise remote collection, must pay to ADM a one-off fee of
the amount indicated below:
(a) concessionaires that hold a concession for Bingo games which file an application
concerning the games indicated in Article 24, paragraph 11, letter a) to e) (i.e., all games
mentioned in “—Regulation of certain aspects of the gaming sector” excluding bingo,
numeric games at national totalizer and lotteries) must pay €300,000;
(b) concessionaires that hold Bersani Decree Concessions which file an application concerning
Bingo games €50,000; and
(c) concessionaires holding concessions relating to all remaining games, and that are not
already entitled to the remote collection of their games which file an application concerning
the games indicated in Article 24, paragraph 11, letter a) to f) (i.e., all games mentioned in
“—Regulation of certain aspects of the gaming sector” excluding numeric games at the
national totalizer and lotteries) must pay €350,000.
These amounts can be increased every three years based on the index of national consumer prices
for the general public (NIC) published by ISTAT.
Content of the relevant applications
The law prescribes the content of an application for a concession which must be published on
ADM’ website. Submission of the application entails the undertaking of several obligations in a
deed of undertaking, which shall be valid throughout the life of the concession agreement. The
250
procedure for the assessment of the applications must be completed by ADM within 90 days from
filing of the application. Within 90 days from the date indicated by ADM, the concessionaire for
the exercise and remote collection of public games must sign an addendum to the existing
concession which conforms the existing concession to the changed regulatory framework
outlined above.
Condition for the exercise of remote games
The management of remote games is conditioned on the conclusion of a game account
agreement between the player and the concessionaire. ADM is required to publish a model game
account agreement which must comply with the provision of the 2008 Community Law on its
website.
GDA (giochi a distanza) Concession
In accordance with the new provisions of the 2008 Community Law, ADM launched a procedure
for awarding the concessions for the exercise of remote games. Such process was open to (a) new
operators and (b) existing concessionaires by means of the offline and remote network, or both.
In case sub (b) the tender process was aimed at the integration of the existing concessions for the
exercise of the remote collection of games and bets for the purpose to adequate such concessions
to the new requirements introduced by the 2008 Community Law.
ADM has awarded approximately 200 concessions for the remote collection of bets and games
(the “GDA Concession”) concerning, inter alia: (i) horse race and sport pools; (ii) skill games
(e.g. poker cash); (iii) bingo; and (iv) numeric games at national totalizer.
We have been awarded with a GDA concession and have been authorized to the remote
collection of the above mentioned games. The GDA Concession will expire on September 2020.
Further provisions on gaming concessions
Article 2, paragraph 2 of Law Decree No. 40 of March 25, 2010, (the “Incentives Decree”),
converted into Law No. 73 of May 22, 2010, prohibits any business relationship between the
holders of concessions which generate income for the Italian treasury and third parties, unless
such business relationships are expressly allowed by the tender documentation for the award of
the relevant concessions. Any consideration received by the concessionaires from third parties in
violation of the aforementioned prohibition is to be paid to the authority that granted the
concession. According to an opinion issued by the Council of State this prohibition also applies to
gaming concessions.
Law Decree No. 2 of March 16, 2012, converted into law by Law No. 44 of April 26, 2012,
subsequently clarified that Article 2.2 should be interpreted to only apply to concessions awarded
on the basis of tender procedures launched after the Incentive Decree came into force.
The Incentives Decree entitles ADM to integrate the existing gaming concessions in order to
introduce administrative fines for breaches of the prohibition established under the Incentive
Decree. Such fines have to comply with the principles of reasonableness and proportionality.
Furthermore, Article 2.2-bis, confirms that the activities of remote gaming collection can only be
carried out by concessionaires and in compliance with the provisions of the relevant concessions
granted by ADM.
Winning probability (Decreto Balduzzi)
To reduce the impact of diseases related to gaming activities and to guarantee a legal and
transparent gaming sector, pursuant to Article 7, paragraph 4-bis, of Law Decree No. 158 dated
September 13, 2012, converted into law by Law No. 189 of November 8, 2012 (the so-called
251
“Decreto Balduzzi”) gaming advertisement must clearly indicate the percentage regarding the
winning probability of the game, or, if not available, the historical percentage of similar games.
The Decreto Balduzzi also establishes minimum future geographical ratios for the localization of
new points of sale (i.e. minimum distances from sensitive areas, such as school, hospitals and
religious building)
Anti-money laundering regulations
We are subject to anti-money laundering rules and regulations, including Italian Legislative
Decree No. 231 of November 21, 2007, as amended, implementing in Italy the anti-money
laundering EU Directive (2005/60/EC).
In particular, we are required to:
(a) adequately identify and verify our customers using rigorous procedures of identification
and verification (for transactions involving amounts equal to or in excess of €1,000—while all
transactions, regardless of amount, related to online games are subject to verification) and in
situations that are deemed higher-risk for money laundering and terrorism financing;
(b) establish a Consolidated Computer Archive (Archivio Unico Informatico, “AUI”);
(c) record and preserve the identifying data and other information related to relationships
and transactions in the AUI;
(d) send the compiled data to the Financial Information Unit (Unità di Informazione
Finanziaria);
(e) report suspicious transactions; and
(f) establish internal control measures and ensure adequate training of employees.
Anti-Mafia Code
As of February 13, 2013, we are subject to the anti-mafia provisions established by Italian
Legislative Decree No. 159 of September 6, 2011, as subsequently amended (the “Anti-Mafia
Code”). Under the Anti-Mafia Code, we are required, among other things, to provide the
relevant public body with information regarding the Group and its related parties, such as
shareholders, directors, general managers as well as any other natural person who may cohabit
with such related parties (if applicable). This information must be transmitted prior to the
execution of agreements or concessions with any public authority. The purpose of this regulation
is to verify whether there might be any link between us and any mafia organization which could
influence our business.
252
Management
The following is a summary of certain information concerning our management, certain
provisions of our bylaws (statuto) and Italian law regarding corporate governance and securities
laws required by virtue of our status as a public company. This summary is qualified in its entirety
by reference to our bylaws and/or Italian law, as the case may be, and it does not purport to be
complete. See “Listing and General Information” for information on how to obtain a copy of our
by-laws.
The Issuer was formed as a pr