Sisal Annual Report 2011 - Permira

Sisal Annual Report 2011

2 Sisal Annual report 2011

Finally, we focused on expanding our non-gaming Payment Servicesbusiness, with outstanding results: in 2011, this business reached aturnover of EUR 5.3 billion, about 40% of Sisal total top line, confirmingits growth trend.Furthermore, in 2011 we delivered a strong cash flow from operatingactivities, also fostered by a tight cost and working capital management,which allowed us to execute 5 acquisitions without impacting onbalance sheet and, therefore, preserving flexibility for additional externalgrowth.We have also continued to execute our long term Corporate SocialResponsibility strategy, consolidating company values and businessethics in our organization. In 2011 Sisal received the official ResponsibleGaming Certification from the European Lotteries (EL), thus beingrecognized as meeting the highest international responsible gamingstandards. Furthermore, we expanded our social responsibility programincluding numerous projects related to the arts,education, health promotion, sciences andsports, partnering with important nationaland international organizations such asPiccolo Teatro, Save the Children, Makea-Wish,AIRC, Telethon and ItaliaCamp.2011 growth helped us to further leverageour scale and reinforce Sisal on the Italianmarket. We are now focused on exploitingthis positioning in the comingyears.Emilio PetroneCEO, Sisal S.p.A.5 Apertura dell’Amministratoredelegato

200520072008• Sisal Slot S.p.A.operates in the field ofamusement with prize(AWP) machines.• Signing of“Responsible GamingFramework” programmepromoted by the WorldLottery Association.• Launch of Sisal Bingo.• Introduction of theLeonardo gamingterminal.2009 • Governmentconcession for theNational TotalisatorNumber Games (NTNG).• Development ofSuperEnalotto online,Sisal Poker online andVinci per la vita - Winfor Life.• Introduction ofself-limiting gamingsystem.• Signing of theEuropean Lotteries Codeof Conduct on SportsBetting.2010• Launch of Sisal Wincitygaming halls.• Adoption of theCode of MarketingCommunicationsSelf‐Regulation issuedby the Advertisingand MarketingCommunicationsSelf‐Regulation Institute.2011• Certification awardedto Sisal by EuropeanLotteries for complyingwith responsible gamingstandards.• Launch of SiVinceTuttoSuperEnalotto and SisalCasino.7 Sisal’s history

Group CompaniesSisal Holding Istituto di Pagamento (SHIP) S.p.A. The Sisal Group holdingcompany responsible for the management and coordination of companies in thegroup, offering more than 300 payment services with 70 partners, both privateand public, authorized by the Bank of Italy to operate as a payment institution. Itsregistered office is situated at 13 via di Tocqueville, Milan. It is wholly owned byGaming Invest S.à r.l.Sisal S.p.A. Controlled by SHIP S.p.A., this manages a network of 41,659 onlinemerchants offering numerous games including SuperEnalotto, SiVinceTutto Super-Enalotto, Vinci per la vita – Win for Life and Eurojackpot. It also sells a wide rangeof third-party products and services, such as national and international telephonecards and PINs for mobile phone top-ups for all the major Italian mobile operators,as well as pay-per-view cards for digital terrestrial television.In September 2010, Sisal signed a memorandum of understanding with the governmentfor the ‘Friends Network’ project, a joint venture between public andprivate networks to increase points of contact between the public and differentorganizations. Sisal allows its own commercial and IT network to be used by thepublic to access services easily via a nationwide infrastructure.Sisal Match Point S.p.A. operates in the betting sector based on sporting, horseracing and social events through more than 4,000 points of sale, including 203betting shops and directly operated points of sale, 1,000 sports betting concessionsand 3,108 horse race betting concessions. Sisal Match Point S.p.A. also offersTris, Totogol and Big Match betting, and, through the online and mobile channels,the games Sisal Poker, Sisal Bingo, Sisal Skill Games and Sisal Casino.Sisal Slot S.p.A. This connects around 38,000 amusement with prize (AWP) machinesto the government network. Some 13,000 of these are owned by Sisalthrough 270 nationwide distributors. In September 2010, Sisal Wincity enteredthe market with gaming halls based on the concept ‘Eat, Drink, Play’, where thepublic can eat, drink, and play games or watch performances and events inside apleasant and secure environment.Sisal Bingo S.p.A. has operated in the bingo hall market since the second half of2007, and is now also present in online bingo.8 Sisal Annual report 2011

Group Brands9 Sisal GROUP TRADEMARKS

Ugo Nespolo, Polvere e basalto (detail), 2005Consolidated FinancialStatementsas of December 31, 2011

Board of Directors’ Report on Group OperationsConsolidated Financial Statementsas of December 31, 2011Dear Shareholders,We hereby submit for your attention the Consolidated Financial Statements forthe year ended on 31 December 2011, which present a loss of EUR 29,345 thousand.Amortisation, depreciation, impairment losses and reversals amounting toEUR 115,166 thousand were reported for the period under review.Key dataThe Group’s operations key performance indicators are summarised in the tablebelow (figures in thousands of euro):2011 2010 ChangeTotal revenues and income 869,840 735,966 133,874 18.2%Gross Operating Profit 189,454 166,562 22,892 13.7%Net Operating Profit (EBIT) 56,373 70,448 (14,075) -20.0%Loss before Income Taxes (12,668) (7,584) (5,084) -67.0%Gross operating income measures the difference between revenue and monetarycosts.Operating income measures the difference between revenue and total operatingcosts (thus including amortisation, depreciation, provisions, impairment losses andreversals of fixed assets).Before analysing the main factors determining the result for the period, we describebelow the developments in the Group’s market.Reference marketsThe retail convenience market in ItalyTrend 2007 - 2011The gaming and betting shop model has evolved during the last few years, changingfrom the traditional “Bar Sport”, where the rite of the football pools and lotterycoupon was performed, to a multifunctional centre which provides the public,in addition to legal and secure gaming products, also with the opportunity of payingservices bills and fines and topping up their mobile phones.This is confirmed by the retail convenience market data (the sum of the gamingmarket and the services market in retail outlets) which in 2011 generated totalreceipts of EUR 96 billion, with an average growth rate (CAGR–Compound AnnualGrowth Rate) of 19%.The highest growth was achieved in the services market, which in 2011 generatedreceipts for almost EUR 16 billion, a growth of 26.3% in the period, while thegaming market reported a growth rate of 17.7%.12 Sisal ANNUAL REPORT 2011

(in million of Euro) 2007 2008 2009 2010 2011 CAGR 2007/2011Total Receipts 41,425.0 47,555.2 54,402.2 60,984.3 79,597.4 17.7%Pay Out 28,233.8 32,720.0 38,205.0 43,955.0 61,629.7 21.6%Real Expenditure by the Public 13,191.2 14,835.2 16,197.2 17,029.3 17,967.7 8.0%Tax Authorities 7,717.2 8,504.5 9,327.5 9,361.9 9,333.9 4.9%Concessionaires 1,463.7 1,734.7 1,872.0 1,950.5 2,456.7 13.8%Operators 1,039.1 1,246.9 1,467.7 1,775.8 1,924.0 16.6%Points of Sale 2,971.2 3,349.1 3,530.0 3,941.2 4,253.2 9.4%(in million of Euro) 2007 2008 2009 2010 2011Total Receipts 100.0% 100.0% 100.0% 100.0% 100.0%Pay Out 68.2% 68.8% 70.2% 72.1% 77.4%Real Expenditure by the Public 31.8% 31.2% 29.8% 27.9% 22.6%Tax Authorities 58.5% 57.3% 57.6% 55.0% 51.9%Concessionaires 11.1% 11.7% 11.6% 11.5% 13.7%Operators 7.9% 8.4% 9.1% 10.4% 10.7%Points of Sale 22.5% 22.6% 21.8% 23.1% 23.7%The tables show the breakdown of the total receipts between 2007 and 2011 andclearly indicate that the biggest fraction is represented by the so called “payout”,namely the share of the receipts that returns to the players in the form of winnings.In fact, we note that during the period under review this figure rises from 68.2%in 2007 to 77.4% in 2011, a CAGR of 21.6%. This is the result of the introductionof games with increasingly higher payouts in these years, including the new onlinegames with payouts around 97% or above (see also the section on online gaming).It should also be considered that real public expenditure, expressed as a percentageof total receipts, has decreased over the years; consequently the portion intendedfor the Italian Treasury, the concessionaires and the network has also decreased inpercentage terms.In total, in absolute terms, real public expenditure rose from EUR 13 billion in 2007to nearly EUR 18 billion in 2011, with a CAGR of 8%.More than half of the amount intended for the Treasury is deducted at source (excludingany one-off charges deriving from the award of concession rights).Concessionaires receive about one-tenth of real public expenditure, with a value ofapproximately EUR 2.5 billion in 2011 and a CAGR of about 14%.An important role in this chain is played by points of sale, which collect between23% and 24% of real public expenditure, nearly EUR 4.3 billion at the end of2011.14 Sisal ANNUAL REPORT 2011

Segment analysisLotteriesAs stated above, the lottery segment recorded an overall growth rate of 4.9%.National co-totalisator number games (known as NTNG games: SuperEnalotto, Vinciper lon-ne is the sole concessionaire, recorded a CAGR of 5.4% with total receipts inla vita - Win for Life and Si Vince Tutto SuperEnalotto), of which the Sisal GroupS.p.A.2011, 23.5% higher than in 2007 and indicative of the growth of this segmentachieved over the years by the Group’s management. GNTN recorded a positiveperformance even net of uncontrollable external variables, such as the extremelyhigh jackpots in 2009 and 2010 which led to record receipts.The 2011 Lotto gaming includes traditional Lotto and the new 10eLOTTO. TheCAGR during the period from 2007 to 2011 was 2.5% and, especially thanks tothe contribution made by the new game, Lotto started to grow again in 2011(+30%) after several years of decline; the instant lotteries (the so-called Scratchand Win) helped the lottery segment to take second place in terms of the totalreceipts in the gaming market (third, if we consider the new video lotteries separatelyfrom the other gaming machines) with a CAGR of more than 6% during theperiod from 2007 to 2011.6.4%9,2749,435 9,36710,230112.5%7,9516,7956,1505,8525,6335,2315.4%3,7773,524CAGR2007/20112,5091,9402,396(Figures in million of Euro)200720082009 2010Lotto201120072008 2009 2010Scratchcard201120072008 2009 2010 2011National TotalisatorNumbers GamesBettingThe betting sector showed essentially negative values for each of the segmentsanalyzed, with the exception of Sports Betting. The horse racing segment and thetraditional Totocalcio segment (referred to here as pool games) have undergone acrisis which started several years ago, while in the case of sports betting, the reasonsfor the trend over the last years are, to a greater extent, linked to the structureof the product itself.In fact, sports betting volumes are materially influenced by the payout and in 2009and 2010, thanks to payout percentages around 90%, betting receipts were noticeablyhigher, while the payout value was 77% in 2011 and even lower in 2007(76%) and 2008 (75.8%).15 DIRECTORS’ REPORT ON operations

ne10.3%4,4004,0183,9093,8492,596-16.8%2,038CAGR2007/2011-24.4%229 176 143 98751,6711,5361,199978-13.4%695601 625531391(Figures in million of Euro)Slot VLT(Figures in million of Euro)2007 2009 20112008 2010Sports bettingcolonneAnother factor which influenced growth during the five-year period (CAGR10.3%) has been the expansion of the sports betting corner network, namely nonspecialisedoutlets equipped with suitable technological equipment that enablesthem to process bets on sports events (which opened as a result of the so-calledBersani liberalisation decree).Gaming Machines (Slot machines and VLTs)Gaming Machines - Slot machines and VLTs - represent more than 50% of the totalgaming market in Italy. It is estimated that there are more than 380,000 machinesin the market, located in over 114,000 points of sale.Total receipts for this segment was more than EUR 44.6 billion with a CAGR of25.3% in the years in question. Slot machines alone had a CAGR of 13.4%. In thefirst year of operation (2011), video lottery terminals (VLTs) generated 14.7 billion,thus becoming the second most successful product in the market.18,07221,6852007 2009 20112008 2010Pool gamesbased on sport25,5252007 2009 20112008 2010Horse race betting30,6742007 2008 2009 20108602007 2009 20112008 2010Tris and similar games29,870201114,7453500030000250002000015000100005000016 Sisal ANNUAL REPORT 2011

6colonneThe online gaming marketThe online gaming market recorded a CAGR of 75.2% from 2007 to 2011 and,consequently, its share of the total gaming market rose from 2.5% in 2007 to12.4% in 2011. This was especially due to the introduction of new games (pokercash and casino games), which alone accounted for 60% of total receipts in thissector. It should be emphasised, however, that these products have a payout ofabove 97%, so that they generate low revenues both in terms of tax and net receiptsand, consequently, lower earnings for the production chain.*226.2%8,418108CAGR2007/20112.4%4.6%1,4551,3379971,173 1,19616,9%2,3483,14642*CAGR2008/20114869818052146 184242(Figures in million of Euro)2007 2009 20112008 2010Lotteries2007 2009 20112008 2010Horse raceand sports betting2007 2009 20112008 2010Bingo2007 2009 20112008 2010Skill, card& casino gamesThe product break down of the online gaming sector clearly shows that the onlinemarket is composed essentially of the new remote skill and card games, bettingand bingo.Lotteries accounted for a lower percentage of the online sector compared with theoffline, despite recording a CAGR of 2.4% during the period under review, butwith a sharp contraction of receipts in the last year.The segment with the highest growth was that of skill games, card games andcasino games, which, thanks to the launching of poker cash and casino games in2011, have contributed more than EUR 1 billion a month to receipts. These productshave a very high payout (above 97%) catalysing receipts for the entire sector.Like the market as a whole, the betting segment was driven solely by sports betting:overall, this generated an average of EUR 1 billion a year overall, with a CAGRof 6%.The last segment we analyse is online bingo, which was launched in December2009 and generated receipts for approximately EUR 184 million over the course of2011. It is interesting to note that receipts rose during the year in response to thegrowing popularity among the public, both due to the high payout of 70% andthe possibility for players to join online chat communities enabling them to sharetheir passion for playing bingo.17 DIRECTORS’ REPORT ON operations

co-In the context of a market which is continuing to grow, the Group’s results havelon-nealso been appreciable: the total receipts by the Group’s concessionaire companiesexceeded EUR 8 billion (+12% over 2010), while its market share was 10.1%,slightly lower than the percentage in 2010 (11.7%), mainly due to the results ofthe lotteries segment, penalised by the absence of record SuperEnalotto jackpots,while the Group gained market share in the segments with higher growth rates,such as gaming machines and online gaming.Services marketThe retail convenience market for services to the public, businesses and publicauthorities saw a year of extraordinary further growth in 2011: it is estimated thatthis sector recorded an overall turnover of about EUR 16.0 billion, with an averagegrowth rate of 26% during the period from 2007 to 2011.2026.3%13,52415,991158,74810,411106,290CAGR2007/20115(Figures in million of Euro)2007 2008 2009 20102011This growth is even more remarkable when compared with the overall market(including the post office, banking channels, etc.), which is estimated to have stabilizedat around EUR 100 billion.The reason for this marked shift towards the so-called retail convenience channel,namely bars, tobacconist’s, newsagents, etc., is primarily due to their widespreadpresence throughout the country, which allows the public to access this servicenear their home, as well as greater availability and flexibility in terms of openinghours and the absence of queues, which offers a considerable saving on the timerequired to make such payments.For this reason, as shown below, the higher growth rates have been obtainedprecisely in those segments offering significant added value for consumers (e.g.paying bills, coupons and fines). In other words, there has been a shift from theutilisation of services in the impulse buying (telephone top ups) to a planned, organisedway of paying utilities bills, fines, taxes.18 Sisal ANNUAL REPORT 2011

colonne61.9%5.8%7,9155,9355,7975,6245,4956,0974,7383,966CAGR2007/2011colonne1,1532,64175122.9%1,8481,381576248-2.5%324 365 245 249 293(Figures in million of Euro)2007 2009 20112008 2010Top-ups and cards2007 2009 20112008 2010Payments2007 2009 20112008 2010Financial services2007 2009 20112008 2010OtherThe graph illustrates the performance of individual segments between 2007 and2011. It is clear that this market has changed dramatically, shifting from telephoneand media top-ups (CAGR 2.7%) to payments (CAGR 41.3%) and the so-calledfinancial services (CAGR 72.9%), specifically related to topping up prepaid cardsand/or electronic wallets.Even more interesting is the comparison of the relative weight of these segmentsbetween 2007 and 2011.1%5%2%12%Top-ups and cards18%37%Financial servicesPayments76% 49%Other20072011Notice how top-ups have fallen from 76% in 2007 to 37% in 2011, while paymentshave risen from one-fifth of the total to one in every two transactions.Overall, receipts rose from EUR 6.3 billion in 2007 to nearly EUR 16 billion in 2011.19 DIRECTORS’ REPORT ON operations

Within the Group, the aforementioned financial services and payments in 2011strengthened their leading position in terms of receipts (about 72% of the totalservices, distributed almost equally between the two segments), 37% higher thanin 2010, followed by mobile phone top-ups, which accounted for about 27.5% oftotal services receipts collected through the Group’s network.The most substantial growth trend in 2011 was that of payments, which increasedtheir turnover by about 70% compared to 2010. The following are the main servicesin this segment:• payment of bills issued by the main national and local utilities;• payment of telephone company bills;• payment of road fines;• payment of TV and radio licences and other taxes.The growth of the payments segment in a market in which the proportion of paymentsby direct debit is practically stable was driven both by the expansion of theSisal Group’s distribution network and the broadening of the product range thattook place during 2011.Financial services, particularly prepaid card reloading, benefited from the growth inthe prepaid card market, especially Postepay, which confirmed its position as theleading reloadable payment card in Italy with more than 8 million cards issued, amarket in which the Sisal network also confirmed its position as the leading channelfor reloading transactions.In both the payments and financial services segments in which the company operates,the market confirmed its interest in collection channels other than the traditionalones (the post office and the banking system), which meet users’ requirementsmore readily in terms of opening hours and accessibility to services.Among the reloading services that the Group distributes through Sisal S.p.A., aprominent place is taken by mobile phone top-ups, which accounts for more than90% of total reloading services and recorded an increase in turnover of more than11% over 2010, mainly owing to the expansion of the distribution network. Thetrend is even more significant if we consider the degree of maturity of the mobilephone top-up market and the mobile telephone operators’ tendency to promoteonline top-up to the detriment of retail convenience distribution channels.Through its national network, in 2011 the Group collected in aggregate approximatelyEUR 5.3 billion from non-gaming services, a growth of about 27% over2010, reaching a market share which can be estimated as 35%, compared with31% in the previous year.20 Sisal ANNUAL REPORT 2011

Operating performanceIn 2011 turnover increased by about 18.2% compared with 2010. This performancereflects the trends of the Group’s various business segments, as describedbelow:• In the “gaming segment”, the result achieved by the national totalisator numbergames was one of the highest in absolute terms in the last 8 years for theSuperEnalotto family, but about 34% lower compared with 2010. Receiptswere affected in particular by considerably lower average jackpots and somedelays in the approval and launching of new products and/or the renewal of existingproducts, in addition to a fierce competition from high payout productssuch as instant lotteries and the new 10eLOTTO.• The betting segment revenue in 2011 increased 12.6% compared to 2010,driven by sports betting performance, which, thanks to sound risk managementand sporting events results particularly favourable to the bookmaker,achieved a very satisfactory level of revenues (+29% over 2010), both in offlineand online channels, and allowed to more than offset a 20% drop in turnoveron horse race betting, a product which has been suffering a systemic crisis yearafter year which is eroding the consumer base for products that were oncemuch appreciated by the betting community.• Online games revenue increased 32% compared to 2010, reaching over EUR18,3 million, driven by poker (in the established forms of tournament pokerand, above all, the new cash poker mode), in addition to the launching of thenew casino and quick games products.• The gaming machines revenue increased 43% over 2010, achieving EUR 479million. The main driver of gaming machines performance was the successfulroll-out of second-generation gaming machines, video lottery terminals (VLTs):almost 4,300 machines were installed, accounting for 90% of the Group availablelicences. Furthermore, the Group increased the number of Slot machineswith high performance game cards installed and operative throughout thecountry: at the end of the period there were about 3,800 additional machinescompared with 2010 (+12%).21 DIRECTORS’ REPORT ON operations

• The “convenience services business segment” revenue in 2011 increased 15%over 2010, reaching EUR 99 million, thanks to a significant overall increase incollection flows (+36.6%) in both payments and financial services, togetherwith a rise in receipts (+7%) from contracts for the sale and/or distribution oftelephone cards, telephone top ups and pay TV programmes through the SISALoutlets network, essentially due to mobile phone top ups (+9.6% more thanin 2010). Revenue, in compliance with international accounting standards, isreported net of the cost of purchase of the top ups, but gross of the fees paidto the distribution network. The business segment provided a profit margin ofabout EUR 36.1 million in 2011 compared with EUR 30.6 million year in theprevious financial period, i.e. an increase of nearly 18%.• Finally, revenue relating to contractual agreements with the retail networkgranted approximately EUR 11 million of additional revenue (+15.7% over2010), mainly due to the further increase in the number of points of sale, whichreached 42,000 units at the end of 2010 compared with about 39,000 at theend of the previous period.Operating costs, including amortisation, depreciation and provisions, recorded anincrease of about 22%, slightly higher than the percentage growth of the totalGroup’s revenue (18,2%), mainly owing to greater depreciation of tangible assetscosts (especially gaming terminals and gaming machines) and amortisation ofintangible assets (mainly concession rights) and the partial impairment of aboutEUR 25.5 million of the value of concession rights related to horse race bettingand pool games, due to a significant downward trend in these traditional gamingproducts, as already mentioned.The main component of the Group’s costs structure is the costs of services which,net of both purchase costs for services (telephone top ups, pay TV programmes,collection and payment services) and retail network fees, recorded a modest increaseof about 3%, also thanks to the implementation of a spending reviewprogram during the period whose aim was to enhance operational efficiency. Theabove mentioned program allowed to offset the rise in the costs of marketing services,which almost doubled during the period, as a result of commitments relatedto the NTNG concession.The above factors resulted in an increase of almost 14% in the gross profit income,while the net operating income (EBIT) decreased by about EUR 14 million.22 Sisal ANNUAL REPORT 2011

With regards to the financings, during 2011 the pool of lenders of the loan agreementdenominated Senior Credit Agreement was extended to include two newlending banks, UBS Ltd and RBS UK: these banks took over EUR 21.1 million fromthe agent bank.The Senior Credit Agreement was signed in previous years by the Parent company,together with other Group companies, with a pool of banks in which The RoyalBank of Scotland plc acted as agent bank, in the framework of the purchase, atthat time, of the indirect controlling interest in Sisal S.p.A.At the end of the period the residual D3 line under the Senior Facility was fullydrawn, for about EUR 13.5 million, in order to provide partial financing for theacquisitions carried out during the year and particularly in December.During the period, the Group paid the lending banks about EUR 42.5 million ininterest and fees and repaid principal for approximately EUR 16.9 million, while theParent company paid to its sole shareholder about EUR 14.2 million interest on theoutstanding loan received at the time of the aforementioned purchase transactionand repaid principal for about EUR 2.2 million; an additional EUR 19 million, onthe other hand, was capitalised on the basis of the arrangements that had beenentered into with the lending shareholder.The key performance indicators relating to the net invested capital are summarisedin the table below (figures in thousands of euro):2011 2010 ChangeNet invested capital 1,126,138 1,163,228 (37,090)Funding from third parties 1,041,231 1,049,404 (8,173)Net equity 84,907 113,824 (28,917)Debt/equity ratio 12.26 9.22Normalised ROI (EBIT/CIN) 5% 6%Net invested capital is the sum of the statement of financial position items relatedto trade receivables and payables, inventories, fixed assets, employee severanceindemnities, provisions for risks and charges and other assets and liabilities, neutralisingthe effect of temporary mismatches in the settlement of the items relatedto working capital for gaming and services (including cash and cash equivalentsintended for the payment of winnings). Net invested capital totals about EUR 171million.23 DIRECTORS’ REPORT ON operations

The excellent level of operating profitability and constant attention to workingcapital cash flows enabled the Group to generate a strong operating cash flow in2011, so that it was able not only to meet its financial debt servicing obligations(scheduled repayments of principal included) but also, and above all, to financethe sizeable programme of investments and acquisitions, worth more than EUR 75million, which was carried out during the year.Consequently, the overall financial debt fell slightly, by about 0.8%, and, as inprior years, the Group complied with the financial covenants provided for in theaforementioned loan agreement in each of the four quarterly monitoring periods.The following are the main developments as regards gaming concessions.Concession for the operation and development of national totalisatornumber games (NTNG)• On April 2, 2008, Sisal S.p.A. was declared outright winner of the tender procedureheld in July 2007 for the award of the concession for the operationand development of national totalisator number games, including Enalotto,being chosen in preference to the bids submitted by Lottomatica S.p.A andSnai S.p.A.• On June 26, 2009, after a process lasting approximately two years and thefavourable outcome of the verification processes conducted by the State MonopoliesBoard (AAMS), relating in particular to Sisal’s bid, an agreement governingthe concession was entered into between AAMS and Sisal.• On the legal front, Sisal S.p.A. had to contend with appeals to the administrativetribunal filed by the other two companies participating in the selectionprocedure (namely Snai S.p.A. and Lottomatica S.p.A.) and by other companies(including Stanley International Betting Limited), mainly with a view to gainingaccess to all the documentation and having the provisional and final concessionawards overturned. They include the appeals filed by Snai S.p.A., whichcomplained that the specific points contained in its proposals had not beensufficiently taken into consideration compared with the evaluation of the samepoints described in Sisal’s proposals, and by Lottomatica S.p.A., objecting tothe failure of the Examining Commission to carry out the verification procedureon an ‘anomalous’ bid. With specific reference to this latter appeal, on March25, 2009, AAMS announced its decision to instruct the Examining Commissionto carry out a preliminary investigation to verify the suitability of the bidsubmitted by the company. The verification by the Examining Commission wascompleted on May 18, 2009, and established that the technical and economicbid submitted by Sisal was suitable and reliable, thus effectively removing thesubstance of the appeal made to the Regional Administrative Tribunal (TAR) byLottomatica S.p.A. against the outcome of the selection procedure.24 Sisal ANNUAL REPORT 2011

As a result, with reference to the legal proceedings filed by Lottomatica S.p.A.and Snai S.p.A. against the final award of the tender to the Group company,at the hearing on May 27, 2009, the Appellants asked for a period of time toexamine the outcome of the verification procedure with the aim of filing additionalobjections if applicable, and such objections were subsequently filed. OnJune 25, 2009 and July 14, 2009, Snai S.p.A. and Lottomatica S.p.A. filed anadditional pleading setting out their objections to the Commission’s ruling. Theproceedings are still pending at the time of writing, since a date for the publichearing of the above-mentioned appeals has yet to be set. In Sisal S.p.A.’sopinion, the appeals are unfounded with reference to the claim regarding thealleged anomaly of the bid and, with specific reference to the appeals filed bySnai S.p.A. and Stanley International Betting Limited, are inadmissible, sincethey were filed by companies which had no interest in appealing: in the caseof Snai S.p.A. because of its position in the final award classification, and inthe case of Stanley International Betting Limited because it did not participatein the tender procedure. Again in relation to the NTNG concession, in Director’sDecrees of October 12, 2011 and December 16, 2011, AAMS identifiedthe public gaming measures required to raise the higher revenues specified inarticle 2.3 of Decree Law no. 138 of August 13, 2011, converted, with amendments,into Law no. 148 of September 14, 2011. In particular, it was specifiedthat for prizes claimed as from January 1, 2012 for the games Enalotto, Superstar,SiVinceTutto SuperEnalotto, Vinci per la vita - Win for Life and Vinci per lavita -Win for Life Gold, including those where the remote gaming procedurewas used, a 6% fee would be charged on the part of the prize exceeding EUR500.00. After asking AAMS for clarification about the procedure for implementingthe provisions in question, Sisal S.p.A. charged the said additional feeas required by the applicable legislation.Concession for the activation and operation of the network for onlinemanagement of legal gaming through AWP machines, and of theassociated activities and functions• Sisal Slot S.p.A. operates in the AWP gaming segment, having replaced SisalS.p.A. as concessionaire of AAMS under a supplement to the concession agreementfor the activation and operation of the network for online managementof legal gaming through AWP gaming machines, and of the associated activitiesand functions, signed on June 3, 2006.25 DIRECTORS’ REPORT ON operations

• In Director’s Decree of August 6, 2009, AAMS laid down the regulations forthe activation of the new gaming systems described in art. 110.6.b of the ConsolidatedLaw Enforcement Act (T.U.L.P.S.–Video Lottery Terminals or “VLTs”),stating that this activity is governed by the agreements already in force forthe operation of the AWP gaming machines network, and can therefore beentrusted to operators which, like the above Group company, are already concessionaires.Subsequently, in March 2010, Sisal Slot and AAMS executed asupplemental deed to the concession agreement in order render the existingprovisions of the agreement, mainly governing AWP gaming machines, alsoapplicable to gaming with the new VLT terminals. Lastly, the current agreementwas extended by a supplemental deed dated September 28, 2010 for the timenecessary for the award of a new nine-years concession.• By notice published in the Official Journal of the European Union on August 8,2011, ID 2011 – 111208, AAMS initiated the procedure for the award of the“Concession for the activation and operation of the network for online managementof legal gaming through AWP machines, as specified in art. 110.6 ofTULPS, and of the associated activities and functions”. Sisal Slot S.p.A. tookpart in the said selection procedure, together with 12 other candidates, andwas provisionally awarded the new concession, pending testing of the gamingnetwork and signature of the new agreement. Pending the final awardof the new concession, AAMS ruled that gaming could continue, and was tobe operated by the present concessionaires until the final award of the newconcession.• Despite the growth and dynamism, the sector has been fraught with disputesfor several years which have led to a general situation of serious unease anduncertainty. In particular, the question of the penalties or fines which AAMSand the Prosecutor of the Court of Auditors believe can be imposed on concessionairesof AWP gaming machines requires a deeper analysis; a general overviewof this situation may be helpful to understand this matter fully.Firstly, in the event of breach of contractual obligations, a distinction must bemade between penalties, which AAMS can impose on concessionaires on thebasis of the terms of the concession agreements, and the loss to the Treasurycaused by the said breach, for which the Court of Auditors can requires concessionairesto pay damages.The first case of breach of contractual obligations basically relates to the delaywith which the online gaming machine management network was implementedat the start of the concession period. In this case, AAMS initially imposedpenalties amounting to a total of EUR 2 million on the concessionaire companybelonging to the Group; the Regional Administrative Tribunal then revoked thepenalties, which were later reissued by AAMS against the company belongingto the Group in the total amount of EUR 200,000; this time, the Regional AdministrativeTribunal ruled that the penalties, thus reduced, were justified, andthe concessionaires appealed against its ruling to the Council of State.26 Sisal ANNUAL REPORT 2011

The Council of State upheld the appeal, revoked the penalties and orderedAAMS to pay costs, on the basis of the following main arguments:• Despite the existence of a formal agreement, civil law provisions are fully applicableto the attribution of liability for breach of the agreement, proof ofthe loss caused, and whether the penalty is appropriate and proportionate;• However, before a penalty can be imposed, some objective loss must havebeen suffered by AAMS;• AAMS’ lawyers failed to demonstrate that the breaches of contract complainedof against the concessionaire were wholly or partly to blame forthe general delay in the start of the public service. In fact: a) the creation ofan online network without precedent in the world was a pre-requisite forthe activation of the service and, that being so, the parties involved werefully aware that a period of testing would be inevitable; b) precisely duringthis phase, a series of unforeseen technical and administrative problemsarose, leading to a widespread delay in the start-up of the service; c) alarge number of the machines initially type-tested and approved by AAMSproved to be sub-standard, so that AAMS had to issue new instructions tothe concessionaires, which instituted an ongoing testing contract; d) theconcessionaires were in no way involved in the design of the machines; e)the delays in the start-up of the service were due to obstructiveness by theprevious operators of the machines towards the signature of agreementswith the concessionaires and the removal of the old machines, and theconcessionaires could not be considered by AAMS to be solely responsiblefor solving these problems.The Council of State’s ruling therefore supported the arguments which hadalways been advocated by the concessionaires.The Prosecutor of the Court of Auditors issued a summons applying for aparallel order for the concessionaires to pay compensation for lost Treasuryrevenues caused by the delay in the start-up of the network, quantified atthe original amount estimated by AAMS. In its judgment and simultaneousorder filed on November 11, 2010, the Court of Auditors ruled that intheory, damages for lost Treasury revenues can be claimed from concessionaires,a principle already adopted by the Combined Sections of the Court ofCassation, before which the concessionaires had filed a preliminary requestfor a ruling on jurisdiction. In the present case, in view of the defencessubmitted by the concessionaires, including on the merits of the case, theCourt of Auditors commissioned an expert’s report from the non-profit publicagency Digit P.A., to be delivered within six months, regarding the technicaland behavioural reasons that may have caused the delay in starting upthe network, such as (i): the intentional or unintentional delay with whichthe machine operating companies asked the concessionaires to sign thenecessary agreements for connection of the machines to the online system;the scarcity of communication lines; the existence of machines which hadbeen type-tested and approved despite having different communicationports; the suitability of the characteristics of the central system of AAMSand Sogei; and (ii) compliance by the concessionaires with all the technicalpre-requisites required for the network to be activated on schedule.27 DIRECTORS’ REPORT ON operations

The Court therefore wished to clarify whether the delay in activating thenetwork, possibly resulting in loss of Treasury revenues, was the fault of theconcessionaires or other parties. Significantly, it ordered Sogei to be summoned.Sogei is the company which designed, implemented and operatedthe whole system for the management and control of the machines onbehalf of AAMS. As regards the calculation of lost Treasury revenues, theCourt ruled that the criteria proposed by the Prosecutor (namely the criteriaspecified in the agreement for quantifying penalties) could not be taken intoconsideration, postponed the calculation, and stated that in this respect, itwould take into consideration the findings of the Technical Commission(known as the Monorchio Commission) and the opinion of the Council ofState, the main aspects of which are described below.The second case of breach of the agreement involves failure to comply withthe service level established in the agreement, relating to the response ofthe gateway system to interrogations by Sogei’s central system. In this respect,AAMS initially imposed a penalty of EUR 1 billion on the concessionairesubsidiary, but the Regional Administrative Tribunal revoked the saidpenalty. Subsequently, AAMS appointed a Technical Commission, withinthe terms of the agreement, which should have established in advance thecriteria for recording and calculating breaches of contract and penalties;the Commission not only clarified and established the technical criteria forcalculating and recording data but in its final report, partly based on agendasapproved by Parliament, introduced the concept of setting a ceiling onpenalties, to safeguard the principles of proportionality, reasonableness andbalance of the contract. It suggested that the limit should be set at 10%of the net amount of the agreement, calculated (including all the legal relationshipsassociated with the management of the concession) at 0.3% ofthe receipts.AAMS, having acknowledged this report, also asked the Council of State,by way of consultation, for its opinion on the system of penalties laid downin the concession agreement. The said opinion confirmed the need to establisha maximum limit on such penalties, suggested as being 11% of theconcessionaire’s remuneration, leaving it up to AAMS to establish this lastparameter, but suggesting that it should be between 0.25% and 1.2%of the takings. AAMS then suggested that concessionaires should sign asupplemental deed to the agreement establishing the maximum ceiling ofpenalties as 11% of their remuneration, indicated as 3% of the takings,and the concessionaires signed this rider at the end of October 2010, specifyingthat the fact that they had signed did not mean that they admittedbreach of contract, and that “remuneration” was defined as the net sumeffectively remaining in the hands of the concessionaire and calculated inaccordance with the principles of fairness and reasonableness indicated bythe Council of State.28 Sisal ANNUAL REPORT 2011

On February 18, 2011, AAMS sent the concessionaires a “notice of breachof service level agreement”. The notice described the sequence of events todate, and stated that the penalty, calculated according to the terms of thecurrent agreement, the parameters identified by the Technical Commissionand the information contained in the AAMS and Sogei databases, amountedto EUR 46,399,750.00 for the period July 15, 2005 to March 12, 2008,as far as the subsidiary is concerned. However, by applying the other principlesof reasonableness and proportionality required by the Regional AdministrativeTribunal and the Council of State and contained in the last riderto the concession agreement, on the basis of which the penalty for eachyear cannot exceed 11% of the average real remuneration received by theconcessionaire, calculating this remuneration on the basis of certain criteriawhich, however, are open to question, and applying the said percentage tothe result obtained, the disputed penalty amounts to EUR 8,995,332.98.As regards this notice, which did not mention the imposition of a penalty,but only the alleged breach of contract with a reference to the possibleconsequences thereof, the concessionaires filed a defence, objecting to thecontents of the AAMS notice in terms of both substance and form. In particular,the defence stated that there were no delays in the responses of thegateway system and even if there had been any, the blame could not belaid on the concessionaires; during the period in question, the criteria forrecording and calculating penalties had not yet been established by AAMS;the Council of State failed to consider the points raised in the judgmentsissued following the said appeals by the concessionaires; and with specificreference to Sisal Slot, amounts which had nothing whatsoever to do withits actual remuneration as a concessionaire were included in the averagereal remunerationAfter the year end, in a document dated January 27, 2012, AAMS servedthe said penalty, quantifying it at EUR 8,995,332.98 and rejecting all thedetailed defence pleas filed by Sisal Slot S.p.A.; similar measures have apparentlyalso been taken against all the other concessionaires, and the totalamount of the penalties imposed is believed to amount to approximatelyEUR 70 million.Sisal Slot has appealed to the Regional Administrative Tribunal against thisclaim by AAMS, asking firstly for AAMS’ claim to be suspended and, in themain suit, for a ruling that the alleged deficiencies do not exist and that thegranting agency’s calculations are incorrect.In particular, the application of the percentage of 11%, which establishesthe maximum ceiling on the penalties, to the entire turnover of Sisal Slotand not just the part relating to income obtained as concessionaire (theremaining part relating to the activity of manager) seems unacceptable andcontrary to the opinions submitted to AAMS by the Council of State andthe Technical Commission; if the calculations were performed correctly, theamount of the penalty would be halved on this ground alone.29 DIRECTORS’ REPORT ON operations

Equally dubious and untrue is AAMS’ allegation that the Technical Commissionbelatedly appointed by AAMS only determined the criteria for calculatingthe penalties, not the criteria for determining what the breach ofcontract consists of in practice.As stated, the ruling also dismisses (on the ground that they relate to differentbreaches of contract) the judgments whereby the Council of Staterecently revoked the first three penalties, relating to the delay with whichthe online network was started up by the concessionaires, and ignoringthe much broader ground, involving the disputes now under discussion,provided by the Council of State (namely the fact that the overall systemimposed by AAMS in 2004/5 clearly had an experimental nature, which waslater reviewed and amended over time).All the technical defences formulated in the defence please were also repeatedin the appeal, together with those emerging from examination ofthe documents supplied by Sogei to AAMS at the end of December.At the hearing held on May 9, 2012, the Regional Administrative Tribunalheard the application for an interlocutory order, suspended the efficacy ofAAMS’ request and set down the case for hearing on February 20, 2013:the reference by the Court to the recent interpretation notices issued by theCouncil of State seems significant, although it was made during interlocutoryproceedings.As regards the case brought before the Court of Auditors, again in relationto the gateway, the Prosecutor of the Court of Auditors asked, in the abovementionedsummons, for the concessionaires to be ordered to pay damagesamounting to the original amount of the alleged loss of Treasury revenues,namely a total of EUR 98 billion for all concessionaires.In the said judgment and order of November 11, 2010, the Court did notagree with the calculation criterion proposed by the Prosecutor, since specificproof would need to be provided that (i) the gateway did not functionproperly, due to the fault of the concessionaires, and (ii) this caused theloss of Treasury revenues (a hypothesis already rejected by the MonorchioCommission).The concessionaires took part in the process conducted by Digit pursuant toItalian Law 241/90, and provided it with all the necessary documentation.On September 30, 2011 Digit filed its technical report with the Court of Auditors.No liability directly attributable to the concessionaires emerged fromthe said report; in particular, no wilful misconduct or negligence was attributeddirectly to them, but it was suggested that they may have contributedto the determination of some critical factors that affected the start-up ofthe gaming system.The concessionaires filed their comments on Digit’s pleading in the Courtof Auditors, and at the hearing held on November 24, 2011, the Court ofAuditors set down the case for a full hearing.30 Sisal ANNUAL REPORT 2011

After the year end, on February 17, 2012, the Court filed the judgment atfirst instance, ordering the concessionaires to pay approximately EUR 2.5billion and the former General Manager and the former Gaming Director ofAAMS to pay the total amount of approximately EUR 7.4 million; Sisal SlotS.p.A., in particular, was ordered to pay EUR 245 million.Sisal Slot appealed against the judgment, as did all the concessionaires andthe AAMS executives; the statutory appeals suspend the enforcement ofthe judgment; the Prosecutor could ask the court, in an inter partes application,for a specific ruling that the judgment is enforceable.On the basis of the developments in the proceedings described above, andin particular of the numerous rulings in favour of the concessionaires, theentire industry expected a favourable, or at any rate mild judgment.However, the Court ruled that the concessionaires were responsible for a seriesof events which occurred at the time of start-up of the network, whichDigit had concluded were not their fault, shifting the focus to the allegedfailure to exercise control over the entire system and reviving the subject ofthe gateway in order to reach that conclusion.Ruling that “exercise of control” was the main factor in the appointmentgranted to the concessionaires, and that the concessionaires negligentlyfailed in their duty to exercise control, and consequently ignoring the hugeTreasury income received, which was well above the forecasts, it identifiedthe loss caused to the State as the sums paid by the State to the concessionairesin terms of income received pursuant to the concession, includingamounts which the concessionaire is obliged to pay to managers andmerchants. The judgment seems unfair because in view of the penaltiesimposed by AAMS in parallel, the concessionaires are being punished twicefor the same facts in the same way.It also seems legally questionable, because the Court of Auditors appearsto have overstepped the limits established by the Combined Sections of theCourt of Cassation for its jurisdiction in such cases, which ruled that theCourt of Auditors can only claim damages for loss additional to the contractualloss when imposing penalties.The judgment would perhaps have been understandable if the Court hadidentified a loss to the Treasury consisting of loss of income, which is notpunished as such by the agreement, but the Court admitted that it wasimpossible to identify such loss, and had to use the much vaguer conceptthat “the concessionaires did not fully perform their duties, and must consequentlyreceive lower remuneration”.Moreover, where this aim is based on the merits, it is already dealt with bythe penalty system, which AAMS brought into play and which is providedfor by the agreement in order to achieve the same effect.31 DIRECTORS’ REPORT ON operations

If the national Court of Auditors should confirm the judgment of the regionalCourt, possibly modifying the amounts, which can be disputed onvarious grounds, an appeal against the judgment could be made to theCombined Sections of the Court of Cassation for the reasons already illustrated,on the ground of conflict of jurisdiction.In the case of Sisal Slot, the amount of the penalty seems disputable, as itis higher than the mark-up received during the period in question, whereason the basis of the same judgment, it should have been 80% of the markup,although even in that case, the judgment would have been issued inthe main suit; moreover, the Court of first instance took no account of theobjective evidence that identified Sisal Slot as the most virtuous concessionaire,or less guilty in the Prosecutor’s view, in terms of commercial behaviourand the operational functionality of the system implemented.As stated, Sisal Slot submitted a substantiated appeal and obtained a detailedindependent opinion from an eminent expert, Prof. Morbidelli, FullProfessor of Administrative Law at La Sapienza University, Rome, whichconfirms that the numerous arguments used in the appeal filed are all wellfounded; an independent opinion was also obtained from Prof. Guido Rossi,regarding the correctness of not including a provision for that risk in thefinancial statements, in view of the probable outcome of the proceedings.For the sake of completeness, it should be mentioned that the Court’s judgmentnames Sisal S.p.A. as the defendant company, probably due to a typographicalerror. The judgment was actually served on Sisal Slot S.p.A.; purelyfor safety’s sake Sisal S.p.A. filed an appeal, pointing out the error and thefact that it had never been sued, and adopted all the other arguments submittedby Sisal Slot S.p.A.Again for the sake of completeness, it should be mentioned that after SisalSlot filed its appeal, it received the cross-appeal filed by the Prosecutor inthe regional Court; in that document, the Prosecutor requested the Courtto increase the amounts ordered in the judgment to be paid by the concessionaires,on the ground that they take no account of the loss to the Treasuryresulting from higher costs due to “waste of personnel and of unusedeconomic resources”.The Prosecutor therefore requested the Court to increase the penalties imposedat first instance on the basis of one of the following criteria: principally:1% of the initial penalty imposed; and subordinately: an additional50% of the penalty imposed at first instance.For Sisal Slot, this would mean an additional EUR 10 million in the first case,and EUR 122 million in the second.The two proposed parameters lead to diametrically opposite consequences,including in terms of sharing the alleged loss between concessionaires; SisalSlot would be affected to a lesser extent than the other concessionaires onthe basis of the first parameter, and to a greater extent on the basis of thesecond. These applications will form the subject of further pleas and objectionsby Sisal Slot.32 Sisal ANNUAL REPORT 2011

Again with regard to the AWP gaming machine sector, on November 17,2010 the Court of Auditors issued a judgment which on the one hand recognisedthat one of the roles of concessionaires is to act as an accountingagent, and that they are therefore required to draw up a accounting statement,but on the other rejected the Prosecutor’s request to order concessionairesto pay large fines for the delay with which they submitted the accountingstatement, ruling that there was no evidence of gross negligenceby Sisal Slot S.p.A. in particular.On March 14, 2011, the Regional Prosecutor of the Court of Auditors appealedagainst that judgment, without producing any new arguments ordocuments, insisting that the concessionaires must be ordered to pay heavyfines, in the case of the subsidiary Sisal Slot S.p.A. amounting to approximatelyEUR 111.6 million for the years 2004-2006, and an amount to bequantified for the subsequent years. The case has not yet been set down fora full hearing. At the hearing, Sisal Slot S.p.A. will submit the same argumentsthat were upheld at first instance.Remote gaming Concession• Director’s Decree no. 2011/190/CGV of February 8, 2011, published in theOfficial Gazette of the Italian Republic no. 56 of March 9, 2011, establishesthe commencement date of the obligations referred to in article 24.11 to 25of Law no. 88 of July 7, 2009, which constitute the general conditions foraccess to the concession for operation of remote gaming. The applicationforms for the Public Gaming Concession Procedure referred to in art. 24.11A) to F) of Law no. 88 of July 7, 2009 (call for tenders published in the OJEUon March 10, 2011, S-48-079188) and the procedure for updating the concessionagreement to include remote operation of public gaming pursuantto art. 24.22 of Law no. 88 of July 7, 2009, referred to in art. 2.2 ofDirector’s Decree no. 2011-190-cgv of February 8, 2011 (commencementof obligations relating to the operation of remote gaming agencies) werepublished with the said Decree. Sisal S.p.A. took part in the procedure forupdating the concession agreement to include remote operation of publicgaming, and Sisal Match Point S.p.A. took part in both the contract updatingprocedure and the procedure for the award of a public gaming concession.Both companies were awarded their respective concessions/updatesto the agreement.33 DIRECTORS’ REPORT ON operations

Principal risks and uncertainties to which the Group is exposedThe Group operates in a complex regulatory environment which is subject to continuousevolution; this complexity is emphasised by the nature of the gaming industrywhich in recent years has experienced rates of growth not easily found inother sectors.The strong presence of the State’s regulatory activity and of the bodies responsiblefor the control and management of this market often subordinates the developmentof the entrepreneurial activities of the Group to the obtaining of authorisationsor to participation in public tenders which are made particularly competitivenot merely by the presence of other historic operators in the Italian market but alsoby the ever fiercer pressure from foreign operators to expand and consolidate theirpresence in our national market.The result is frequently a high level of litigation surrounding the outcome of tenderswhich is expressed in the numerous appeals and contestations submitted, insome cases opportunistically in order to create disturbance.The impact of these factors on the financial statements of companies is amplycommented both in the description of the litigation in progress and in the analysisof the effects which regulatory developments have on revenue recognition andhow the modifications to the contractual terms of the concessions rights awardedor to be awarded will affect the accounting treatment of the related captions.Group management monitors constantly the evolution of these factors in the lightof the companies’ many years of experience in the industry, undertaking wherenecessary legal action to protect the interests of the companies.The exposure of the Group in particular to pricing, credit and liquidity risks and tothe risk of fluctuations in cash flows and the policies developed to deal with theserisks are amply described in the section of the explanatory notes dedicated to financialinstruments to which reference is made for further details.Other disclosuresAs of the reporting date, certain Group companies are involved in court cases and/or tax investigations.In particular, during the course of the years 2008 and 2009, two tax investigationsof Sisal S.p.A. were conducted by the Lombardy Regional Office of the RevenuesAgency, respectively, a general type of inquiry on the year 2005 and a partial typeof inquiry on the year 2006. The latter, in particular, was aimed at examining incometaxes, VAT and IRAP taxes on certain transactions carried out in that periodspecifically in reference to the merger between the company and the mergedcompany Sisal S.p.A. (the company resulting from the merger took the name ofSisal S.p.A.) and the tax treatment of certain tax expenses related thereto. Thisinvestigation ended on October 22, 2009, with the preparation of a Note of Findings(“NoF”) mainly containing objections to the pertinence of some expensesconnected with the loan secured for the foregoing merger operation which inturn can be traced to the extraordinary operation for the acquisition of control ofthe Sisal Group during 2005. In particular, in that NoF, the investigators disputedthe deductibility for IRES and IRAP tax purposes of costs for about EUR 8.2 millionincurred in 2006 and denied the deductibility of VAT for about EUR 0.5 million in2005 and about EUR 0.1 million in 2006.34 Sisal ANNUAL REPORT 2011

Following this NoF, on December 17, 2009, the Milano 2 Local Office notifiedthe Group company of an assessment for the unlawful deduction of VAT for EUR530,000 in 2005, plus interest, and imposed fines for the same amount. During2010, the company promptly appealed the assessment before the Milan ProvincialTax Commission and the first hearing, also in relation to the following commentsbelow, was postponed to the end of June 2012.On May 10, 2010, the Milan Tax Police Nucleus, Second Complex Inspection Section,entered Sisal S.p.A. with a service order to perform a tax inspection for purposesof direct income taxes for the tax years 2008 and 2009. Later, on June 7,2010, the officers charged with the inspection presented the company a supplementaryorder extending the inspection to cover the tax years from 2005 to 2007only with regard to the effects of the same above-mentioned extraordinary operationmentioned for the acquisition of control of the Sisal Group which took placeduring 2005. The inspection activities were concluded on September 23, 2010with the issue of a NoF in which the inspectors sustained that the extraordinaryoperations put in place for the above acquisition fall under the scope of the antievasionlaw under art. 37-bis of DPR 600 of September 29, 1973. According tothe thesis of the inspectors, the deeds and juristic acts realized as part of theseoperations would have been lacking in valid economic reasons and would havegenerated an unlawful tax advantage represented by the company’s deduction offinance expenses for IRES tax purposes. In particular, the finance expenses whichwould be unlawfully deducted, in the inspectors’ opinion, amount to a total ofapproximately EUR 37 million between the years 2005 and 2008 in addition to, onthe basis of the indication to the competent office contained in the NoF, expensesrelating to the year 2009, for which – at the date of the NoF – the deadline forfiling the tax return had not yet expired, estimated in the NoF at about EUR 9.5million.On the basis of that NoF, on November 19, 2010, the Milan Provincial Office II sentthe Group company a request for clarifications under ex art.37-bis, DPR 600 ofSeptember 29, 1973, for the tax period 2005. The company, on January 17, 2011,replied to the questionnaire providing ample arguments and documentation asconfirmation of the inapplicability of art. 37-bis cited above.During the early months of 2012, the company, advised by its consultants, neverthelessconsidered it opportune to file a tax settlement proposal regarding theabove findings in order to start a formal procedure for discussions over the possiblereduction of the demands noted in the findings issued, however without anybinding obligation to accept any proposals from the Office. Currently, there are noother known significant developments in this case.35 DIRECTORS’ REPORT ON operations

At the same time the above inspection activities of Sisal S.p.A. ended, the sameofficers of the Milan Tax Police Nucleus began a further tax inspection of the Companyfor purposes of direct income taxes for the tax year 2008. Later, on January24, 2011, the officers advised the company of the extension of the inspectionactivities to the tax years 2006, 2007 and 2009 only with regard to the substantivecontrol in progress on the finance expenses deriving from the operation for theacquisition of the controlling investments of the Sisal Group which was finalized inthe month of October 2006.On February 28, 2011, the inspectors illustrated the critical areas found during theinvestigation which are summarized in a document that was delivered for viewingto the Company. The document shows, to their way of the thinking, that the sumof the corporate and financial transactions put in place in 2006 at the behest ofthe private equity funds, Apax Partners and Permira, which indirectly control theGroup, are to be considered lacking in valid economic reasons and preordainedto generate exclusive and huge tax advantages only for the shareholder investors.Such circumstances would constitute conditions necessary and sufficient to forman assumption of the “abuse of a right” as defined by the doctrine of law of theCourt of Cassation and to recover after taxation the non-deductible interest expenses,unlawfully recorded by the Company.Subsequently, the Company, advised by its professional consultants, held numerousinformal discussions with the Guardia di Finanza (Financial Police) in referenceto the tax inspection and developed defensive arguments in order to reducethe significant amount of interest expenses both, and above all, to convince theinspectors that their positions were unfounded and brought evidence to sustainthe valid economic reasons for the acquisition and the absence of unlawful taxadvantage.During the course of these meetings, the Financial Police gradually displayed itsreadiness to substantially review its findings reducing the scope and relative fines;therefore, on November 16, 2011, the Financial Police issued a NoF in which thefindings were reviewed in their entirety in order to take into account the correctcalculation of the interest (which had been erroneously computed) consideringthat certain of the interest expenses had not and are not relative to the acquisitionprocess but to different and/or subsequent investments and a subordinatedhypothesis which, at the most, could sustain that the assumption of the debt couldbe the subject of some dispute to the extent that it refers to the quota reinvestedby the outgoing shareholders (the Molo family and the Clessidra Fund).On December 6, 2011, the final NoF was completed and delivered to the company.The NoF states that the operation for the acquisition of the controlling investmentsof the Sisal Group by leveraged buyout (LBO) was confirmed as substantially legitimateand the attention of the inspectors is limited to the measurement of thefairness of the total debt assumed by the Parent, for purposes of the acquisitionof the Sisal Group and, given the characteristics of the dispute founded on the“abuse of a right”, the question thus surrounds the case in point (and not the LBOoperations considered indiscriminately) and however only for the portion of thedebt contracted and the relative expenses ideally referring to the reinvestment bythe outgoing shareholders (equal to 9.6%).36 Sisal ANNUAL REPORT 2011

Since the NoF substantially confirmed the full civil and tax legitimacy of the operationsput in place and the actual costs incurred for interest and expenses, limitingitself to taking exception to an alleged excessive margin on the loan contract fromwhich the inspectors deduced the above alleged violation of the principle of the“abuse of a right”, the company, taking also into account the significant reductionin the fines as a result of the settlement procedure and only for the purpose ofavoiding a long and costly possible dispute, presented a settlement proposal at thesame time according to art. 5-bis of Legislative Decree 218/97, declaring howeverat the bottom of the NoF that this should not be interpreted in any way as beingaccepted or even that the observations made by the inspectors are shared. As a result,during the month of December 2011, the competent Office, that is the MilanProvincial Office II – Controls Office notified the company with the deeds for thesettlement of the relative taxes, fines and interest for a total of EUR 7.1 million tobe paid in 12 quarterly instalments, the first of which was duly paid at the end ofthe year. The economic and financial effects of this proposal have been recorded inthe financial statements of the company as of December 31, 2011.Again in 2010, the company Sisal Slot S.p.A. also became the subject of a taxinspection on the part of the Lombardy Regional Office of the Revenues Agency– Large Taxpayers Office, aimed at income taxes and VAT on the subject of theextraordinary transactions in the tax year 2007 regarding “property, plant andequipment” and “provisions for risks and charges” in the financial statements ofthe same year. On December 22, 2010, the inspection activities ended with the issueof a NoF containing, for the most part, the objection to the allegedly unlawfuldeduction in the period under question of higher depreciation charges relating tothe type “comma 6a” slot machines for about EUR 1.5 million, due to the Groupcompany’s adoption of a tax depreciation rate (20%) not considered fair by theinspectors. Later, during the early months of 2011, the Group company, advisedby its consultants, filed by the deadline its formal observations with the Office inwhich it described the reasons for which the company deemed that the observationsmade by the inspectors cannot be shared and is distorted by elements oferror, whereas at the end of the year, the Milan Provincial Office II, after havingrequested accounting information from the company in the previous months, issuedan assessment for the tax period 2006 containing the same observations interms of the alleged unlawful deduction of higher depreciation for about EUR 0.3million. In March 2012, the Group company also received the executive assessmentregarding the year 2007. The company appealed both assessments withthe Provincial Tax Commission and accompanied the appeal with a solid expertopinion from Politecnico di Milano which amply documents and supports the reasons,also technological, deriving from the specific characteristics of the gamingmachines in question, which justify the rate applied for the depreciation of theseassets contested by the Office. It is believed that these assessments will not resultin significant consequences for the Group and that, in any case, at this time theconditions do not exist whereby it would be probable that there will be expensesin terms of higher taxes, interest or fines by law.37 DIRECTORS’ REPORT ON operations

In December 2011, a general tax inspection began of the company Sisal MatchPoint S.p.A. by the Lazio Regional Office of the Revenues Agency in reference tothe year 2009; the inspection was concluded in May 2012 with the issue of a NoFcontaining some observations for a total amount, in terms of the alleged evasionof taxable income, of about EUR 4 million for IRES tax purposes and EUR 2.7 millionfor IRAP tax purposes.Since the NoF notified by the Revenues Agency constitutes solely a communicationat the end of the inspection operations, evidencing potential problem areas,in the absence of a formal assessment, this document does not constitute an actthat can be contested. Furthermore, the analyses by the company are still ongoing,advised in this work by its consultants, and at the present time, on the basis of theinitial analyses carried out, it is believed that there are valid reasons to consider theposition assumed by the inspectors, principally in reference to two types of observations,one relating to expenses for operations with so-called “black list” partiesand the other for alleged unlawful use of the provision for risks and charges, asbeing without grounds and that therefore significant consequences from thesecannot result for the company involved.With reference to Decree Law no. 40, known as the “Incentives” Decree, publishedon March 26, 2010 and converted to a Law in May 2010, and in particularto the terms of art. 2.2 thereof, which prohibits State concessionaires from havingany business dealings with third parties unless they are expressly contemplatedin and governed by the concession and the corresponding call for tenders, andrequires concessionaires to pay to the granting body any sums received by virtueof such dealings, Sisal S.p.A. obtained some legal opinions in 2010 which confirmthat an in-depth examination of the provision indicates that it is not applicableto business dealings conducted by the company itself, in particular with outletsrelating to the NTNG concession, and also appears to have some unconstitutionalaspects, as the said provision limits freedom of private initiative for no discerniblereason, and appears to be inconsistent with Community principles.In this context, the subsidiary formally notified AAMS during the preceding yearthat it considered the said provision to be inapplicable to business dealings conductedby it, and a similar reply, with a request to convene a round-table discussionwith all concessionaires, was later sent to AAMS by Sisal Match Point S.p.A. In themeantime, the company continued to invoice and receive the specified fees withoutany particular problems (and still does so), while AAMS requested a generalopinion from the Council of State, which was obtained in spring 2011. The reasonfor the request for an opinion was that on the one hand, the express purpose ofthe provision is to “guarantee full compliance with Community competition principles”and on the other hand, gaming concessions “constitute a species of serviceconcessions and as such, are not governed by Directive 2004/18/EC” and containthe “provision, which is very frequent in gaming tender procedures, regardingoutsourcing of the management and organisation of the business to which theconcession relates”.38 Sisal ANNUAL REPORT 2011

In the said opinion, the Council of State held that the said statutory provision is“undeniably” applicable to gaming concessions, as it is to all concessions that generaterevenue for the Treasury, having regard to the literal terms of the provision;it also confirmed “the exception to the prohibition” on dealings between concessionairesand third parties if, as stated in the Act, those dealings were expresslycontemplated in and governed by the tender documents, and emphasised that therationale for the provision is to ensure “effective control by parties that operategaming businesses”.The latest developments in the field date back to the early months of this year,when AAMS formulated requests against Sisal S.p.A. based on the alleged applicabilityof the prohibition on business dealings between concessionaires andthird parties, unless such dealings are contemplated in and governed by the tenderdocuments regarding the award of the corresponding concessions, laid down byart. 2.2 of Decree Law no. 40/2010. The said requests related to: details of theamounts paid by outlets; and Sisal replied to that request; the payment to AAMS,subject to adjustment, of the total amount of approximately EUR 147 million,estimated to have been received by the company in the period between the startof the NTNG concession and December 31, 2011; reiteration of the request forpayment within sixty days, failing which the guarantees issued in the ambit ofthe NTNG concession would be called in. On the strength of the independentopinions obtained, especially from Prof. Pietro Rescigno, which state that the prohibitioncontained in the provision in question is inapplicable to the said dealingsbecause the NTNG tender documents contemplated and governed them, so thatthe request by AAMS was unfounded, Sisal S.p.A. appealed to the Lazio RegionalAdministrative Tribunal against the granting agency’s claims, and obtained a suspensionorder on April 18, the Court having ruled that the appeal showed a primafacie case, and set down the case for a full hearing on July 11, 2012.In the meantime, when Fiscal Decree Law no. 16 of February 2, 2012 was convertedto Law no. 73/2010, it was held that the said provision of art. 2.2 of Decree Lawno. 40/2010, converted to Law no. 73/2010, “should be interpreted as stating thatit is applicable to public State concessions whose tender procedures are publishedafter the date of entry into force of the said Law no. 73 of 2010 and, in the case ofconcessions already in existence on the date of entry into force of the Law convertingthis Decree, provided that the files or the said transactions with third partiestake the form expressed in the tender documents”. The Chamber of Deputies thenvoted on a Government-approved agenda which states that, “having regard to thefact that since the formulation of the said provision, a misalignment seems to beemerging between the terms of the said sub-section because, while the first partlimits its applicability to the period after the entry into force of Law no. 73 of 2010,the last part of the sub-section could be incorrectly interpreted as retrospectivelyanticipating its effects for concessions already existing on the said date”, and “beingaware of the need to operate on the basis of authentic interpretation, in orderto discover the legislator’s exact intention”, and requires the Government to clarifyin a forthcoming legislative provision that the said terms are to be interpreted inany event as meaning that the terms of Decree Law no. 40/2010 “shall only applyto concessions where the call for tenders was published after the date of entry intoforce of Law no. 73 of 2010”.39 DIRECTORS’ REPORT ON operations

As we know, the tenders for the award of the national totalisator number gamesconcession, in the framework of which the commercial relations referred to abovebetween the concessionaire and the outlets took place, was published on July 6,2007, approximately three years before the entry into force of Law no. 73 of 2010;thus the prohibition on dealings by Sisal S.p.A. with third parties, contained inDecree Law no. 40 of 2010, is clearly not applicable. An identical conclusion is alsoreached on the basis of the letter of the provision in its current formulation, sincethe said contractual relations referred to were not contemplated in the tenderdocuments submitted by Sisal at the time of the tender procedure.Finally, after months of intensive negotiations and the favourable outcome of thedue diligence procedure, during the financial period Sisal Match Point S.p.A. completed,through the execution of the necessary deeds, some important acquisitionsof horse race and sports betting rights and concessions, involving the purchase ofbusiness segments and/or companies with a total value of approximately EUR 22million. They include in particular the finalisation at the year-end of the acquisitionof business segments belonging to the Ilio Group, which operates on a largescale, especially in the betting field, in Puglia, specifically in the Trani area. As aresult of the transaction, which was successfully concluded in a very short time, thecompany now owns, either directly or through the companies acquired, 18 horserace and sports betting concessions awarded under the “Bando 2000” tender. Theconcessions are operated in 14 agencies and 3 “Bersani” concessions, to whichare connected 86 horse race and sports betting rights carried on in 18 shops and68 corners. Sisal Match Point also thereby acquired the pervious owner’s goodwill,including customer base, business image and locations.On March 22, 2012, the board of directors of the Company postponed the examinationof the draft company and consolidated financial statements for theyear ended December 31, 2011 and the relative Directors’ report on operations,taking advantage of the right, provided in the bylaws and as allowed by the lastparagraph of art. 2364 of the Italian Civil Code for companies required to prepareconsolidated financial statements, to call the ordinary shareholders’ meeting, towhich the financial statements are to be submitted, beyond the time limit of 120days after the year-end, provided that the meeting is called within 180 days fromthat date.Information regarding human resources and the environmentThe Group had 1,493 employees as of 31 December 2011. No cases of death and/or serious work accidents or occupational diseases were recorded among employeesor former employees, nor any cases of mobbing.As regards the question of any impact on the environment caused by the Group’sactivities, during the period no cases of damage to the environment for whichGroup companies could be held responsible occurred, nor were any penalties orfines that definitely imposed on them for environmental violations or damage. Asregards policies for the disposal and recycling of refuse and/or production waste,the only procedures in place are those for the disposal of packaging, electronicparts and/or consumables from electronic equipment (such as photocopier toner)through specialised firms.40 Sisal ANNUAL REPORT 2011

Development and investment activitiesIn 2011, the Group continued its efforts and significant investments were madetowards the renewal, modernisation and upgrading of the Group’s systems infrastructure.In particular, the Group invested in property, plant and equipmentfor a total of about EUR 38 million, of which more than EUR 14 million for thepurchase (partly through finance leasing contracts) or technological updating ofslot machines and terminals for gaming and services. During the year, about 1,100slot machines were purchased in addition to 3,900 gaming terminals, known as“Microlot”, manufactured by the Greek group Intralot, and about 1,000 gamingterminals, known as “Leonardo”, manufactured by the American company ScientificGames. During the year, other investments were made for about EUR 9.5million in equipment, refurbishing and furnishing of the Group main operationalheadquarters, in several betting agencies and in the new gaming halls denominated“Wincity”. Finally, about EUR 10.5 million was invested in hardware, networksystems and broadband connections.With regard to investments in intangible assets, in 2011, the Group continued todevelop new product applications for corporate operations and user licences werepurchased for a total value of about EUR 14.3 million.Finally, it is important to emphasise the important program of acquisition broughtto an end during the year by the companies Sisal Match Point S.p.A. and Sisal SlotS.p.A. which concluded agreements for the purchase of companies and/businesssegments operating, respectively, in the sphere of the management and the takingof receipts from public and sports gaming for a total equivalent amount of aboutEuros 22 million and in the sector of the operation, maintenance and logistics ofslot machines (including ownership of about 500 New Slot machines) for aboutEuros 2.5 million.Transactions with parent companiesWith regard to transactions with the Parent shareholders, we draw your attentionto two outstanding loans at the end of the year for a total of EUR 384.6 million ofprincipal, in addition to EUR 10.8 million of interest accrued but not paid.Transactions with related partiesAs regards financial and commercial transactions with related parties, there aretransactions with S.P.A.T.I. S.p.A., under liquidation, whose shareholders hold indirectinterests in the parent company. Further information on this point is providedin the explanatory notes to the financial statements.41 DIRECTORS’ REPORT ON operations

Number and nominal value of treasury sharesNeither the Parent nor the other Group companies hold treasury shares and theydo not hold shares or quotas in parent companies, even through trust companiesor third parties; during the period no acquisitions or sales of these types of sharesor quotas took place.Significant events occurring after the end of the periodIn addition to the events already mentioned above, the latest developments in thesphere of the main concession activities are as follows.As regards the AWP sector, AAMS instituted the list of authorised parties referredto in art. 1.533 of Law no. 266/2005, as replaced by art. 1.82 of Law no. 220 ofDecember 13, 2010, by Director’s Decree of September 9, 2011, commencing onJanuary 1, 2011.Registration in that list authorises registered parties to perform activities relatingto AWP machines. Sisal Slot is registered in the said list, and has urged the otherparties belonging to its gaming network through AWP, in particular merchants andoperators, to register in the same list by the deadline specified in the applicablelegislation.In the early months of 2012, pursuant to the said Director’s Decree, Sisal Slotconsequently terminated its legal relations regarding gaming concession activitiesthrough AWP gaming machines with parties obliged to enroll in the said list whichhad not done so by the deadline.By the Directors’ Decrees of October 12, 2011 and December 16, 2011, AAMSidentified public gaming measures useful to ensure the higher revenues specifiedby art. 2.3 of Decree Law no. 138 of August 13, 2011, converted with amendmentsto Law no. 148 of September 14, 2011, and introduced an additional feefor the AWP sector, amounting to 6% of the prizes exceeding the sum of EUR 500on the machines referred to in art. 110.6.b of the Consolidated Law EnforcementAct (VLTs). In particular, in order to apply the said additional fee, concessionairesbelonging to the online AWP network should have asked AAMS, by January 20,2012, to commence the compliance check necessary to upgrade the gaming systems,and should have delivered all the necessary documentation and hardwareand software components. As it is objectively impossible to implement the termsof the said Directors’ Decrees without prior modification of the gaming systemssoftware, all concessionaires have appealed to the Lazio Regional AdministrativeTribunal against these decrees, requesting their suspension. On January 25, 2012,the Lazio Regional Administrative Tribunal confirmed the suspension of the saiddecrees, which had already been granted following an ex parte application. Thesaid Fiscal Decree Law states that the taxation is postponed until September 1,2012.42 Sisal ANNUAL REPORT 2011

In the case of horse racing betting concessions awarded in 2000, on December 23,2011 AAMS sent a request to the various concessionaires, including Sisal MatchPoint S.p.A., to increase the minimum guaranteed annual figures.Clause 4 of the said agreements states that concessionaires shall pay the additionalsum up to the minimum guaranteed amount, determined pursuant to the Inter-Directors’ Decree of October 10, 2003, if the annual fee referred to in art. 12 ofPresidential Decree (DPR) no. 169 of April 8, 1998, destined for UNIRE, is less thanthe said minimum annual amount.The earlier requests by AAMS to concessionaires to increase the minimum guaranteedamounts for the years 2006, 2007, 2008 and 2009 were suspended as aresult of some judgments by the Lazio Regional Administrative Tribunal pendingthe application of the “safeguard measures” specified by art. 38.4.l of Decree Lawno. 223 of July 4, 2006.The request to increase the minimum figures in question, as literally argued byAAMS in its application, appears to be based on the fact that it is impossible atpresent to identify safeguards additional to those already identified according tothe criteria of the selection procedures conducted in 2006, which introduced thealleged obligation for concessionaires to pay the additional minimum guaranteedamounts suspended by the earlier judgments of the Regional Administrative Tribunal.The Group’s concessionaire company, Sisal Match Point S.p.A., appealed to theLazio Regional Administrative Tribunal against that application by AAMS, and theTribunal granted a suspension.The above-mentioned Fiscal Decree Law no. 16/2012, now converted to Law no.44/2012, cancelled the said provision relating to “safeguarding measures” forconcessionaires, and provided that pending disputes could be settled by paying95% of the amount requested by AAMS.The situation does not yet seem to be entirely clear, and it is considered that AAMSneeds to clarify the matter.As regards the betting sector, the said Fiscal Decree required a new call for tenders,to be issued by AAMS not later than July 31, 2012, in compliance with the followingcriteria:• participation open to all parties that conduct betting business in one of theMember States of the European Economic Area, on the basis of a valid authorisationissued by the State in which they operate and that comply with therespectability and economic/financial requirements indicated by AAMS;• grant of concessions expiring on June 30, 2016, for physical outlets only, upto a maximum of 2000, whose sole activity is marketing of public gaming,without any obligatory minimum distance between them or from other outletsalready conducting identical betting business;• reserve price EUR 11,000 per agency;• signature of an agreement consistent with the principles laid down in the Costa/Cifonijudgment of the European Court of Justice, and with the compatiblenational provisions applicable to public gaming;• absence of territorial limits and of privileged conditions for concessionaires alreadyauthorised to handle identical betting business;43 DIRECTORS’ REPORT ON operations

• issue of bank guarantees by the parties appointed as concessionaires;• extension of concessions expiring in June 2012 until the award of the concessionsunder the new tender procedure;• revocation of territorial limits for horse racing and sports betting points of salepreviously awarded through the “Bersani” tender procedure.Over the next few months the Group will carefully monitor the development ofthis procedure, which obviously holds great interest for the betting business relatingto those games, which is conducted in particular by Sisal Match Point S.p.A.OutlookOn a macroeconomic level there are persisting signs of weakness owing to thecurrent economic phase and for the current year the national economy forecaststhe continuation of the recession phase, exacerbated by measures in the fiscalsphere aimed at the recovery of credibility on a global scale. Nevertheless, even inthis context, the plans of the Group for the year in progress and the next year stilllook favourably towards significant growth in its reference markets, both servicesand gaming. In this latter area, there is expected to be a slight but constant declinein traditional products concurrent with exuberant growth in the new video lotteryterminals (VLTs) and online gaming, both of which have high payout levels; consequently,a steady increase in receipts will be accompanied by much more modestgrowth in terms of the net expenditure of the public. Moreover, there is expectedto be further intensification of the competition with regard to strategies to winover customers and retain customer loyalty on the part of distribution networks,which will possibly have an impact on levels of profitability for operators in thesector.Based on these scenarios and the changes in the value chain of certain areas ofthe gaming market, particularly the increase in the taxation systems of VLT gamesfrom 2% in 2011 to 4% in 2012 and 4.5% starting from 2013, the strategy of theGroup, naturally adapted of necessity to the different characteristic of each segment,will focus on the pursuit of profitable growth, expansion through innovationof the product portfolio, the continuous development and strengthening of the organizationalstructure and the acceleration of programs to reduce operating costs,without ever losing sight of the principles underlying the philosophy of corporatesocial responsibility.Having said this, the Group entertains positive expectations on the prospects for2012 with regard to the economic results of the various corporate.Milan, 30 May 2012On behalf of the Board of DirectorsThe ChairmanProf. Augusto Fantozzi44 Sisal ANNUAL REPORT 2011

Consolidated Financial Statementsas of December 31, 2011Statement of Financial Position - Assets Notes 12.31.2011 12.31.2010(in thousands of Euro)A) NON-CURRENT ASSETSProperty, plant and equipment 1) 119,677,631 115,319,840Goodwill 2) 886,519,665 870,083,359Intangible assets 3) 286,437,364 338,289,966Investments accounted for using the equity method 4) 22,267 32,684Deferred tax assets 5) 18,997,531 8,781,664Other non-current assets 6) 11,883,007 11,713,925Assets held for sale/discontinued operations 7) 0 0Total non-current assets 1,323,537,465 1,344,221,438B) CURRENT ASSETSInventories 8) 14,506,910 10,408.097Trade receivables 9) 183,982,923 177,082,555Current financial assets 10) 1,004,098 1,549Other current assets 11) 39,780,744 24,616,817Taxes receivable 12) 12,266,096 9,417,418Cash and cash equivalents 13) 283,691,629 472,881,175Total current assets 535,232,400 694,407,611TOTAL ASSETS 1,858,769,865 2,038,629,04945 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Statement of Financial Position - Equity and Liabilities Notes 12.31.2011 12.31.2010(in thousands of Euro)A) EQUITY 14)Share capital 102,500,000 102,500,000Legal reserve 200,000 200,000Share premium reserve 94,484,316 94,484,316Other reserves (83,558,385) (70,658,030)Loss for the year (29,357,861) (13,383,754)Total equity attributable to Owners of the Parent 84,268,070 113,142,532Equity attributable to non-controlling interests 638,980 681,631Total equity 84,907,050 113,824,163B) NON-CURRENT LIABILITIESLong-term debt 15) 1,082,269,643 1,051,976,137Provision for employee severance indemnities 16) 7,876,214 7,592,445Deferred tax liabilities 17) 33,648,455 35,218,282Provisions for risks and charges 18) 15,222,577 9,151,522Other non-current liabilities 19) 6,319,908 2,576,025Liabilities relating to assets held for sale/discontinued operations 20) 0 0Total non-current liabilities 1,145,336,797 1,106,514,411C) CURRENT LIABILITIESTrade and other payables 21) 259,159,082 227,157,791Short-term debt 22) 40,894,021 35,791,395Current portion of long-term debt 23) 22,077,672 23,080,433Other current liabilities 24) 290,259,884 522,767,087Taxation payable 25) 16,135,359 9,493,769Provisions for risks and charges 26) 0 0Total current liabilities 628,526,018 818,290,475TOTAL LIABILITIES AND EQUITY 1,858,769,865 2,038,629,04946 SISAL ANNUAL REPORT 2011

Statement of Comprehensive Income Notes 12.31.2011 12.31.2010(in thousands of Euro)Revenues 27) 792,621,289 674,270,899Fixed odds betting income 28) 74,456,053 57,980,591Other revenues and income 29) 2,762,614 3,714,557Total revenues and income 869,839,956 735,966,047Purchases of materials, consumables and merchandise 30) 18,881,787 16,753,171Costs for services 31) 547,267,673 448,076,541Lease and rent expenses 32) 13,813,109 11,407,022Personnel costs 33) 69,008,124 59,407,198Other operating costs 34) 31,415,328 33,760,587Total costs 680,386,021 569,404,519Gross operating profit before amortisation, depreciation,provisions and impairment losses and reversalsAmortisation, depreciation, provisions and impairment lossesand reversals189,453,935 166,561,52835) 133,080,892 96,113,712Net operating profit (EBIT) 56,373,043 70,447,816Finance income and similar 36) 4,033,370 1,555,944Finance expenses and similar 37) 73,064,064 79,580,393Adjustments to financial assets 38) 0 0Share of profit/(loss) of companies accounted for by the equity method 39) (10,779) (7,740)Loss before income taxes (12,668,430) (7,584,373)Income taxes 40) 16,677,189 5,289,196Loss from continuing operations (29,345,619) (12,873,569)Result attributable to assets held for sale/discontinued operations 41) 0 0Loss for the year (29,345,619) (12,873,569)Other comprehensive income 42) 0 0Total comprehensive loss for the year (29,345,619) (12,873,569)47 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Statement of Changes in EquityATTRIBUTABLE TO THE OWNERS OF THE PARENT(in thousands of Euro)SharecapitalLegalreserveSharepremiumreserveOtherreservesRetained earnings(Accumulateddeficit)NoncontrollinginterestsTotalEquityEquity at December 31, 2009 102,500 200 94,484 1,124 (74,709) 2,993 126,592Profit and loss recorded directly in equityLoss for the year (13,384) 510 (12,874)Total comprehensive Incomefor the year0 0 0 0 (13,384) 510 (12,874)Other changes 0 2,927 (2,821) 106Equity at December 31, 2010 102,500 200 94,484 1,124 (85,166) 682 113,824Profit and loss recorded directly in equityLoss for the year (29,357) 12 (29,345)Total comprehensive loss for the year 0 0 0 0 (29,357) 12 (29,345)Dividends paid (Sisal S.p.A. shareholders’meeting of June 15, 2011)(55) (55)Other changes 483 483Equity at December 31, 2011 102,500 200 94,484 1,607 (114,523) 639 84,90748 SISAL ANNUAL REPORT 2011

Statement of Cash Flows 12.31.2011 12.31.2010(in thousands of Euro)Loss for the year (29,346) (12,874)Depreciation and amortisation 89,432 77,990Impairment charge for receivables in current assets 7,971 7,657Property, plant and equipment and intangible assets impairment loss (reversal) 25,734 6,860Investment impairment loss 10 8Provision for risks and charges - accruals (releases) 5,446 (380)Deferred tax charge (credit) (14,475) (8,431)Employee severance indemnities - accrual 3,616 2,814Other accruals 483 0Result for the year ± adjustments reconciling to cash providedfrom operations before changes in working capital88,871 73,644Change in working capital (228,124) 108,435Cash flows provided by (used in) operating activities (139,253) 182,079Increase (-) decrease (+) in intangible assets (47,153) (47,093)Increase (-) decrease (+) in property, plant and equipment (36,954) (40,930)Increase (-) decrease (+) in investments 1 (1)Increase (-) decrease (+) in other non-current assets (169) (521)Cash flows provided by (used in) investing activities (84,275) (88,545)Change in medium-/long-term debtLoans repayable after 12 months 30,289 14,390Increase in capital from non-controlling interests 0 106Dividends to non-controlling interests (55) 0Loans from other lenders - non-current lease instalments 4 1,149Cash flows provided by (used in) financing activities 30,238 15,645Increase (decrease) in cash and cash equivalents (193,290) 109,179Net cash at the beginning of the year 414,010 304,831Net cash at the end of the year 220,720 414,010Cash and cash equivalents at the beginning and end of the year is the sum of cash and cash equivalents, short-term debt and the current portion of long-term debt49 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Explanatory Notes to the ConsolidatedFinancial Statements as of December 31, 2011Structure and content of the Consolidated FinancialStatementsSisal Holding Istituto di Pagamento S.p.A. (SHIP S.p.A.) is a limited liability stockcompany established under the law of the Republic of Italy; at the 2011 year-endthe Company had two main activities. The first is represented by the supply ofcollection and payment services, performed under appropriate authorization issuedby the Bank of Italy, to third party and subsidiary commercial partners; thesecond is represented by the ownership of a controlling interest in Sisal S.p.A. acompany which operates directly and indirectly through subsidiary companies inItaly in the gaming industry, principally on the basis of concessions for wagers inpools, horse racing and sports bets and legal gaming using AWP gaming machines(Amusement With Prize gaming machines) and in the marketing of telephone andtelevision content cards and refills using a network of more than 42,000 outletsand about 200 betting agencies distributed throughout Italy and by the ownershipof a controlling interest in Sisal Bingo S.p.A. a company which operates a bingohall in the city of Naples. Management and strategic services are also renderedto the main subsidiaries subject to the direction and coordination activities of theCompany.The company’s registered office is at Via Tocqueville 13, Milan.These consolidated financial statements, comprising the statement of financialposition, statement of comprehensive income, statement of changes in equity,statement of cash flows and explanatory notes have been prepared from the accountingrecords in conformity with International Financial Reporting Standards(IFRS) adopted by the European Union.In this context, IFRS includes all the International Financial Reporting Standards,all the International Accounting Standards (IAS) and all the interpretations of theInternational Financial Reporting Interpretations Committee (IFRIC), previouslyknown as the Standing Interpretations Committee (SIC) in force at the date ofpreparation of these financial statements and published at that date in the relevantE.U. regulations.The preparation of financial statements according to IFRS may require the use ofestimates and specific valuations and the reasonable judgement of managementin the application of accounting policies. The matters which present higher levelsof complexity and/or greater reliance on assumptions and estimates are detailed inthe paragraph “Use of estimates”.The financial statements which follow include all the additional information considerednecessary even if not required by specific legislation. Valuations have beenmade on a prudent basis and assuming continuity as a going concern, respectingthe criteria and the limits established by law absent any grounds for deviation fromthem, and applying the accruals concept.50 SISAL ANNUAL REPORT 2011

The financial statements are prepared in the following manner:• In the statement of financial position, current and non-current assets andliabilities are shown separately.• In the statement of comprehensive income, the analysis of costs is made on thebasis of their nature.• In the statement of cash flows, the indirect method is used.These consolidated financial statements are presented in euros and all amountspresented in the explanatory notes are expressed in thousands of euros unlessotherwise stated.The financial statements were approved by the Board of Directors of Sisal HoldingIstituto di Pagamento S.p.A. on May 30, 2012.Consolidation AreaThe draft consolidated financial statements as of December 31, 2011 include thefinancial statements at the same date of Sisal Holding Istituto di Pagamento S.p.A.(the Parent) and those of the companies in which it possesses, directly or indirectlythrough subsidiaries, more than half of the voting rights, even as a result of anagreement with other investors, or the power to determine the financial and operationalpolicies of the company through a contract or a clause in that company’sbylaws. A company is also considered to be controlled under IAS 27 if the Parentretains the right to appoint or dismiss the majority of its board of directors or exercisethe majority of voting rights in the governing body when the control is heldby that body. The list of consolidated companies, all included using the line-bylinemethod, with details of their name, registered office, capital and percentageowned is provided in Annex 1.Subsidiaries excluded from the consolidation are measured applying the methodsdescribed under “Investments”.Change in the scope of consolidationThe scope of consolidation has changed as a result of the finalization of two importantacquisitions at the year-end. The first and most important refers to theacquisition of the full ownership interest in the companies Ilio S.p.A. and La MartingalaS.r.l., in addition to three business segments, for consideration of approximatelyEUR 16.5 million. This grew Sisal Match Point’s network by 32 shops and 68sports corners, with total betting receipts of almost EUR 70 million. This acquisitionhas assured the Group of an excellent presence in the Apulian region which representsthe fourth largest region in terms of sports betting receipts, particularly inthe provinces of Bari and Barletta-Andria-Trani (BAT).51 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

The second refers to the finalisation of the acquisition of Arezzo Giochi S.r.l., acompany which holds the concession for 3 shops and a corner in the province ofSiena, for consideration of approximately EUR 1 million.As a consequence of these acquisitions, the companies Ilio S.p.A., La MartingalaS.r.l. and Arezzo Giochi S.r.l. were included in the scope of consolidation as ofDecember 31, 2011. Since these acquisitions were concluded at the end of theyear, the statements of financial position were consolidated line-by-line but noitem of the income statements was included in the consolidated financial statementsof the Group. The difference between the acquisition price and the fairvalue of the acquired assets and liabilities, including the value attributed to theconcession rights on acquisition, was recorded as goodwill. The Group’s businessalso increased as a result of the acquisition of the business segment relating tothe Billennium sales points, and the wholly-owned investment made in the companyBbet S.r.l., composed of 11 directly managed horse race and sports bettingagencies, which was subsequently merged in Sisal Match Point S.p.A.. As for thesubsidiary Sisal Slot S.p.A.’s operations, a business segment operating in the sectorof the rental, maintenance and logistics of AWP machines was acquired in additionto two important business segments, for total consideration of approximately EUR2.6 million, from the companies Costanzelli S.r.l. and Slotmatic S.r.l. These last twotransactions allowed the company to acquire management contracts with a significantnumber of points of sale and the ownership of the gaming machines therein.Overall, these acquisitions brought more than 500 slot machines to the companybut during the year did not generate a significant increase in revenues as the mostimportant acquisitions were finalized towards the end of the year.Financial statements used for consolidationThe statements of financial position and the statements of comprehensive incomeof subsidiaries used for the consolidation have been prepared by the individualsubsidiary and transmitted to the Parent and are consistent with the financialstatements as of December 31 approved by the shareholders’ meetings of therespective companies.The Group’s accounting policies are in accordance with International Financial ReportingStandards, issued by the International Accounting Standards Board (IASB)and approved by the European Commission for the preparation of consolidatedfinancial statements by companies with equity or debt securities listed on one ofthe European Community’s regulated stock exchanges.Reference date for the consolidated financial statementsFor the 2011 financial year, the statement of comprehensive income reflects theaccounting period considered in the financial statements of the Parent, Sisal HoldingIstituto di Pagamento S.p.A. and of all the other companies, subsidiaries andassociates, from January 1, 2011 to December 31, 2011, with the exception ofthe subsidiaries Ilio S.p.A., La Martingala S.r.l. and Arezzo Giochi S.r.l. which wereacquired by the Group at the end of 2011.52 SISAL ANNUAL REPORT 2011

Consolidation MethodFor companies consolidated line-by-line, all assets and liabilities and all costs andrevenues have been included. In the preparation of the consolidated financialstatements, the accounting principles and methods of valuation adopted are thesame as those of the Parent.The key consolidation criteria adopted are the following:• The consolidated financial statements include the financial statements of allsubsidiaries from when control over such subsidiaries by the Group commencesuntil the date that control ceases and is transferred to third parties. Beginningon December 31, 2011, business combinations are recorded in accordancewith IFRS 3R. At the date of acquisition of control, the equity of acquired companiesis determined attributing to the individual elements of assets and liabilitiestheir fair value. Any difference relative to the cost of the acquisition, if positive,is recorded as goodwill and, if negative, is recognised in the statement ofcomprehensive income as income from the concluded transaction. Transactioncosts are recorded in the statement of comprehensive income when incurred.• Contingent consideration, considered part of the purchase price, is measuredat fair value at the acquisition date. Subsequent changes in fair value, if any, arerecognized in the statement of comprehensive income.• Intergroup receivables and payables between companies included in the consolidationarea have been eliminated.• Costs and revenues, expenses and income between companies included in theconsolidation have been eliminated, including dividends distributed within theGroup, which have been reallocated in the equity of the Group.• Gains and losses resulting from transactions between Group companies whichhave not yet been realised with third parties at the end of the reporting periodhave been eliminated, if significant.• Memorandum accounts relating to guarantees and sureties between companiesincluded in the consolidation area have been eliminated.Non-controlling interestsNon-controlling interests in equity and profit are shown as separate items in thefinancial statements; at the acquisition date, the non-controlling interests can bemeasured at either the acquisition-date fair value or according to the proportionateshare of the ownership interest in the identifiable net assets acquired. Thechoice of method is made transaction by transaction.Changes in non-controlling interests in a subsidiary which do not constitute a lossof control are accounted for as equity transactions. Therefore, for purchases subsequentto the acquisition of control, any positive or negative difference betweenthe purchase cost and the corresponding share of equity is recognized directly inthe equity of the Group; for the partial disposal of a subsidiary without loss ofcontrol, any gain or loss is recognized directly in the equity of the Group.In the case of the partial disposal of a subsidiary resulting in the loss of control, theinvestment retained is adjusted to fair value and the revaluation forms part of thegain or loss on the transaction.53 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Translation of financial statements not prepared in EurosThe translation of financial statements expressed in currencies without legal valuein the Italian State has been carried out as follows:• statement of comprehensive income items have been translated at the averagerate for the year;• statement of financial position items have been translated at the year-end exchangerate.Translation differences arising from the application of exchange rates and thoseoriginating from the translation of beginning equity at exchange rates prevailing atthe end of the financial year, compared to the rate in effect at the end of the prioryear, are allocated to a specific reserve in equity denominated “currency translationreserve”. The exchange rates applied in the translation of financial statementsare the following:Currency Average exchange rate for 2011 Year-end exchange rate 2011British Sterling 0.86788 0.83530Summary of Significant Accounting PoliciesThe consolidated financial statements of Sisal Holding Istituto di Pagamento S.p.A.Group have been prepared under the historical cost convention where there waschoice between cost and fair value.The accounting policies adopted are described below.Property, plant and equipmentProperty, plant and equipment are carried at cost and recorded at purchase priceor construction cost including any costs directly attributable to bringing the assetto the condition necessary for it to be ready for use.The expenses incurred for ordinary and/or cyclical maintenance and repairs arecharged directly to the statement of comprehensive income in the year incurred.The capitalization of costs inherent to the expansion, modernization or improvementof the structural elements owned or leased from third parties, is made solelyto the extent that they meet the conditions for being classified separately as anasset or part of an asset under the component approach method.The above assets are depreciated systematically each year on a straight-line basisat rates established by reference to their remaining useful life.When the depreciable asset is composed of distinctly identifiable elements, theuseful life of which differs significantly from that of the other parts which composethe asset, depreciation is taken separately for each of the parts which make up theasset under the component approach principle.54 SISAL ANNUAL REPORT 2011

When capital expenditures made by the companies refer to assets for the managementof gaming obtained by concession from the State Monopolies Board(AAMS) and are transferable free of charge at the end of the concession period,depreciation is taken over the shorter of the estimated useful life of the asset andthe remaining period of the concession.The depreciation rates applied are as follows:Fixed assets %Buildings 3Plant 10-12-15-25-30Equipment 12-20-25-33.33Other assets:vehicles 20-25fixtures & furniture 12electronic office equipment 20Leasehold improvementsshorter of the duration of the lease and the useful life of the assetDepreciation starts when the asset is ready for use considering the time at whichsuch condition actually arises.The Group tests for impairment at least annually if circumstances indicate thatthe carrying amount of property, plant and equipment may be impaired. In thepresence of such indications the recoverable amount of the asset is determined inorder to establish the amount of any impairment.The recoverable amount of an asset is the higher of fair value less costs to sell andits value in use. The value in use is determined by discounting estimated futurecash flows from the use of the asset and from its disposal at the end of its usefullife. Discounting to present value is made using a rate which takes into accountthe risks specific to the sector of activity. An impairment is recognised when therecoverable amount is lower than the book value. If in subsequent periods theconditions that gave rise to a previous impairment loss no longer exist, the assetvalue is reinstated to the lower of the recoverable amount and the amount thatwould have been recorded had no impairment loss been recognised, allocating thedifference to the statement of comprehensive income.Assets held under a finance lease, or linked to an agreement which, although notexplicitly a finance lease, transfers substantially all the risks and rewards incidentalto ownership, are recorded in property, plant and equipment at fair value net ofany amounts contributable by the lessor, or, if lower, at the present value of minimumlease payments, with a corresponding financial payable to the lessor beingrecorded in liabilities. The assets are depreciated in the manner described. Whenthere is no reasonable certainty that the lessee will obtain ownership of the assetat the end of the lease term, depreciation is made over the shorter of the leaseterm and the useful life of the asset. In the statement of comprehensive income,depreciation and the interest expense relating to the financial component of thelease instalment are recorded in the place of the lease instalments.55 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Intangible assetsThe intangible assets of the Group recorded in the statement of financial positionin accordance with IAS 38 consist of assets which are identifiable, have the capacityto produce future economic benefits and can be controlled by the company.Such assets are recorded at purchase cost, including directly attributable expensesand are amortised systematically over the duration of their residual possibility ofutilization; however, intangible assets with an indefinite life are not amortised butare tested periodically for impairment.Assets acquired in business combinations are recorded at fair value at the date ofacquisition.The Group assesses at least once a year whether there is any indication that anintangible asset may be impaired. If any such indication exists, the Group estimatesthe recoverable amount of the intangible asset in order to recognise any impairment.Similarly, when an impairment loss has been recorded in prior years, at the endof every reporting date the Group assesses whether there is an indication that animpairment loss recognised on an asset in previous years – other than goodwill –may no longer exist or has decreased. If there is any indication of this, the Groupestimates the recoverable value of that asset consistently with the considerationsthat gave rise to the impairment loss, adjusting, whenever there is a positive difference,the value of the asset. The reinstatement, if any, may not exceed the carryingamount of the asset that would have been recorded (net of amortisation) had noimpairment loss been recognised in previous years.Intangible assets comprise the following categories which are being amortised:• patent rights and intellectual properties are stated at the cost of purchase andamortised over three years. Costs to develop software are capitalised and amortisedon a straight-line basis over three or five years;• concessions are stated at the cost of purchase and amortised over the concessionperiod;• trademarks are stated at the cost of purchase and amortised on the basis oftheir effective future benefit;• software user licences are stated at the cost of purchase and amortised on astraight-line basis according to their use;• the other intangible assets relate to the values allocated on acquisition to theassets of the Sisal physical network, the Match Point physical network andTechnology Supply.56 SISAL ANNUAL REPORT 2011

Rights and licenses held under a finance lease, or linked to an agreement which,although not explicitly a finance lease, transfers substantially all the risks and rewardsincidental to ownership, are recorded in intangible assets at fair value netof any amounts contributable by the lessor, or, if lower, at the present value ofminimum lease payments, with a corresponding financial payable to the lessor beingrecorded in liabilities. The assets are amortised in the manner described. Whenthere is no reasonable certainty that the lessee will obtain ownership of the assetsat the end of the lease term, amortisation is made over the shorter of the leaseterm and the useful life of the assets. In the statement of comprehensive income,amortisation and the interest expense relating to the financial component of thelease instalment are recorded in the place of the lease instalments.The development costs relating to the Internet Site used for wagers on the webhave also been capitalised. In accordance with SIC 32 and IAS 38, such costs havebeen capitalised since it is believed that the estimated future economic benefitslinked to the wagers via internet can sustain the amount of the capitalised costs.GoodwillGoodwill recorded following a purchase or business combination is recognised initiallyat cost since it represents the excess of the cost of acquisition over the Group’sinterest in the net fair value of the assets acquired and liabilities and contingentliabilities assumed. Goodwill is an intangible asset with an indefinite life and, assuch, is not subject to amortization but is tested periodically for impairment toverify the adequacy of the carrying amount in the statement of financial position;the excess, if any, is recognised in the statement of comprehensive income. Thereversal of a previous writedown for the impairment of goodwill is not permitted.To test for impairment, the carrying amount of goodwill and the groups of relatednet assets separately capable of producing cash flows, the Cash-Generating Unit(CGU), are compared to the higher of the value in use of the CGU and the recoverableamount from disposal. The value in use is determined applying the discountedcash flow method by discounting the operating cash flows based on projectionsmade according to assumptions contained in business plans approved by management.57 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Financial assetsFinancial assets are classified at initial recognition under one of the following fourcategories and measured as follows.Financial assets at fair value through profit or loss:include (a) financial assets purchased principally for trading in the short term; (b)those initially designated in this category, whenever applicable, or when the fairvalue option is exercisable; (c) derivatives (except for a derivative that is designatedas an effective hedging instrument - “cash flow hedge”). These financial assets aremeasured at fair value; changes in fair value during the period of ownership areaccounted for in the statement of comprehensive income. Financial instrumentsunder this heading are classified as short term if held for trading or if disposal isexpected within 12 months of the end of the reporting period. Derivatives are recognisedas assets or liabilities, depending on whether their fair value is positive ornegative; positive and negative fair values arising from existing transactions withthe same counterpart are offset, whenever envisaged by contract.Loans and receivables:are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. They refer to receivables from customers, includingtrade receivables, and are shown in current assets except for maturities greaterthan 12 months after the end of the reporting period. These are classified as noncurrentassets. The assets are measured at their amortised cost, based on the effectiveinterest rate method. Whenever there is clear indication of an impairment,the carrying amount of the asset is reduced to the present value of estimatedfuture cash flows. The impairment loss on trade receivables is determined on thebases of objective evidence of the uncollectibility of the amounts. This evidencearises when the customer is unable or has difficulties in fulfilling its commitments(i.e. state of insolvency, overdue in excess of a certain number of days, companyrestructurings).The impairment loss is charged to the statement of comprehensive income underoperating costs and represents the difference between the carrying amount of thereceivable and the present value of future expected payments. If in subsequent periodsthe reasons for the impairment cease to exist, the asset value is reinstated upto the amount that would have been recorded had amortised cost been applied.Held-to-maturity financial assets:are non-derivative financial instruments, with fixed or determinable payments andfixed maturity dates, which the Company intends and has the ability to hold tomaturity. These assets are measured at amortised cost, using the effective interestrate method, adjusted by impairment losses, if any. Whenever there are impairmentlosses, the above principles described for loans and receivables are applied.58 SISAL ANNUAL REPORT 2011

Available-for-sale financial assets:are non-derivative financial instruments either designated in this category or notclassified in any of the other categories. These assets are measured at fair valueand the gains or losses arising from such valuation are recorded in an equity reserve;gains or losses are recognised in the statement of comprehensive incomeonly when the asset is sold (or extinguished) or, in the case of cumulative negativechanges, when it is deemed that the impairment loss already recorded in equitycannot be recovered in the future. If the fair value cannot reasonably be determined,such assets are measured at cost adjusted by impairment losses extrapolatedfrom converging indicators which evidence the incapacity of the asset to recoverits original carrying amount. The classification between current and non-currentassets depends on the strategic choices concerning the duration of ownership ofthe asset and its effective negotiability: those expected to be disposed of within 12months from the end of the reporting period are accounted for in current assets.Financial assets are derecognised from the statement of financial position whenthe right to receive cash flows from the instrument expires and the company hassubstantially transferred all risks and rewards related to the instrument and itscontrol.InvestmentsInvestments in associates are accounted for using the equity method which providesfor the recognition, in a separate line of the statement of comprehensiveincome, of the Group’s share of the results of the companies in which a significantinfluence is exercised.Investments in third-party companies, in accordance with IAS 39 and IAS 32, aremeasured at fair value except in those cases when it is not available; in that case,cost is adopted. Gains or losses from adjustments in value are recognized as othercomponents of the statement of comprehensive income, accumulated in a specificequity reserve. If there is objective evidence that an asset may be impaired, thecumulative loss that was recorded in the statement of comprehensive income mustbe reclassified from equity to the result for the year as a reclassification adjustmenteven if the financial asset was not eliminated.59 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

InventoriesInventories of playslips and rolls of paper for gaming terminals are stated at thelower of purchase cost, using the weighted average cost method, and the cost ofreplacement by reference to the market price as of December 31, 2011.Inventories of spare parts for the gaming terminals are stated at the weightedaverage cost based on purchase prices.Obsolete and slow-moving inventories are written down according to their possibilityof utilization or realization by setting up a specific provision recorded directlyas a deduction of the asset.The inventories of virtual and scratch refill cards for telephone and television contentare stated at the weighted average cost of the purchase prices.Cash and cash equivalentsCash and cash equivalents are recorded at their nominal value.Assets held for sale and discontinued operationsAssets held for sale and discontinued operations include assets and/or lines ofbusiness held for sale under a committed plan to sell a business segment or noncurrentassets purchased exclusively for resale.An asset is classified as held for sale if its carrying amount will be recovered principallythrough a sale transaction rather than through continuing use.The results of discontinued operations represented by the profit (loss) of the discontinuedoperations and gains or losses on disposal, if any, are presented net oftaxes in the statement of comprehensive income on a separate line.Debt and financial liabilitiesFinancial liabilities, comprising debt, trade payables and other financial obligationsare measured at amortised cost, applying the effective interest rate method.Financial liabilities are classified as current liabilities, unless the Company has anunconditional right to defer payment for at least 12 months after the year end.Financial liabilities are derecognised from the statement of financial position at thetime of extinction and when the Company has transferred all risks and rewardsrelated to the instrument.Provisions for risks and chargesProvisions for risks and charges are set up to cover losses or liabilities whose existenceis certain or probable but which at the end of the reporting period are uncertainas to amount or as to the date on which they will arise. Provisions are recognisedonly when there is a current obligation (legal or constructive) for a futureoutflow of resources deriving from a past event and it is probable that the outflowwill be necessary to fulfil the obligation. This amount represents the best estimateof the present value of the expenditures required to extinguish the obligation.60 SISAL ANNUAL REPORT 2011

Employee benefitsPost-employment benefits are divided into two categories: defined contributionplans and defined benefit plans. In defined contribution plans, contributory costsare charged to the statement of comprehensive income as they occur, based onthe relative nominal value. In defined benefit plans, as the amount of the benefitto be granted is quantifiable only after termination of employment, the cost ischarged to the statement of comprehensive income based on actuarial computations.The severance indemnity, regulated by art. 2120 of the Italian Civil Code, representsthe indemnity recognised in Italy to employees and accrued during theirservice life, which is liquidated on termination of employment (severance).It is classified as an unfunded defined benefit plan and therefore there are no assetsto service it.Following the reform of complementary pensions, in accordance with LegislativeDecree 252 dated December 5, 2005, the severance indemnity due to employeesup to December 31, 2006 will remain as a liability of the company while thataccruing to employees from January 1, 2007 must be, at the discretion of theemployee, either placed in a complementary pension scheme or remain in thecompany which will then transfer it to the fund managed by INPS (the Italian SocialSecurity Institute).The change in the legislation has caused a differentiation in the treatments of theamounts due to the employee at the termination of employment as follows:• the liability for the portion of severance indemnity accrued up to December 31,2006 continues to follow the rules for defined benefit plans;• the liability for the portion maturing from January 1, 2007, payable to complementarypension schemes or to the INPS treasury fund, is recorded on the basisof contributions due in the period.With regard to the severance indemnity accrued up to December 31, 2006, inclusionin the financial statements as a defined benefit plan requires an actuarialestimate of the sums due to employees in exchange for their service in the currentperiod and in the preceding years and the discounted present value calculation ofsuch services in order to determine the present value of the Group’s obligations.The calculation of the present value of the Group’s obligations is carried out by anexternal expert using the Projected Unit Credit Method which considers only theseniority matured at the time of the valuation, the service years accrued at suchdate and the overall seniority at the time of expected payment of the benefit.As the Group, after the above mentioned reform, has no obligation for the indemnitymaturing after December 31, 2006, the component relative to future salaryincreases is excluded from the actuarial calculation of the indemnity.61 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

The severance indemnity cost in the current period, charged to the statement ofcomprehensive income under personnel costs, is equal to the sum of the indemnitymatured by the employees working in the period, the finance charge on the presentvalue of the Group’s obligation at the beginning of the year and the gains andlosses caused by changes in the actuarial assumptions. It should be noted that theGroup has decided not to use the “corridor approach” and to recognise gains andlosses arising from changes in actuarial assumptions directly in the statement ofcomprehensive income.The annual discount rate adopted for calculating present value has been determinedon the basis of the average 11-year IBoxx Corporate Index updated to December31, 2011.Stock optionsStock option plans and other initiatives remunerated by equity instruments, if any,are accounted for in accordance with IFRS 2, separating those which will be settledthrough the issue of equity instruments and those which will be settled by paymentsin cash based on the value of the options granted.The fair value is determined at the grant date and causes the cost to be recognised(under personnel costs) over the vesting period of the options granted. When theemployee’s service is remunerated with an equity instrument or when the optionsgranted are on the shares of the Parent, the contra-entry is to an equity reserve(“stock options reserve” included under “Other reserves”). Instead, when the costof the share-based payment transaction is settled in cash, the contra-entry is to apayable account.Translation of amounts in foreign currencyRevenues and costs in currencies other than the functional currency, the Euro, arerecorded at the exchange rate on the transaction date.Monetary assets and liabilities in currencies other than the functional currency aretranslated into the functional currency at the exchange rate at the end of the reportingperiod, with any effect posted to the statement of comprehensive income.Non-monetary assets and liabilities in currencies other than the functional currencymeasured at cost are recorded at the original transaction rate; when the measurementis at fair value or at the recoverable/realizable amount, the exchange rate atthe measurement date is used.62 SISAL ANNUAL REPORT 2011

Revenue recognitionRevenues are recognised initially at the fair value of the consideration received netof rebates and discounts. Revenues from services are recognised by reference tothe value of the services rendered as of the end of the reporting period.Revenues from sales of goods are recognised when the company has transferredsubstantially all the risks and rewards of ownership of the goods.In accordance with IAS 18, sums collected on behalf of third parties, such as in anagency relationship, which do not cause an increase in the company’s equity, areexcluded from revenues which, instead, are represented solely by the commissionsaccrued on the transaction. Specifically, the cost pertaining to the purchase of telephoneand television content cards and refills are shown as a deduction from grossrevenues to highlight that with these transactions the Group’s revenue is only thedifference between the sale price and the nominal cost of the card.Fixed odds betting incomeThe bets connected with fixed odds betting are recognised initially as a financialliability in accordance with IAS 39 at the date the bet is accepted. Subsequentchanges in the amount of the financial liability are recognised in the statement ofcomprehensive income under “Fixed odds betting income” until the date of theevent on which the bet was taken.Cost of purchased goods and servicesPurchases of goods and services are recognised in the statement of comprehensiveincome on the accrual basis as decreases of economic benefits, with the contraentryan outflow of cash resources or a reduction in the amount of an asset orincrease in the amount of a liability.Financial income and expensesFinancial income and expenses are recognised on an accrual basis using the effectiveinterest method.TaxationIncome taxes are provided on the basis of an estimate of the tax expense for theyear under current laws.The corresponding liability is shown under “Taxation payable”.In accordance with IAS 12, deferred tax assets and liabilities are recognised on thetemporary differences between the carrying amount of an asset or a liability in thestatement of financial position and its tax base. Deferred tax assets are recognisedonly to the extent that their recovery is considered probable.Deferred taxes assets and liabilities are classified as non-current assets and liabilities,respectively. They may be compensated when there is a legally enforceableright to offset and the net amount will be shown as “Deferred taxes assets” or“Deferred taxes liabilities” depending whether receivable or payable. When the effectsof a transaction are credited or charged directly to equity, the related currentand deferred taxation is also recognised directly in equity.Deferred tax assets and liabilities are measured at the tax rates that are expected toapply to the period when the asset is realised or the liability is settled to the extentthat such rates have been approved at the end of the reporting period.63 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Any charges related to disputes with the tax authorities and the correspondingfines are exposed in the item “Income taxes”.Use of estimatesThe preparation of the consolidated financial statements and the related explanatorynotes in accordance with international financial reporting standards requiresestimates and assumptions to be made which have an effect on the reportedamounts of assets and liabilities and on the disclosure of contingent assets andliabilities at the end of the reporting period. Actual results could differ from estimates.Below are briefly described the accounting policies which require more subjectiveestimates and for which a change in the underlying assumptions may have a significanteffect on the financial statements.GoodwillGoodwill is tested annually for impairment; any impairment losses arising are recognisedin the statement of comprehensive income. Specifically the test involvesthe allocation of goodwill to a Cash-Generating Unit (CGU) and then the determinationof the relative fair value; when the fair value is lower than the carryingamount of the CGU, an impairment loss is recognised on the goodwill allocated tothe CGU. The allocation of goodwill to a CGU and the determination of fair valuerequire assumptions and estimates based on factors which may change over time,with consequent effects, possibly significant, on the assessments.Impairment loss/reversal of fixed assetsNon-current assets are periodically tested for impairment and where indicators ofdifficulty in recovery are present an impairment loss is recorded. The existence ofsuch indicators can be verified through subjective valuations, based on informationavailable within the Group or externally and on historical experience. Moreover inthe presence of a potential impairment, this is determined with appropriate valuationtechniques. The correct identification of the factors, indicating a potentialimpairment and the estimates to determine the loss, may depend on conditionswhich vary over time, affecting the assessments and estimates. Similar considerationsregarding the existence of indicators and the use of estimates in the applicationof valuation techniques can be found in the valuations to be made in theevent of the reversal of impairment losses charged in previous periods.64 SISAL ANNUAL REPORT 2011

Depreciation of property, plant and equipment and amortisationof intangible assetsThe cost of property, plant and equipment and intangible assets is depreciated/amortised on a straight line basis over the estimated useful life of each asset. Theeconomic useful life of fixed assets is determined at the time of purchase, basedon historical experience for similar assets, market conditions and expected futureevents which may affect them, such as technological changes. The effective economicaluseful life may, therefore, be different from its estimated useful life. Eachyear the technological and business segment developments, any contractual andlegislative changes related to the utilisation of the assets and their recovery valueare reviewed to update the residual useful life. Such updating may modify the periodof depreciation and consequently the annual rate and charge for the currentand future periods.Deferred tax assetsDeferred tax assets are recorded on the basis of expectations of future taxableincome. The assessment of expected future taxable income for the purpose ofrecognising deferred tax assets depends on factors which may vary over time andmay have significant effects on the measurement of this line item.Provision for risks and chargesThe Group accrues in this provision the probable liabilities relating to litigationsand controversies with staff, suppliers, third parties and in general expenses arisingfrom any commitments. The quantification of such provision is based on assumptionsand estimates based on presently available knowledge of factors which mayvary over time. Thus the final outcomes may be significantly different from thoseconsidered during the preparation of the financial statements.Provision for impairment of receivablesThis provision reflects the estimated losses on receivables. The provision coversthe estimate of the risk of losses which derives from past experience with similarreceivables, from the analysis of overdue receivables (current and historical), oflosses and recoveries and finally from monitoring economic trends and forecastsboth currently and prospectively to the company’s business.Severance indemnity provisionThe measurement of the severance indemnity provision (TFR) is carried out by externalactuaries; the computation considers the TFR matured on past service and isbased upon various assumptions, both demographic and economic/financial. Suchassumptions, also based on the company’s experience and relevant best practice,are periodically reviewed.65 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Changes in accounting standards adoptedThere are no changes in the accounting policies applied compared to the previousaccounting period. In particular, with regard to the application of recently issuedaccounting standards applicable from January 1, 2011, the following accountingstandards, although having no impact on the financial statements for the yearended December 31, 2011, are applicable in the typical business of the Group andcould have significance in future:∏∏Amendment to IAS 24 – Related party disclosures (Revised)IAS 24 amends the definition of related party and provides an exemption oncertain related party disclosure requirements for transactions with a governmentand with entities controlled, under common control or significantly influencedby a government.∏∏Improvements to IFRS (Annual improvements 2010)On February 18, 2011 Commission Regulation (EU) 149-2011 was issuedwhich adopted the improvements to IFRS beginning January 1, 2011 referringto the following: IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34 and IFRIC 13. Theseare improvements aimed a clarifying terminology and certain areas of difficultinterpretation.The following principles, amendments and interpretations, in effect from January1, 2011, address situations and circumstances that are currently not presentin the Group. Should they apply to future transactions they will be identified andcorrectly treated:∏∏∏∏∏∏Amendment to IAS 32 – Financial Instruments:Presentation – Classification of rights issues (revised)The amendment introduces a change in the definition of financial liabilities forpurposes of the classification of rights issues in foreign currency (and certainoptions and warrants) as equity instruments provided the entity offers theseinstruments pro rata to all of its existing owners of the same class of its ownnon-derivative instruments, or for the purchase of a fixed number of equityinstruments of the entity for a fixed amount of any currency.Amendment to IFRIC 14 – Prepayments of a Minimum FundingRequirementThe amendment permits an entity to treat an early payment of contributions tocover minimum funding requirements as an asset.IFRIC 19 – Extinguishing Financial Liabilities with Equity InstrumentsIFRIC 19 addresses the accounting treatment that must be applied when therenegotiation of the terms of a financial liability determines the issue of equityinstruments to a creditor to extinguish all or part of the same financial liability.66 SISAL ANNUAL REPORT 2011

The Company has not early adopted the accounting standards already endorsedby the European Community but effective for the Company for annual periodsafter December 31, 2011.In particular, the following have not been early adopted by the Company:∏∏Amendments to IFRS 7 – Financial Instruments:Disclosures – Transfers of financial assetsThe Company is currently assessing the impact of the applicability, if any, of theabove standards and interpretations on its financial statements. Moreover, the followingstandards and amendments are in the process of being endorsed by theEuropean Union and therefore to date are not applicable to the Company:∏∏∏∏∏∏∏∏∏∏∏∏∏∏∏∏∏∏IFRS 10 – Consolidated Financial StatementsIFRS 11 – Joint ArrangementsIFRS 12 – Disclosure of Interests in Other EntitiesIFRS 13 – Fair Value MeasurementIAS 27 – Consolidated and Separate Financial StatementsIAS 28 – Investments in Associates and Joint VenturesIFRIC 20 – Stripping Costs in the Production Phase of a Surface MineAmendment to IAS 1 – Presentation of Financial StatementsAmendment to IAS 19 – Employee BenefitsRisk ProfileThe main financial instruments used by the Group comprise bank loans, financeleases, short-term bank deposits and bank deposits on demand. The main objectiveof these instruments is to fund the operating activities of the Group. TheGroup also has various other financial instruments such as trade receivables andpayables from operating activities.Market risksThe market risks, in accordance with international accounting principles, are asfollows:Foreign currency exchange risksThe Group is exposed to currency exchange rate risks a limited extent only for thesupply of spare parts and gaming equipment purchased in foreign currency (USDand GBP).Interest rate risksThe Group is exposed to risks related to fluctuations in the levels of interest rates,specifically with reference to a financing contract signed at the end of 2006 witha pool of banks with The Royal Bank of Scotland plc as agent bank; this risk hasbeen partially covered by a series of interest rate swap contracts.Raw materials price riskThe Group’s exposure to price risk is minimal.67 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Liquidity riskLiquidity risk is the risk of not being able to fulfil present or future obligations onaccount of insufficient available funds. The Group manages this risk by seeking toestablish a balance between outflows of cash and the sources of short-term andlong-term funding and the gradual and homogeneous distribution of maturities ofmedium- and long-term funding over time.Credit riskPotential credit risk in commercial relations existing mainly with the outlets, underpartnership contracts, is mitigated by specific selection procedures for points ofsale, by imposing operating limits on the values played on the gaming terminaland by daily controls over changes in credit which provide for the blocking of theterminal in the event of non-payment and the revocation of the authorization tooperate as a Sisal outlet in the event of recurrent non-payment.The potential risk in the commercial transactions with the agencies managed bythird parties, under partnership agreements, and with the parties operating AWPgaming machines who are entrusted by the Group with the receipts from legalgaming is mitigated by the issue of notes and guarantees at the time of signingthe contract: these relationships are also subject to monitoring and periodic auditby the Group.The gaming credit eventually granted to individual players, in accordance with theinternal procedure, is subject to the examination and authorization of managementon the basis of technical and commercial assessments.Bookmaker riskQuoting odds, or the process of bookmaking, is the activity of setting odds forfixed odds betting, which, in effect, represents a contract between the bookmaker,who agrees to pay a pre-determined amount (the odds) and the player, who acceptsthe proposal made by the bookmaker and decides on the amount of his betwithin the limits allowed by existing law.The implicit risk of this activity is managed by the Group through the systematicand professional work of its odds staff in the risk management function who arealso assisted by external consultants in order to correctly determine the odds andlimit the possibility of speculative betting.68 SISAL ANNUAL REPORT 2011

Related Party DisclosuresWith regard to transactions with the ultimate parent, Gaming Invest S.à r.l., theParent has a loan payable totalling about EUR 395 million on which more informationis given later in these explanatory notes; accrued interest expense for the yearon this loan is about EUR 38 million at the reporting date, of which EUR 17.9 millionhas been capitalized.Concerning financial and commercial transactions with other related parties, mentionis made of the transactions with S.P.A.T.I. S.p.A., whose shareholders areamong the shareholders of the ultimate parent, to which there are net payablesdue at year-end of approximately EUR 0.8 million primarily on the purchase priceof a business activity consisting of 96 horse racing and sports betting agencies bySisal Match Point S.p.A.The compensation to the Group’s key managers charged with strategic responsibilities,in other words those with the authority and responsibility for the planning,management and control of the Group’s operations, amounts to EUR 5,443thousand for the entire calendar year 2011 (EUR 4,237 thousand in 2010) and isdetailed as follows:(in million of Euro) At 12.31.2011 At 12.31.2010Salaries 5,597 3,914Employment termination indemnity 329 323Total 5,926 4,237Managers who are also company directors, with related powers and responsibilities,are entitled to directors’ compensation determined by the shareholders at theannual general meeting.Under the agreements reached with the shareholders following the acquisitionof the majority of the share capital of Sisal S.p.A. by the Parent in 2006, somemanagers subscribed to certain debt and equity instruments of the vehicle usedfor the purpose of the new acquisition. Similar opportunities were offered to somemanagers hired during the years, as described in the note on other reserves underequity.69 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Other informationAs part of a process for the reorganization of the information and accounting systemsof the entire Group during the year, the chart of accounts was reviewed anda more precise classification was decided partly in order to draw up these notes.Therefore, for purposes of comparison it was necessary to change the comparativedata in certain notes. These reclassifications had no effect on the financial statementformat except for marginal amounts referring to revenues, other income,raw materials, consumables and merchandise, services and other operating costs.In these limited cases, in order to provide better disclosure, the corresponding lineitems of the statement of comprehensive income for 2010 was also reclassified forpurposes of comparison.Moreover, beginning January 1, 2011, certain companies of the Group (SisalMatch Point S.p.A. and Sisal Bingo S.p.A.) exercised the option for release fromthe obligations for exempt transactions allowed by art. 36 bis of DPR 633/72.The accounting effect of this decision require that the non-recoverable VAT referringto a specific purchase transaction must be added to the original cost, withthe consequence that the expense, based on the nature of the transaction, will becapitalized under assets used in the business and will form part of the cost (relatingto general and services expenses).Account should be taken of this presentation in reading the comparative figuresof the prior year which do not include this component since, for the above companies,up to December 31, 2010 non-deductible VAT was calculated on the prorata coefficient and assimilated as a general cost and recorded for the full amountin other operating costs.70 SISAL ANNUAL REPORT 2011

Explanatory Notes to the Statementof Financial PositionAssetsA) Non-Current AssetsProperty, plant and equipment (1)This account comprises the following:(in million of Euro)At12.31.2010Changes during the yearIncreases Decreases Merges ReclassificationsAt12.31.2011Land and buildings:original cost 17,231 2,865 0 0 5,791 25,887ordinary depreciation (3,306) (1,555) 0 0 (4,283) (9,144)writedowns 0 0 0 0 0 0Net 13,925 1,310 0 0 1,508 16,743Plant and machinery:original cost 22,280 6,503 0 0 (6,717) 22,066ordinary depreciation (14,392) (3,086) 0 0 4,647 (12,831)writedowns 0 0 0 0 0 (1)Net 7,888 3,417 0 0 (2,070) 9,234Industrial and commercial equipment:original cost 276,155 28,374 (6,120) 0 (7,705) 290,704ordinary depreciation (187,256) (28,183) 5,812 0 6,193 (203,434)writedowns (1,449) (596) 425 0 0 (1,620)Net 87,450 405 117 0 (1,512) 85,650Other assets:original cost 12,799 3,544 (33) 0 7,692 24,002ordinary depreciation (8,300) (2,137) 31 0 (6,231) (16,637)writedowns (187) 0 0 0 0 (187)Net 4,312 1,407 (2) 0 1,461 7,178Construction in progress:original cost 1,746 844 (1,717) 0 0 873ordinary depreciation 0 0 0writedowns 0 0 0Net 1,746 844 (1,717) 0 0 873Total:original cost 330,211 42,130 (7,870) 0 (939) 363,532ordinary depreciation (213,254) (34,961) 5,843 0 326 (242,046)writedowns (1,636) (596) 425 0 0 (1,808)Net Total 115,321 6,562 (1,602) 0 (613) 119,67871 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Property, plant and equipment, as detailed in the above table, include gross capitalexpenditure investments of EUR 42 million.Tangible assets reflect certain reclassifications as a result of changing the chart ofaccounts and the definition of more precise classification of items. The depreciationused until December, 31st haven’t been modified. Items that have been reclassifiedare plant and machinery, industrial and commercial equipment, land andbuildings, other assets.Investments in Plant and machinery of EUR 6.5 million relate mainly to renovationwork on points of sales, purchase of new air conditioning systems and othersundry plant.The increase in Industrial and commercial equipment of EUR 28.4 million is duemainly to:• Investments in new AWP “comma 6a” slot machines, PdAs and change machinesby Sisal Slot S.p.A. for approximately EUR 9.7 million.• The purchase of new-generation betting and services equipment such as the“Leonardo” and “Microlot” terminals for approximately EUR 14.7 million.• The purchase of display screens and betting terminals by Sisal Match PointS.p.A. for approximately EUR 3.6 million.The table below sets out information on outstanding finance leases accounted forin accordance with IAS 17:Asset categoryNet book value at12.31.2011Leasinginstalments 2011Residual debt at12.31.2011Residual leasinginstalments at12.31.2011(in million of Euro)T.G. Microlot (industrial and commercial equipment) 8,768 2,764 7,912 8,200AWP gaming machines "comma 6a" 3,246 2,646 1,663 1,637Total 12,014 5,410 9,575 9,83772 SISAL ANNUAL REPORT 2011

Goodwill (2)The carrying amount of Goodwill is EUR 886,520 thousand and comprises thefollowing:• goodwill arising on the purchase of the Sisal Group at the end of 2006 forEUR 1,053.1 million;• an increase of about EUR 26 million from the purchase, in December 2006, ofthe minority stake (35%) of Sisal Slot S.p.A. by the Parent;• a decrease of around EUR 33 million for the cancellation of a pre-existing purchaseoption granted by Sisal S.p.A. to the Sisal Slot S.p.A. minority shareholders,as part of the agreements for the purchase of the minority stake by theParent;• an increase of around EUR 46 million on the acquisitions of companies andbusiness activities, completed during the years 2007-2011, regarding the businesssegments of legal gaming with AWP gaming machines and horse racing/sports betting;• an impairment loss of around EUR 206 million recorded as a result of the impairmenttests performed at the end of 2007.Goodwill was tested for impairment as of December 31, 2011 in accordance withthe reference accounting policies. Specifically, operating cash flows were measuredto determine the value in use of the identified Cash-Generating Units (CGUs)by applying the “discounted cash flow” method.In order to test for impairment, the Group uses cash flow projections for five-yearsapproved by top management, on the basis of growth rates differentiated accordingto the historic trends of the various products.The growth rate used to estimate cash flows beyond the explicit projected periodwas determined on the basis of market data and information available to managementaccording to reasonable projections of estimated sector growth in the longterm and is equal to 3.25%.In the case of impairment of the individual concessions or rights for the receiptsfrom gaming products, where necessary, the projections are extended for thenumber of years’ duration of the right being tested.The rate adopted to discount cash flows to present value is equal to a WACC of8.6%, derived from the weighted average cost of capital of 10.0% (inclusive of aMarket Risk Premium of 5.2%) and the after-tax cost of debt of 4.4%.73 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

During the course of the year, the internal organizational structure was redefinedand, consequently, also the reporting lines to management, in order to developon one hand a more precise presence in the management of the points of salewhich include the products of the betting business and the AWP machines and,on the other hand, to specifically monitor the flows generated by the online channel.As allowed by international accounting principles in these circumstances, theCGUs were reorganized consistently at the level of the financial statements andthe Digital Games CGU was added and a new segment named Entertainment waspresented which includes the flows, divided by type of sales channel, deriving fromthe management of the AWP machines of Sisal Slot S.p.A. and the concessionsreferring to the betting business of Sisal Match Point S.p.A.As of December 31, 2011, the cash-generating units thus are the following:• Traditional games, which primarily refers to cash flows from the National TotalisatorNumber Games (NTNG, including SuperEnalotto).• Digital Games, which comprises all the games distributed online.• Services, which includes activities performed through the Sisal network for servicesrendered to the public such as, for instance, telephone refills and paymentservices etc.As for the Entertainment segment, the following CGUs were also identified:• Agencies, which includes the flows from activities of providing and managingof the AWP entertainment machines (New Slots and VLTs) through the SisalMatch Point S.p.A. as well as the flows deriving from gaming halls and wagersthrough the “Bersani” concessions.• Operators, which comprises the flows from activities of providing and managingof the New Slot machines owned by the Group and the VLTs placed at businessesowned by third parties.• Retail – Wincity, which comprises the flows from AWP machines (New Slots andVLTs) from the new Sisal - Wincity network of points of sale.• Providing, which includes all the flows from interconnected AWP machinesonly.Such CGUs have so far represented the normal prospects for earnings and operationalanalysis of the Group’s performance.The goodwill in the financial statements was allocated according to the new CGUbased on the values of the various businesses and maintaining, where applicable, aconsistency between the historical rationale of the original allocation to the previousCGUs.74 SISAL ANNUAL REPORT 2011

Goodwill as of December 31, 2011 is allocated to the different CGU as follows:Cash Generating Units(in thousands of Euro)Traditional games 156,621Services 136,705Entertainment 435,083Digital games 158,111Total 886,520The impairment test showed that actualised cash flows by CGU exceeded investedcapital (including goodwill) allocated to each CGU, therefore, it was not necessaryto recognize any impairment loss.In particular, the excess of the recoverable amount of the CGU, determined onthe basis of the parameters described above, compared to the relative carryingamount, is as follows:Cash Generating Units(in thousands of Euro)Traditional games 176,874Services 399,363Entertainment 117,253Digital games 30,989Total 724,479The change in the value assigned to the basic assumptions, in terms of the discountrate which renders the recoverable amount of the CGU equal to its carryingamount, is the following:Cash Generating Unitsdiscount rateTraditional games 12.0%Services 19.7%Entertainment 9.8%Digital games 9.5%Base value 8.6%75 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Intangible assets (3)Intangible assets are composed as follows:(in million of Euro) At 12.31.2010 Changes during the year At 12.31.2011IncreasesDecreases ReclassificationsPatent and utilisation rights, copyrightsand similar rights:original cost 31,060 8,382 (59) (224) 39,159amortisation (22,979) (6,140) 49 224 (28,846)writedowns (6) 0 0 (6)Net 8,081 2,236 (10) 0 10,307Concessions, licences, trademarksand similar rights:original cost 545,983 21,738 (525) 1,163 568,359amortisation (216,727) (47,351) 262 (550) (264,366)writedowns (22,398) (25,532) 263 0 (47,667)Net 306,858 -51,145 0 613 256,326Other intangible assets:original cost 42,873 0 (140) 0 42,733amortisation (19,522) (3,419) 12 0 (22,929)writedowns 0 0 0 0 0Net 23,351 (3,419) (128) 0 19,804Total:original cost 619,916 30,120 (724) 939 650,251amortisation (259,228) (56,910) 323 (326) (316,141)writedowns (22,398) (25,538) 263 0 (47,673)Net Total 338,290 (52,328) (138) 613 286,437Concessions, licences, trademarks and similar rights increased during the year byEUR 21.7 million principally as a result of the purchase of software licenses bySisal S.p.A. and the purchase price allocation in concessions as described under“Change in the scope of consolidation”.Patent and utilisation rights, copyrights and similar rights increased during the yearby EUR 8.3 million and are related exclusively to the purchase of software for themanagement of operations and the management of provider activities for legalgaming using AWP slot machines.Amortisation charged to the statement of comprehensive income for the year wasaround EUR 57 million; over EUR 25 million of that amount refers to the highervalue allocated to the concession rights and the trademarks owned by the Groupas a result of accounting for the effects of the purchase of the Sisal Group concludedin prior years.76 SISAL ANNUAL REPORT 2011

Concerning impairments, the increase during the year of EUR 25.5 million is due,as mentioned in the Report on Operations, to the partial impairment charge on thecarrying amount of the concession right for national horse race betting and sportspools that were necessary owing to the less than satisfactory performance of thesetraditional game products and the updated expectations on their future trends.The following table presents information on outstanding finance leases, taken outin 2011, and recorded in accordance with IAS 17:Asset categoryNet book value at12.31.2011Leasinginstalments 2011Residual debt at12.31.2011Residual leasinginstalments at12.31.2011(in million of Euro)Software licenses 273 159 274 282Total 273 159 274 282Investments (4)Investments comprise holdings in associates.InvestmentsAt12.31.2010Changes in the year(in thousands of Euro) Increases Decreases Revalutions Reclassifications ImpairmentsInvestments in subsidiariesAt12.31.2011Investments in associates 32 0 0 0 0 (10) 22Investments in other companiesThe list of investments owned and the information required under art. 2427 of theItalian Civil Code is provided in Annex 1.77 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Deferred tax assets (5)The information concerning deferred tax assets is detailed in the following table:Recognition of deferred tax assetsand related effects(in thousands of Euro)Deferred tax assets:Temporarydifferences(Amount)2011 2010Tax effect(rate 27.5% /31.7%)Temporarydifferences(Amount)Tax effect(rate 27.5% /31.7%)Provision for risks and charges 13,254 3,885 7,651 2,354Provision for impairment of receivables/Receivables/Other receivables32,155 8,844 31,010 8,528Maintenance expenses 9,623 2,649 3,836 1,060Other writedowns 26,132 7,273 2,666 827Depreciation 3,236 918 447 140Directors' compensation accrued 1,443 397 1,129 310Guarantee deposits accrued 87 28 265 83Other temporary differences 522 159 2,683 754Non-deductible VAT pro-rated 0 0 119 33Reversal of quota of current deferred taxes (866) (424) (5,420) (1,649)Reversal of quota of non-current deferred taxes (16,226) (4,732) (12,311) (3,659)Net deferred tax assets 69,360 18,997 32,075 8,781Deferred tax assets on losses - Current year 0 0 0 0Deferred tax asset on losses - Prior years 0 0 0 0Temporary differences excluded from the deferredtax computation2,014 554 2,298 632The Group expects to have sufficient taxable income in the future to recover deferredtax assets.The temporary differences excluded from the calculation of deferred tax assetsrelate to losses reported by the Parent prior to opting for consolidation of taxation.As a result, deferred tax assets on losses have not been recorded based on theprobability, supported by current information, of realising future taxable incomeagainst which the losses can be applied.78 SISAL ANNUAL REPORT 2011

Other non-current assets (6)Other non-current assets amount to EUR 11,883 thousand and mainly comprise:• VAT receivables for refunds requested upon presentation of the VAT return usingthe VR model, for both the results of 2008, equal to EUR 6,305 thousand,and for those of 2007, equal to EUR 3,906 thousand; the increase during theyear 2011 mainly refers to interest accrued on VAT receivables;• guarantee deposits for leases, sundry utilities and related revaluations for approximatelyEUR 1,2 million.Assets held for sale/discontinued operations (7)There are no Assets held for sale or discontinued operations as of December 31,2011.B) Current AssetsInventories (8)Inventories as of December 31, 2011 are composed of the following:Inventories(in thousands of Euro)At12.31.2011At12.31.2011Playslips 245 443Rolls of paper 1,353 1,644Spare parts (reparable) 3,504 2,714Spare parts (consumables) 272 0Materials, auxiliaries and consumables 5,373 4,802Refills scratch cards 616 250Virtual refills 8,435 4,204Mini-toys 83 1,153Finished goods and merchandise 9,134 5,606Total 14,507 10,408Stocks of materials, auxiliaries and consumables are recorded net of a provisionof EUR 1,589 thousand, with an increase of EUR 505 thousand compared to theprior year.The change in the provision account at year-end 2011 compared to year-end 2010is largely due to an increase of EUR 499 thousand for the spare parts of gamingterminals and gaming machines which have been recalculated in a homogeneousmanner on the basis of the inventory balances. The provision accounts for playslipsand paper rolls for gaming terminals show, respectively a decrease of EUR 7 thousandand an increase of EUR 13 thousand due to the adjustment of these inventoriesto market price according to applicable accounting principles.79 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Inventories of finished goods and merchandise totalling EUR 9,134 thousand representprimarily telephone refill cards bought for resale to the public from VodafoneOmnitel N.V. (EUR 8,328 thousand) in accordance with the clauses of thecontract signed at the beginning of 2004 between Sisal S.p.A. and Vodafone. Theyalso include physical stocks of telephone and TV content refill cards of key operatorsof the sector, bought for resale to the public from Servizi in Rete 2001 S.p.A.(EUR 616 thousand) according to the clauses of contracts signed by this companywith Sisal S.p.A. in November 2005, stocks of telephone refill cards bought fromCarrefour Italia Mobile S.r.l. (EUR 46 thousand), in accordance with the clauses ofthe contract signed in 2007, and also stocks of telephone refill cards purchased forresale from the company Arabia Mobile Services S.r.l. (EUR 61 thousand) accordingto the clauses of the contract signed in 2011. Finally, they comprise stocks of overthe-counterproducts purchased for resale to the public from the Giochi PreziosiGroup (EUR 74 thousand) according to the clauses of the contracts signed in 2009and from Mattel Italy S.r.l. (EUR 9 thousand).The considerable increase over the prior year (approximately EUR 3.5 million) isdue principally to higher purchases of Vodafone recharge cards during the lastdays of the year to be used during the holidays between the end and beginningof the new year that were partially offset by a decrease in the inventories of overthe-counterproducts.Trade receivables (9)There are no foreign currency denominated trade receivables and the analysis bygeographical area is not significant as all receivables are to domestic operators.Trade receivables comprise the following:Trade receivables(in thousands of Euro)At12.31.2011At12.31.2010Receivables from points of sale 155,016 142,351Trade receivables from network 20,346 27,955Trade receivables from betting agencies 13,263 10,815Trade receivables from gaming customers 340 2,664Trade receivables from third parties 1,445 1,784Other trade receivables from third parties 1,121 21Doubtful receivables 33,485 23,856Provision for impairment of receivables (41,034) (32,364)Total 183,983 177,083Receivables from points of sale represent amounts due by the Group for the betsplaced on the last events of December 2011 and from the sales of non-gamingproducts in the same month. The increase from last year is particularly attributableto the higher betting volumes in the non-gaming sector and to the effect of a differentcalendar period for collections at the end of the year and a greater numberof outlets.80 SISAL ANNUAL REPORT 2011

Trade receivables from network represent the sums due from the customer networkof AWP gaming machines for which the Company, as the concessionaire, offersthe interconnecting service to the Authority for the Administration of the Monopoliesof the State (AAMS) computer network. These receivables are composedof the consideration due to the concessionaire, PREU (Prelievo Erariale Unico) forthe single tax and the AAMS concession fee.Trade receivables from betting agencies represent wagers on horse races andsports events, accepted by the agencies operating under partnership contract, notyet paid over to Sisal Match Point S.p.A. bank accounts.Trade receivables from gaming customers reflect the incremental National TotalisatorNumber Games (NTNG) margin relating to the combinations of the SicilyRegion accrued in the years 2009/2010 and 2010/2011 and not yet collected.Doubtful receivables for EUR 33,485 thousand represent unpaid amounts generatedby subject-to-collection receivables from outlets under recovery procedures,including legal actions, except for the amount representing normal situationswhich can be resolved in the short term referring to the month of December 2011.The provision for impairment of receivables as of December 31, 2011 comprises:Provision for impairment of receivables(in thousands of Euro)At12.31.2011At12.31.2010Provision for impairment of network trade receivables (40,385) (31,801)Provision for impairment of other trade receivables (649) (562)Total (41,034) (32,364)The changes during the year are as follows:Provision for impairment of receivablesAt12.31.2010Change during the year 2011(in thousands of Euro) Increases DecreasesAt12.31.2011Provision for impairment of network trade receivables (31,727) (12,352) 3,694 (40,385)Provision for impairment of other trade receivables (637) (20) 8 (649)Total (32,364) (12,372) 3,702 (41,034)The increase during the year after utilizations reflects the directors’ prudent assessmentof the recoverability of certain receivables, in particular the amountsdue from insolvent outlets and from the area represented by the network of AWPgaming machines. This change is due in part to the significant growth duringthe year in the receipts of the betting networks and certainly also to a generallyunfavourable economic situation. It can also be ascribed to the risk of the uncollectibilityof certain receivable positions overdue for some time relating to gamingequipment and believed, after a thorough analysis, that they would be difficult torecover also due to the processes involving the disposal and renewal of the totalinventory of gaming machines installed at direct points of sale and under partnerships.The Group constantly monitors changes in doubtful receivables and adopts,when possible and appropriate, recovery procedures by mutual consent throughrecovery plans, assisted, where necessary, by guarantees.81 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Current financial assets (10)Current financial assets amount to EUR 1,004 thousand and mainly representMonte dei Paschi di Siena securities for EUR 1,002 thousand, held by one of thecompanies acquired at the end of the year.Current financial assets(in thousands of Euro)At12.31.2011At12.31.2010Other securities 1,004 2Total 1,004 2Other current assets (11)Other current assets amount to EUR 39,781 thousand and comprise the following:Other current assets(in thousands of Euro)Other receivables from third parties:At12.31.2011At12.31.2010Receivables from employees 347 411Other receivables from third parties 5,989 5,143Other receivables from the Public Administration 30,642 15,101Provision for impairment of other receivables (271) (449)Total 36,708 20,207Accrued income and prepaid expenses:Accrued income 42 8Prepaid expenses 3,031 4,403Total 3,073 4,411Total other current assets 39,781 24,617Other receivables from third parties total EUR 5,989 thousand and include, amongother things, receivables of approximately EUR 4,041 thousand relating to advanceson the supply of the new “Microlot” gaming terminals.Other receivables from the Public Administration, equal to EUR 30,642 thousand,refer mainly to receivables of EUR 21,775 thousand for security deposits withAAMS, under the concession transactions relating to gaming receipts using AWPgaming machines, EUR 6,951 thousand for receivables from PREU and EUR 1,082thousand for receivables from AAMS, claimed by Sisal Match Point S.p.A. for adjustmentson the horse race and sports betting concession in 2011 and recoveredin January 2012. The receivables for security deposits decreased during 2011 asa result of the reimbursement of the sums at one time deposited as guarantees(equal to 0.5% of receipts), referring to the year 2010, for a total of EUR 13.1million, on the basis of the levels of service reached and investments made. As forthe amounts referring to 2011, corresponding to the levels of service reached andthe percentage of PdA (access points) updated using GPS technology, Sisal SlotS.p.A. recorded a net positive amount in the income statement of approximatelyEUR 21.7 million, equal to 0.498% of the receipts received during the year; the82 SISAL ANNUAL REPORT 2011

settlement of this sum, after the relative controls by AAMS, should take place bythe end of the first half of 2012.Accrued income and prepaid expenses, for EUR 3,073 thousand, represent mainlythe prepaid portion of costs not referring to 2011 incurred for the issue of bankguarantees, for approximately EUR 1 million, and prepaid expenses for sundry suppliesand premiums for health insurance.Taxes receivable (12)Taxes receivable amount to EUR 12,266 thousand as of December 31, 2011 andare composed of the following:Other current assets(in thousands of Euro)At12.31.2011At12.31.2010Receivables for VAT from tax authorities 9,265 8,424Receivables for IRES tax from tax authorities 274 0Receivables for IRAP tax from tax authorities 0 968Receivables for IRAP tax advance payment from tax authorities 2,300 0Receivables for various taxes from tax authorities 429 28Provision for impairment of taxes receivable (2) (2)Total 12,266 9,417Receivables for VAT from tax authorities of EUR 9,265 thousand mainly includesEUR 8,101 thousand from the re-calculation of the deductible amount, pro-rated,based on the definitive percentages for the year 2011 and EUR 650 thousand forreceivables from the Group VAT liquidation.83 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Cash and cash equivalents (13)Cash and cash equivalents as of December 31, 2011 are as follows:Cash and cash equivalents(in thousands of Euro)At31.12.2011At31.12.2010Bank and postal accounts 166,208 116,086Restricted bank and postal accounts 114,320 354,863Cash and cash equivalents in hand 3,164 1,932Total 283,692 472,881Restricted bank and postal accounts comprise EUR 114 million for prize money,including the amount deposited for the special winnings of the Vinci per la vita -Win for Life games and for the so-called SuperStar Reserve Fund which holds thedifference between the available prize money and the winnings payable calculatedfor each single game.These accounts are managed by the Group but their use is restricted to the paymentof the cumulative prizes on the relative games. The amounts in the depositaccounts for the prize money decreased considerably (approximately -EUR 240million) compared to the prior year mainly due to the effect of the SuperEnalottofirst category winnings, which had already been paid at the end of the year, aswell as the decrease in 2011 in the balance of the SuperStar Reserve Fund due tohigher winnings payable in 2011 compared to the prize money accrued and thededicated bank account for special winnings for the Vinci per la vita - Win for Lifeand Win for Life Gold games owing to a decline in game volumes during the year.This was partly offset, compared to the end of 2010, by a higher SuperEnalottoJackpot amount carried forward to the first game of the next year and the openingof a new bank account to manage the winnings relating to the new NTNG gameknown as SiVinceTutto SuperEnalotto introduced in 2011.Ordinary cash amounted to approximately EUR 166 million, with an increase ofEUR 50 million compared to the prior year-end. This change is due to cash flowsfrom a better overall trend of operations by the Group, particularly by Sisal SlotS.p.A. and Sisal Match Point S.p.A. This allowed the Group to meet its furthersignificant commitments mainly formed by investments and by the service of theoutstanding structured financial debt.84 SISAL ANNUAL REPORT 2011

Equity and LiabilitiesEquity (14)Total consolidated equity amounts to EUR 84,907 thousand.The following table sets out the composition of equity while the changes in equityare presented in the relative statement:Equity At 12.31.2011 At 12.31.2011(in thousands of Euro)Equity attributable to owners of the Parent:Share capital 102,500 102,500Share premium reserve 94,484 94,484Legal reserve 200 200Other reserves (83,558) (70,658)Total comprehensive loss for the year (29,358) (13,384)Total equity attributable to owners of the Parent 84,268 113,143Equity attributable to non-controlling interests 639 682Total equity attributable to non-controlling interests 639 682Total equity 84,907 113,824Share capitalThe share capital of the company as of December 31, 2011, fully subscribed andpaid-in, is composed of 102,500,000 ordinary shares.With reference to Other reserves, in order to allow participation in an effectivesystem of managerial co-investment plans, some first-level managers of the Grouphave been granted the possibility of taking part in co-investment plans of the ultimateparent, Gaming Invest S.à r.l. In particular, the co-investment plans providefor the subscription, as employees of the Group, to equity instruments and debtinstruments issued by Gaming Invest S.à r.l. under a system that is more favourablethan those granted to the shareholders of reference. The investment is structuredas an equity-settled share-based payment transaction under IFRS 2 and consequentlyis reflected as such in the financial statements of the Group. For purposesof the determination of the fair value of the plan, the return differential that willbe paid to the managers as compared to the shareholders of reference was measuredat the grant date of the plan. Various assumptions for the realization of theinvestment were considered and on that basis a cost referring to the year of EUR483 thousand was recorded in the statement of comprehensive income with acontra-entry to other reserves.New managers were added to the co-investment plan during the year and, as partof the rationalization of the equity instruments and debt instruments issued bythe parent, a reorganisation was carried out of the securities previously allocated,without any substantial incremental benefit to the manager beneficiaries.85 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

The plans thus structured co-exist with the similar incentive plans granted to themanagers of the Group as part of the operation that took place in 2006 whichled to the change in the Group’s shareholders of reference. Such plans have beengranted to replace, in whole or in part, the previously existing plans, the costs ofwhich had been reflected in the statements of comprehensive income of the variouscompanies.Comprehensive income (loss)As shown in the statement of changes in equity, the Company does not have incomeor losses recognized directly in equity to be detailed in the determination ofthe comprehensive result for the year.Non-controlling interestsThe change in non-controlling interests is due to the change in the result for theyear net of the payment of dividends of approximately EUR 55 thousand to thenon-controlling interests of Sisal S.p.A.B) Non-Current LiabilitiesLong-term debt (15)Long-term debt comprises:Long-term debt At 12.31.2011 At 12.31.2010(in thousands of Euro)Loans from financing pool Royal Bank of Scotland plc 678,109 670,486Loans from other lenders - factoring 3,906 3,906Loans from other lenders - leasing 5,041 5,037Loan from ultimate parent Gaming Invest S.à r.l. 395,214 372,547Total 1,082,270 1,051,975The loan secured from a pool of banks is shown net of commission costs andtransaction consulting fees, not pertaining to the current year, totalling EUR 7,095thousand.The following tables detail the credit lines granted by a syndicate of banks, withThe Royal Bank of Scotland plc as agent bank, including both the long-term andthe short-term portions; the amounts are stated gross of the above-mentionedcommissions and transaction consulting fees deducted from the debt in accordancewith the “amortised cost method”.86 SISAL ANNUAL REPORT 2011

Long-term lines - beneficiary: SHIP S.p.ALines Type Residual debtat 12.31.10Residual debtat 12.31.11ExpiryRepaymentFacility A1 Amortising 7 years 56,081 4,4852 12.31.2014 semiannuallyFacility B1 Bullet 8 years 169,625 169,625 12.31.2015 at expiryFacility C1 Bullet 9 years 169,625 169,625 12.31.2016 at expiryFacility D1 Amortising 7 years 23,271 26,942 12.31.2014 semiannuallyRF* Revolving facility 34,286 34,286Total 452,888 445,330* The revolving line is short-termSHIP S.p.A.Amortisation PlanResidual debtat 12.31.112012 2013 2014 2015 2016Facility A 44,852 11,229 11,229 22,394Facility B 169,625 169,625Facility C 169,625 169,625Facility D 26,942 13,471 13,471RF 34,286 34,286Total 445,330 11,229 24,700 70,151 169,625 169,625Residual debt 434,101 409,401 339,250 169,625 0Long-term lines - beneficiary: Sisal S.p.A.Lines Type Residual debtat 12.31.10Residual debtat 12.31.11ExpiryRepaymentFacility A2 Amortising 7 years 28,251 22,594 12.31.2014 semiannuallyFacility B2 Bullet 8 years 75,375 75,375 12.31.2015 at expiryFacility C2 Bullet 9 years 75,375 75,375 12.31.2016 at expiryFacility D2/D3 Amortising 7 years 0 0 12.31.2014 semiannuallyRF Revolving facility 0 0 12.31.2014Total 179,001 173,34487 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Sisal S.p.A.Amortisation PlanResidual debtat 12.31.112012 2013 2014 2015 2016Facility A 22,594 5,657 5,657 11,281Facility B 75,375 75,375Facility C 75,375 75,375Facility D 0RF 0Total 173,344 5,657 5,657 11,281 75,375 75,375Residual debt 167,688 162,031 150,750 75,375 0Long-term lines - beneficiary: Sisal Match Point S.p.A.Lines Type Residual debtat 12.31.10Residual debtat 12.31.11ExpiryRepaymentFacility D Amortising 7 years 57,600 71,086 12.31.2014 semiannuallyTotal 57,600 71,086Sisal MatchPoint S.p.A.Amortisation PlanResidual debtat 12.31.112012 2013 2014 2015 2016Facility D 71,086 35,543 35,543Total 71,086 0 35,543 35,543 0 0Residual debt 71,086 35,543 0 0 0Long-term lines - beneficiary: Sisal Slot S.p.A.Lines Type Residual debtat 12.31.10Residual debtat 12.31.11ExpiryRepaymentFacility D Amortising 7 years 41,000 41,000 12.31.2014 semiannuallyTotal 41,000 41,000Sisal Slot S.p.A.Amortisation PlanResidual debtat 12.31.112012 2013 2014 2015 2016Facility D 41,000 20,500 20,500Total 41,000 0 20,500 20,500 0 0Residual debt 41,000 20,500 20,500 0 088 SISAL ANNUAL REPORT 2011

Interest on the credit lines provided under the Senior Credit Agreement is based onthe 1-month, 3-month or 6-month Euribor plus a spread of between 1.875% and3.68% depending on the characteristics of the credit line. The charge for interestin the statement of comprehensive income is integrated by the impact of recordingthe liability at amortised cost and the consequent inclusion, in determining the effectiveinterest, of the transaction costs incurred at the time of taking out the loan.The Senior Credit Agreement, moreover, contains financial covenants based onkey economic/financial ratios related to the consolidated financial statements andalso to the consolidated financial statements of the ultimate parent including, forexample, the ratio of net consolidated debt/gross consolidated operating profitand the ratio of the latter and the interest cost for the financing.As already indicated, besides the above mentioned loans, the Group has derivativecontracts to cover the risk of exposure to interest rate fluctuations with the characteristicsdescribed in the note on “Other current liabilities”.As for the loan from the shareholders, denominated Shareholder Loan C, this is abullet loan under which the Parent is required to repay the loan on request, butis subordinate to payment of the Senior Credit Agreement. The Parent has theright to repay all or a part of the loan at any time, taking into account the conditionmentioned above, and this loan is therefore considered a medium-/long-termloan. The interest on the “PIK Margin” (6%) can be capitalised for the entire termof the loan upon request of the party financed whereas for the quota of interestdenominated “Cash Margin” (4.5%), this right exists only for the first 12 monthsof the term of the loan; during the year a total of approximately EUR 18.9 millionof interest was capitalised and principal was repaid for about EUR 2.2 million.The sole shareholder, Gaming Invest S.à r.l., in June 2009, extended another loanof EUR 60 million, bearing interest from January 1, 2010, denominated “subordinatedzero coupon shareholder loan” with zero coupon interest, like the precedingloan, subordinate to the obligations under the Senior Credit Agreement. The paymentof 11% interest, during the year equal to EUR 4.2 million, which cannot becapitalised, will take place at the time of the repayment of principal; such interestsare recorded in the income statement using the amortised cost method.Provision for employee severance indemnities (16)The provision, amounting to EUR 7,876 thousand, reflects the effects of the presentvalue calculation required under IAS 19.89 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Deferred tax liabilities (17)The information concerning deferred tax liabilities is detailed in the following table:Recognition of deferred tax liabilitiesand related effects(in thousands of Euro)Deferred tax liabilities:Temporarydifferences(Amount)2011 2010Tax effect(rate 27.5% /31.7%)Temporarydifferences(Amount)Tax effect(rate 27.5% /31.7%)Severance indemnity deducted out of books 1,832 501 1,820 501Leasing instalments 0 0 140 44Goodwill deducted out of books 14,716 4,624 13,799 4,333Depreciation - difference between IAS and tax bases (3) (1) (322) (101)Accelerated depreciation 2,545 701 2,570 706Merger deficit - taxed 46,560 15,249 52,243 16,404Reversal of impairment loss on intangible assets 18,922 6,187 22,557 7,080Other temporary differences 2,445 773 285 81Reversal of quota of current deferred taxes (866) (424) (5,419) (1,649)Reversal of quota of non-current deferred taxes (16,226) (4,732) (12,312) (3,660)Consolidation deficit - taxed 33,975 10,770 36,557 11,479Net deferred tax liabilities 103,900 33,648 111,918 35,218Temporary differences excluded from the deferredtax computation0 0 0 0Provisions for risks and charges (18)The provisions, totalling EUR 15,223 thousand, include the following:Provision for risks and chargesAt12.31.2010Changes during the year(in thousands of Euro) Increase DecreaseAt12.31.2011Provisions for contractual risks 4,149 572 (67) 5,090Sundry risks and charges 4,399 4,908 (132) 9,176Technological updating 603 353 0 957Total 9,152 5,833 (199) 15,223The provisions in place arise from the directors’ prudent assessment of the litigationin progress, mainly in the civil and employee-related areas.90 SISAL ANNUAL REPORT 2011

The Group operates in a complex legal environment where regulations are continuouslyevolving and subjected to the strong presence of the State’s regulatoryactivity and the bodies responsible for the control and management of this market.The result is frequently a high number of cases and disputes. These are describedin detail in the Report on Operations, to which reference can be made, as are thepositions of the Group. In view of this and at this time, although in a context ofuncertainty, it is believed that such cases and proceedings will not give rise to liabilitiesthat are unrecorded or have significant consequences for the Group. Atthe same time, it should be mentioned that at the year-end reporting date thereare certain tax inquiries and inspections in progress which are also described in theReport on Operations; however, it is believed, at this time, that no conditions existfor considering further additional costs already represented in the accounts.Other non-current liabilities (19)Other non-current liabilities total EUR 6,320 thousand. Details are as follows:Other non-current liabilities(in thousands of Euro)At12.31.2011At12.31.2010Payable for the acquisition of business segments 2,044 2,576Other non-current liabilities 4,276 0Total 6,320 2,576The Payable for the acquisition of business segments refers to the non-currentamount payable for the acquisition of the business segment from the companyMerkur Interactive Italia S.p.A. which was concluded during the preceding year.Other non-current liabilities refer to the non-current portion of the payable tothe tax authorities relating to the proposal to settle the Note of Findings (NoF) issuedfollowing the inspection by the Financial Police and signed by the Parent inDecember.Liabilities relating to assets held for sale/discontinued operations (20)There are no such liabilities as of December 31, 2011.91 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

C) Current LiabilitiesTrade and other payables (21)This line item includes Payables to suppliers which are composed of the following:Trade payables(in thousands of Euro)At12.31.2011At12.31.2010Third party suppliers 91,586 70,664Payables to partners for services 158,376 146,756Payables to AWP gaming machines operators 8,548 9,616Other trade payables 649 122Total 259,159 227,158Payables to partners for service relate mainly to telephone and TV content refillssold, whereas Payables to AWP gaming machines network mainly represent theamount to be paid to the network owing to the reduction in the PREU rate from12.6%, the percentage collected during the year, to 12.1524%, the percentagedecided by AAMS under Decree 2012/11048/ADI dated March 12, 2012.Short-term debt (22)Short-term debt, amounting to EUR 40,894 thousand, mainly includes the amountdrawn down of EUR 34,286 thousand under the revolving facility granted by thepool of banks for short-term cash and working capital requirements. In addition,there is about EUR 6.5 million of short-term loans relating to the acquisition finalizedat the end of the year, of which EUR 5,850 thousand is due to the formershareholders of the company Ilio S.p.A. This loan was extinguished in the monthof January 2012.Current portion of long-term debt (23)Current portion of long-term debt, amounting to EUR 22,078 thousand, representsprincipally the instalments due on or before December 31, 2012 for EUR16,970 thousand according to current repayment plans under the Senior CreditAgreement, EUR 300 thousand due by the same date for principal on the loan receivedfrom the ultimate parent as established in the relative agreement and EUR4,807 thousand of finance leasing debt outstanding at the end of the reportingperiod.92 SISAL ANNUAL REPORT 2011

Other current liabilities (24)Other current liabilities, amounting to EUR 290,260 thousand, are composed asfollows:Other current liabilities(in thousands of Euro)At12.31.2011At12.31.2010Other current liabilities 1,849 1,384Payables to social security agencies 6,720 5,865Liabilities relating to fair value of derivative instruments 6,591 17,647Sundry payables 275,099 497,871Total 290,260 522,769Payables to social security agencies represent the Group’s and its employees’ socialsecurity contributions on salaries and wages and INPS contributions on the remunerationpaid to external collaborators.Sundry payables are composed as follows:Sundry payables(in thousands of Euro)Payables for winnings:At12.31.2011At12.31.2010Payables for SuperEnalotto-SuperStar winnings 97,744 337,203Payables for Vinci per la vita - Win for Life winnings 28,387 40,702Payables for SiVinceTutto - Superenalotto winnings 12,046 0Payables for Tris games and horse race betting winnings 328 254Payables for CONI games 283 69Payables for Card and Skill Games winnings 0 0Payables for Bingo winnings 11 46Payables for VLT winnings 6,052 551Total payables for winnings 144,850 378,825Other payables on games:Payables to tax authorities for games 82,252 72,980NTNG subscribers 974 1,413Payables for online games 7,715 5,493Minimum guaranteed betting adjustment 9,922 14,849Payables for betting management 1,263 1,775Total other payables on games 102,126 96,509Payables to employees 11,329 10,401Payables to collaborators 1,549 1,320Other payables to third parties 15,244 10,815Total other sundry payables 28,123 22,537Total sundry payables 275,099 497,87193 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Payables for winnings include jackpots payable by the Group to winners of poolgames, bets and VLTs as of December 31, 2011; these liabilities are covered mainlyby the dedicated bank accounts included in the statement of financial positionunder assets. The decrease in these payables compared to the end of the prioryear is about EUR 234 million and mainly relates to the first category SuperEnalottoprize payouts assigned, and already paid at the end of the year, a lower amountin the jackpot accounts mostly due to a contraction in game volumes as well asa reduction in the Superstar Reserve Fund owing to higher winnings payable in2011 compared to the jackpots accrued for each contest. This is partly compensated,compared to the year-end 2010, by a higher SuperEnalotto Jackpot carriedforward to the first game of the following year and the recognition of payablesfor SiVinceTutto SuperEnalotto, the new NTNG game introduced at the beginningof April 2011.Other payables on games are composed mainly of the game taxes on the lastNTNG games of the year for about EUR 44 million, payables for the PREU singletax, concession fees for about EUR 28 million and the single tax on sports bets andskill games duly paid in January 2012.Minimum guaranteed betting adjustment, for EUR 9,922 thousand, includes thepresent value of the residual short-term amount payable to concession authoritiesfor the additional guaranteed minimum amount payable under the concessioncontracts for horse racing and sports betting for EUR 9,469 thousand. In 2009,Sisal Match Point S.p.A. did not pay, in agreement with the concession authority,the instalment due for 2009 relating to the guaranteed minimum adjustmentfor horse race betting equal to EUR 4,365 thousand. This was because of thereceivable awarded by the Arbitration Board on May 26, 2003 which involved171 companies against the Concession grantor Unire and which, by decision ofthe arbitration board was resolved in favour of the companies, confirming, interalia, the existence of the receivable equal to EUR 4,425 thousand in favour of theconcessions held by Sisal Match Point S.p.A. following the acquisition of the businesssegments and mergers which took place in prior years. The decision by theArbitration Board is still subject to appeal by AAMS. The line item also includes thepayable for the additional minimum guaranteed adjustments accrued for the year2008 of EUR 3,260 thousand, for which the company is waiting for a new recalculationby AAMS, which takes into account the taxes duly paid on national horseracing bets, and the payable for the additional minimum guaranteed adjustmentsaccrued for 2009 of EUR 1,819 thousand, in conformity with AAMS’ requisites butnot yet paid since it is in the process of being checked and conflicts with AAMS.Payables for online games reports the sums deposited by players in order to playonline.94 SISAL ANNUAL REPORT 2011

Payables to employees include the 14th month salary, bonuses, vacation, formerholidays, outstanding amounts due and overtime accrued at the end of the yearbut not paid.Payables to collaborators include compensation similar to employee remunerationand compensation due to members of the board of directors and board of statutoryauditors, which will be paid upon issue of specific pay slips and/or receipt ofinvoices.Other payable to third parties include other payables related to the current portionof debt incurred for the purchase of the business Merkur Interactive Italia S.p.A.(EUR 562 thousand), for the purchase of the company Arezzo Giochi (EUR 145thousand), for ‘purchase of the business related to the group Mazzilli (EUR 848thousand) and the purchase of the company Ilio SpA to EUR 6,750 thousand andthe remaining debt from the acquisition of a business unit of Costanzelli S.r.l. andSlotmatic S.r.l.Liabilities relating to fair value of derivative instruments amounting to EUR 6,591thousand include, in accordance with IAS 39, the negative fair value as of December31, 2011 of the interest rate swaps put into place in the years 2006-2010in parallel with the previously mentioned loans received by the Parent and othercompanies of the Group. The main characteristics are as follows:SWAPs - Hedges on loanFrom To Notional Hedging Fix Rate12.31.2010 3.31.2011 380000,000 4.197%3.31.2011 6.30.2011 380000,000 4.197%6.30.2011 9.30.2011 380000,000 4.197%9.30.2011 12.31.2011 380000,000 4.197%12.31.2011 3.31.2012 280000,000 1.510%3.31.2012 6.30.2012 280000,000 1.510%6.30.2012 9.30.2012 280000,000 2.810%9.30.2012 12.31.2012 280000,000 2.810%The hedging rate is at the 1-month or 3-month Euribor.95 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Taxation payable (25)Taxation payable comprises the following:Taxation payable(in thousands of Euro)At12.31.2011At12.31.2010Payables for IRAP tax to tax authorities 3,371 1,163Payables for IRPEF payroll tax to tax authorities 2,128 2,007Payables for withholding tax on RBS loan to tax authorities 80 310Other payables to tax authorities 3,903 4Payables for substitute tax to tax authorities 29 11Payables for VAT to tax authorities 3 95Payables for IRES tax income tax consolidation 6,623 5,904Total 16,135 9,494This line item includes taxation payable by the Group as of December 31, 2011.Other payables to tax authorities, for EUR 3,903 thousand, are composed of theshort-term payable relating to the act for the proposal to settle the NoF issued bythe Guardia di Finanza (Financial Police) and signed by the Parent at the end of theyear. IRPEF payroll tax payable on payrolls and services performed by external selfemployedcollaborators has been duly paid in the early part of 2012 on their duedates. IRAP tax payable at year-end is net of advances already paid, as is IRES taxpayable, on the basis of the results of the national tax consolidation.96 SISAL ANNUAL REPORT 2011

CommitmentsThe guarantees, guarantee insurance policies and credit guarantees provided bythe Group amount to EUR 519,574 thousand and are composed as follows:Guarantees provided on behalf of third parties – December 31, 2011(in thousands of Euro)Authority for the Administration of Monopolies of the State (AAMS) 383,276Non-game services 132,870Other guarantees provided 3,404Tax revenues agency – VAT Office 25Total 519,574In addition to the above commitments, as a guarantee of the payables derivingfrom the financing contracts signed in the course of the purchase of the majorityinterest in Sisal S.p.A., the Group pledged the shares held in Sisal S.p.A., SisalMatch Point S.p.A. and Sisal Slot S.p.A. in favour of the banks financing the operation.Financial Instruments: Supplementary InformationThe supplementary information requested by IFRS 7 relating to financial instruments,if not supplied elsewhere in these explanatory notes, is detailed below.Categories of financial assets and liabilitiesIn accordance with IFRS 7, the following table presents the carrying amount ofeach category of financial asset and liability, as defined by IAS 39, and the reconciliationwith the financial statements as of December 31, 2011 and also thecomparison with the respective fair value.97 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Categories of financial assets and financialliabilities - IAS 39Balance12.31.2011Statementof comprehensiveincomeBalance12.31.2010Statementof comprehensiveincome(in thousands of Euro) income expenses income expensesASSETSCash and cash equivalentsBank and postal deposits and valuables in hand 283,692 2,978 4 472,881 1,339 4Total 283,692 2,978 4 472,881 1,339 4Financial assets at fair value through profit or lossDerivative instruments 0 0 0 0 0 0Total 0 0 0 0 0 0Held-to-maturity investmentsTotal 0 0 0 0 0 0Loans and receivablesCurrent financial assets 0 0 0 0 0 0Trade receivables - current and non-current 183,983 0 0 177,083 0 0Other assets - current and non-current 51,664 246 0 36,331 217 0Total 235,647 246 0 213,413 217 0Available-for-sale financial assetsOther securities 1,004 0 0 2 0 0Total 1,004 0 0 2 0 0LIABILITIESFinancial liabilities at amortized costBank debt and payables to other lenders - current and noncurrent(*)1,145,241 0 69,903 1,110,848 0 68,153Trade payables - current/non-current 259,159 0 26 227,158 3,084 0Other liabilities - current and non-current 289,988 0 522 505,120 0 829Total 1,694,388 0 70,452 1,843,125 3,084 68,982Financial liabilities at fair value through profit or lossDerivative instruments 6,591 810 2,609 17,647 0 13,679Total 6,591 810 2,609 17,647 0 13,679(*) The figure includes debt payable to shareholders at the nominal amount since the fair value measurement is not available at this time98 SISAL ANNUAL REPORT 2011

Categories of financial assets and financial liabilities - IAS 39(in thousands of Euro)Balance12.31.2011Fair valueBalance12.31.2010Fair valueASSETSFinancial assets at fair value through profit or lossDerivative instruments 0 0 0 0Total 0 0 0 0Held-to-maturity investmentsTotal 0 0 0 0Loans and receivablesInterest bearing loansTrade receivables - current and non-current 183,983 183,983 177,083 177,083Other assets - current and non-current 51,664 51,664 36,331 36,331Total 235,647 235,647 213,413 213,413Available-for-sale financial assetsOther securities 1,004 1,004 2 2Total 1,004 1,004 2 2LIABILITIESFinancial liabilities at amortized costBank debt and payables to other lenders - current and non-current (*) 1,145,241 1,152,336 1,110,848 1,121,499Trade payables - current/non-current 259,159 259,159 227,158 227,158Other liabilities - current and non-current 289,988 289,844 505,120 504,976Total 1,694,388 1,701,339 1,843,125 1,853,632Financial liabilities at fair value through profit or lossDerivative instruments 6,591 6,591 17,647 17,647Total 6,591 6,591 17,647 17,647(*) The figure includes debt payable to shareholders at the nominal amount since its fair value measurement is not available at this time99 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

ReclassificationThe Group has not carried out any reclassification of financial assets among thedifferent categories.As far as short-term trade receivables and payables and other receivables and payablesare concerned, the carrying amount is considered to be a reasonable approximationof their respective fair value.Concerning indexed financing, the future cash flows of which were not known atyear end, the Group has estimated them at a variable rate (inclusive of spreads)and discounted them to present value at the reporting date.In reference to the financial instruments recognized in the statement of financialposition at fair value, IFRS 7 sets out the classification based on a hierarchy levelwhich reflects the significance of the inputs in the determination of the fair value.The three levels of input are:• level 1: quoted prices in active markets for identical assets or liabilities;• level 2: inputs other than listed prices included in Level 1 observable either directly(prices) or indirectly (derived from prices) in the market;• level 3: inputs that are not based on observable market data.The following table sets out the assets and liabilities measured at fair value as ofDecember 31, 2011, by the level of the fair value hierarchy reflecting the inputs inmaking the fair value measurement.Financial assets/liabilities measured at fair value Level 1 Level 2 Level 3 Total(in thousands of Euro)1. Financial assets measured at fair value recognisedin the statement of comprehensive income02. Available-for-sale financial assets 1,004 1,0043. Hedging derivatives 0Total 1,004 0 0 1,0041. Financial liabilities measured at fair value recognisedin the statement of comprehensive income(6,591) (6,591)2. Hedging derivatives 0Total 0 (6,591) (6,591)100 SISAL ANNUAL REPORT 2011

Financial instruments risk management policyThe qualitative and quantitative information required by IFRS 7 concerning theGroup’s exposure to risks from financial instruments, is detailed below.Credit riskThe Group normally operates only with known and trustworthy counterparts. Receivablebalances are regularly monitored throughout the year to ensure that exposureto losses is not significant.The following main categories of credit risk were identified:Credit risk by class of risk Balance 12.31.2011 Balance 12.31.2010(in thousands of Euro)Receivables from Public Authorities 30,642 15,101Receivables from Outlets and Shops 185,425 170,145Receivables from Betting Agencies 13,391 11,353Receivables from Network 21,644 27,955Other receivables 13,967 9,958Provision for impairment of receivables (41,305) (32,813)Total 223,764 201,700• Receivables from Public Authorities include receivables from AAMS for gamesmanaged according to the regulations of the specific concessions, receivablesfrom UNIRE arising from advances made on its behalf in the course of managementof the Totip game and receivables from the Public Administration forreimbursement requests already forwarded at year end, to be settled shortly;no credit risk is considered to exist on these amounts.• Receivables from Outlets and Shops represent essentially amounts due fromgaming activities and non-gaming services in the last few days of the year 2011and the relative receivables arising from the automated weekly collections ofthe preceding periods that have gone unpaid. The large number of outletsexposes the Group to a partial uncollectibility risk which, following suitableevaluation by the directors, has duly been covered by a specific provision forimpairment of receivables.• Receivables from Network represent mainly receipts from gaming throughAWP gaming machines, including the single tax (PREU) which the concessionaire,Sisal Slot S.p.A., must pay regularly to tax authorities; the large number ofcustomers and the substantial amounts involved expose the Group to a partialcollection risk which, following suitable evaluation by the directors, has beenduly covered by a specific provision for doubtful accounts.• Receivables from Betting Agencies represent mainly receivables from third partieswhich manage some of the horse racing and sports betting agencies on thebasis of partnership agreements; the size of individual accounts, some inheritedthrough acquisitions of business concerns, requires constant monitoring of thesame and the formation of a provision for certain critical cases, often resolvedwith agreed repayment plans.101 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

• Other receivables include insurance balances, advances to employees and sundryreceivables not classifiable in the preceding categories. There are no specificforms of credit risk for the Group associated with this category.Tax receivables have been excluded from this analysis as no form of risk is apparent.Risk exposureAt year end, the provision for impairment of receivables of the Group was EUR41.3 million with the changes for the year shown in the comments to the relatednote. Exposure to credit risk, analysed by reference to the ageing of receivables,was the following:Analysis of credit risk Balance12.31.2011(in thousands of Euro) Current Overdue0 - 90 daysOverdue between90 - 180 daysAgeingOverdue more than180 daysTrade receivables 225,017 172,066 8,280 4,605 40,068Provision for impairment ofreceivables(41,033) (6,423) (905) (3,870) (29,835)Net amount 183,984 165,643 7,375 735 10,233Other receivables 40,052 39,128 0 0 924Provision for impairment ofreceivables(271) (87) 0 0 (184)Net amount 39,781 39,041 0 0 740Total 223,764 204,684 7,375 735 10,973Overdue trade receivables not covered by provision represent balances on whichthe Group considers an insignificant risk of uncollectibility to exist.As already mentioned, the Group monitors credit risk on the outlets through specificprocedures for selecting points of sale, by assigning operating limits for wagerson the gaming terminal and by daily control over changes in credit whichprovides for the blocking of the terminal in the event of non-payment and therevocation of the authorization to operate as a Sisal outlet in the event of recurrentnon-payment.Tax receivables have been excluded from this analysis as no form of risk is apparent.102 SISAL ANNUAL REPORT 2011

Liquidity riskThe liquidity risk is the risk that the Group encounters difficulty in meeting obligationsassociated with financial liabilities.The Group manages this risk by seeking to establish a balance between outflowsof cash and the sources of short-term and long-term funding and the gradual andhomogeneous distribution of maturities of medium- and long-term funding overtime. Set out below is the analysis of financial liabilities, with the indication of theamounts subdivided by their repayment dates, as required by IFRS 7 in relation todisclosure of liquidity risk.Financial liabilities disbursementanalysisBalance12.31.2011Estimated disbursements(in thousands of Euro) To three months More than threemonths to oneyearMore than oneyear to fiveyearsMore than fiveyearsBank debt and payables to other lenders 749,728 11,128 22,804 722,898 0Trade payables 259,159 233,629 24,582 900 0Other payables 296,579 170,380 112,532 13,137 0Total 1,305,466 415,136 159,918 736,935 0The flows indicated refer only to repayments of principal. Actual disbursementswill be increased by the interest charges due based on the rates applicable to thevarious loans as detailed in the long-term debt section of these explanatory notes.Bank loans and payables to other lenders do not include the loan received from theultimate parent, Gaming Invest S.à r.l., on which there is no liquidity risk and in anycase the repayments are subordinated to those of the Senior Credit Agreement.Further, the table does not include taxation payables which will be paid at duedates established by existing laws.During the year, the Group has respected all the repayment clauses stated in existingagreements.103 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Market riskMarket risk is the risk that the fair value or future cash flows of a financial instrumentfluctuate because of changes in market price variables such as foreign currencyexchange rates, interest rates, raw materials prices and stock market prices.The market risk thus comprises:• foreign currency exchange risk;• interest rate risk;• commodity price risk.As the Group does not operate with foreign currencies it is not exposed to foreigncurrency exchange risk nor is it exposed to commodity risk due to the characteristicsof its business.Foreign currency exchange riskThe Group is not habitually exposed to foreign currency exchange risk since itoperates only at the national level. There are obligations to English and Americansuppliers for not relevant amount.Interest rate riskThe Group utilises a mix of debt instruments according to the nature of its financialneeds. Specifically, the Group normally looks for short-term debt to finance itsworking capital requirements and for medium-and long-term financing to supportinvestments related to its operations and extraordinary transactions.The financial liabilities which expose the Group to interest rate risk are mainlymedium-and long-term indexed loans at variable rates of interest.The present Group policy aims to reduce the fluctuation of interest costs on itsdebt and the related effect on the statement of comprehensive income by puttinginto place interest rate swaps (IRS).Concerning interest rate risk, a sensitivity analysis was made to determine the effectson income and equity of hypothetical positive and negative 100 bps (basispoints) variations relative to current effective interest rates.The analysis was carried out with reference mainly to the following:• cash or cash equivalents;• short- and long-term financial liabilities, in connection with the related derivativeinstruments.104 SISAL ANNUAL REPORT 2011

Concerning cash and cash equivalents, reference was made to the average balanceand the average interest rate thereon for the year, while for short- and long-termfinancial liabilities the effect was calculated at the end of the reporting period, adjustingthe cost in the statement of comprehensive income by the effect of closureof the related derivative instrument. This analysis did not include financial payablesto the Parent, since they were contracted at fixed rates, and leases payable.Analysis of interest rate riskBalance12.31.2011Analysis ±1% interest rate(in thousands of Euro)Statement of comprehensiveincomeStatement of financial position+1%profit / (loss)-1%profit / (loss)+1%profit / (loss)-1%profit / (loss)Net financial debt (578,808) 368 (368) 368 (368)Derivative instruments (6,591) 4,243 (4,243) 4,243 (4,243)Total (585,399) 4,611 (4,611) 4,611 (4,611)Capital managementThe Group manages its capital structure according to its business needs taking intoaccount also the relationships with the private equity funds that indirectly havestakes in its share capital.The solid financial basis of the Sisal Group is confirmed by the fact that in the lastfew years the debt/equity ratio has always been below 1:1 except during 2006 dueto the corporate and financial restructuring following the acquisition of stakes byItalian and international private equity funds, namely Clessidra, Apax and Permira.The size of the financial debt deriving from the above mentioned transaction wasat that time decided on the basis of the valuation of the Group’s capacity to generateconstant earnings and financial flows to support its debt repayments and relatedcosts and also ordinary activities and investments for its business development.In the presence of opportunities for investment aimed at enhancing the Group’svalue and stability, the international importance of the controlling funds and theirsolid asset basis constitute a guarantee of the Group’s ability to seize such opportunitieseven through recourse to risk capital.105 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Notes to the Statementof Comprehensive IncomeRevenues (27)Revenues include the consideration received by Group companies for the followingtypes of activities:Revenues At 12.31.2011 At 12.31.2010(in thousands of Euro)Gaming revenues 611,294 517,694Services and non-gaming product revenues 98,425 86,126Points of sale revenues 81,896 69,666Other revenues 1,005 785Total 792,621 674,271In particular, the gaming revenues received by Sisal S.p.A., Sisal Match Point S.p.A.,Sisal Slot S.p.A. and Sisal Bingo S.p.A. are as follows:Gaming revenues At 12.31.2011 At 12.31.2010(in thousands of Euro)NTNG revenues 91,407 137,979Slot machines revenues 479,121 335,011Horse race betting revenues 20,975 26,542Online game revenues 16,595 14,507Bingo revenues 1,785 1,832Total 611,294 517,694Gaming revenues show a decrease in NTNG revenues (EUR 47 million) against acontraction in gaming volumes.As for the AWP gaming machines, the overall growth was about EUR 144.1 million(+43%). This is a significant figure, as is the significant percentage increasein the overall (+65%), whereas the average number of installed machines rose by18.5%. This change, as described in the Report on Operations, can be attributedto a series of factors:• the roll out of the VLT installations (the average daily receipts are significantlyhigher than those of the new slot machines);• activities aimed at increasing the number of slot machines with high-performancegame cards;• the investments made in the distribution network with personalized designsand decorations with the Company’s trademark in the most important pointsof sale;• the expansion of the dedicated work force and the related logistics activities(with particular reference to reducing the time needed to fill new orders).106 SISAL ANNUAL REPORT 2011

As for online games, the positive performance was boosted by the start of the newcash poker game, the beginning of Casinò online and new skill games introducedin July 2011.Since April 2010, the Matchpoint web site offers new skill games which met withthe favour of players also in the current year.Services and non-gaming product revenues relate to those Group revenues primarilylinked to the sale/distribution of telephone refills, the sale/distribution of TVcontent refills and also revenues from the collection and payment services managedby the Parent, which reported a considerable increase during the year (followinga trend already begun in prior years).Points of sale revenues include mainly the annual affiliation “Point-of-Sale” feefrom Sisal Outlets on the basis of the contract terms signed (EUR 74.6 million)in addition to EUR 3.4 million relating to the fees invoiced to outlets qualified ashorse racing and sports betting points of sale as provided for under the BersaniDecree, for the services rendered by Sisal S.p.A., specifically covered by contractsand about EUR 0.8 million for fees charged to the outlets under the “Sisal Point”contracts.Fixed odds betting income (28)Fixed odds betting income amounts to EUR 74,456 thousand and includes incomefrom fixed odds sports bets and horse racing bets handled by Sisal Match PointS.p.A., the concessionaire of the Group.Fixed odds betting income At 12.31.2011 At 12.31.2010(in thousands of Euro)Fixed odds sports betting income 73,854 57,352Fixed odds horse race betting income 14 (24)Reference horse race betting income 588 652Total 74,456 57,981The significant increase in these revenues is mostly attributable to fixed-oddssports bets, and as described in the Report on Operations, reflects a particularlyfavourable trend for the bookmaker (also and especially in relation to the trendwith a diametrically opposite sign recorded in the prior year) regarding the resultsof sports events in addition to an adequate and professional management of riskby the company structure set up for this purpose.Other revenues and income (29)Other revenues and income of EUR 2,763 thousand are principally composed ofincome against costs referring to prior years.107 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Purchases of materials, consumables and merchandise (30)Purchases of materials, consumables and merchandise At 12.31.2011 At 12.31.2010(in thousands of Euro)Game materials purchases 12,489 13,333Spare parts purchases 4,739 3,772Sundry materials purchases 2,026 1,829Warehousing 224 146Change in inventories (596) (2,327)Total 18,882 16,753This line item, equal to EUR 18,882 thousand , includes the cost of paper purchasedfor gaming terminals and playslips for pool betting and bets for EUR 12,489 thousandand also spare parts and consumables used for the maintenance of gamingterminals for EUR 4,739 thousand.Other purchases also include EUR 2,026 thousand for advertising and promotionalmaterial, stationery and printed forms, packaging and consumables fully expensedin the year.Costs for services (31)The composition of services, amounting in total to EUR 547,268 thousand, is thefollowing:Costs for services At 12.31.2011 At 12.31.2010(in thousands of Euro)Costs for services 64,931 30,008Other services 482,337 418,068Total 547,268 448,077Commercial services At 12.31.2011 At 12.31.2010(in thousands of Euro)Marketing and commercial expenses 48,533 20,312Other commercial initiatives 14,259 7,828Other commercial services 2,139 1,868Total 64,931 30,008108 SISAL ANNUAL REPORT 2011

Other services At 12.31.2011 At 12.31.2010(in thousands of Euro)Sales channel - Gaming 317,008 261,482Sales channel - Non-gaming services 67,478 61,697Games and gaming management 3,174 2,317Maintenance and technical assistance 15,338 16,869Logistics 5,531 7,648SisalTV - Media 3,212 3,012Telecommunications 15,792 14,262Consulting 17,101 24,324Compensation to corporate boards 2,640 2,260Banking charges 5,450 5,159Employee travel and trips 3,476 3,475Headquarter operating costs 7,682 4,647Insurance 2,272 1,874Outsourcing services 7,825 4,465Other service costs 8,359 4,578Total 482,337 418,068The increase in costs for services is mostly explained by higher costs incurred bythe Group for fees to the network (outlets/betting; network/AWP network), whichincreased by more than EUR 56 million. The increase is in line with the growth ofvolumes in the various business segments in which the Group has its activities andalso the increase in commercial service costs (EUR +35 million) traceable principallyto higher advertising and promotional costs on television channels, national press,computerized billboards strategically placed in important Italian cities and at liveevents. These costs were sustained in 2011 both as a result of the evolution ofthe gaming market and in accordance with the communication and informationplan decided by Sisal S.p.A. as set out in art. 15 of the Agreement governing theconcession relationship for the year and the growth of the NTNG game receiptswhich require an annual accrual equal to 1.82% of NTNG gaming receipts in theprior 12-month concession period.As required by art. 2427.16 bis of the Italian Civil Code, disclosure is providedabout the fees paid to the audit firm for the audit of the annual financial statementsof the Parent and the subsidiaries, which total EUR 407 thousand, andfor the auditing procedures carried out during the year in connection principallywith the various obligations required by the NTNG concession for another EUR 41thousand and EUR 10 thousands for auditing procedures related with SHIP S.p.A.separate asset.109 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Lease and rent expenses (32)These expenses, amounting to EUR 13,813 thousand, are composed as follows:Lease and rent expenses At 12.31.2011 At 12.31.2010(in thousands of Euro)Buildings lease 9,909 8,280Other rentals and operating leases 3,904 3,127Total 13,813 11,407Lease and rent expenses include:• rent and condominium expenses for EUR 9,909 thousand;• rent principally of motor vehicles and hardware equipment for EUR 3,904 thousand.Personnel costs (33)Personnel costs totalling EUR 69,008 thousand comprise the following:Personnel costs At 12.31.2011 At 12.31.2010(in thousands of Euro)Salaries and wages 48,923 43,018Social security contributions 15,409 13,194Employee severance indemnities 3,616 2,814Other personnel costs 1,060 380Total 69,008 59,407The total increase in personnel costs is largely due to a higher headcount in 2011in the Group as can be seen in the following table which presents the averagenumber of employees by category for the entire calendar year 2011 and the prioryear.Average number of employees At 12.31.2011 At 12.31.2010Managers 43 39Management staff 92 77Clerical 1,147 948Labourers 5 4Total 1,287 1,068110 SISAL ANNUAL REPORT 2011

Other operating costs (34)Other operating costs amounting to EUR 31,415 thousand comprise the following:Other operating costs At 12.31.2011 At 12.31.2010(in thousands of Euro)Other taxes and duties 1,856 927Gifts and donations 1,067 712Gaming concession fees 21,335 17,807Other operating costs 7,158 14,315Total 31,415 33,761Other operating costs largely include the concession fees payable under existingregulations for legal gaming with AWP gaming machines (for approximately EUR13 million), for sports betting and horse racing and sports games (for approximatelyEUR 4 million) and for NTNG (for approximately EUR 4.3 million). The reductionin Other operating costs is for the most part due to lower non-deductibleVAT expenses recorded in this line item during the year after the change in the VATregime adopted by certain companies of the Group, mentioned earlier.Amortisation, depreciation, provisions, impairment losses andreversals (35)The line item, amounting in total to EUR 133,081 thousand, comprises the following:Amortisation, depreciation, provisions andimpairment losses and reversalsAt 12.31.2011 At 12.31.2010(in thousands of Euro)Amortisation of intangible assets 56,835 50,384Depreciation of property, plant and equipment 32,597 27,606Other impairment losses on fixed assets 25,734 6,860Impairment losses on current receivables 12,330 11,253Charges for provisions for risks and charges 5,232 10Charges for other provisions 353 (0)Total 133,081 96,114The change in the Amortisation of intangible assets is due mainly to the higheramortisation charge for software and software user licences following the considerableinvestments made during the year whereas the increase in the Depreciationof property, plant and equipment comes from the gaming terminals acquired in2011 and in prior years gradual put into use. The significant increase in Other impairmentlosses on fixed assets refers to the impairment charge on the concessionrights relating to horse race betting, Tris and pools which was described in depthin the notes on the statement of financial position.111 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Finance income and similar (36)Finance income and similar, amounting to EUR 4,033 thousand, comprise thefollowing:Finance income and similar 12.31.2011 12.31.2010(in thousands of Euro)Other finance income 3,224 1,556Other income on derivative instruments 810 0Total 4,033 1,556Finance income and similar is composed of interest income accrued on the liquidassets of the Group. The increase over the prior year is due to higher average balancesand higher average rates of remuneration.Finance expenses and similar (37)Finance expenses and similar amount to EUR 73,064 thousand and comprise thefollowing:Finance expenses and similar 12.31.2011 12.31.2010(in thousands of Euro)Interest and other finance expenses - Parent companies 37,349 37,987Interest and other finance expenses - Third parties 33,080 30,998Other expenses on sundry instruments 2,609 13,679Exchange (gains) losses realised 22 (693)Exchange (gains) losses unrealised 4 (2,391)Total 73,064 79,580Interest and other finance expenses – parent companies refer to expenses on theoutstanding loan lines with the company Gaming Invest S.à r.l., the sole shareholderof the Parent.The decrease in Other expenses on sundry instruments is primarily due to the reversalof prior years’ impairment charges relating to the value of the interest rateswaps which reached maturity at the end of the year.Adjustments to financial assets (38)There are no adjustments to financial assets in 2011.Share of profit (loss) of companies accounted for by the equitymethod (39)The loss of EUR 11 thousand refers to the adjustment of the carrying amount ofthe investment in the associate Consorzio Promoippica, in liquidation.112 SISAL ANNUAL REPORT 2011

Income taxes (40)The charge for the year comprises:Income taxes 12.31.2011 12.31.2010(in thousands of Euro)Current income taxes 31,152 13,720Deferred tax liabilities - (benefit) (4,851) (6,755)Deferred tax assets - (benefit) (9,624) (1,676)Total 16,677 5,289Deferred income taxes include the tax benefit or charge for deferred taxes on thepositive and negative components of income of the consolidated companies andany temporary difference between the results of those companies and those determinedafter consolidation adjustments.Overall the Group reports a current and deferred tax charge of EUR 16,677 thousandon a pre-tax loss of EUR 12,668 thousand. This amount also includes the effectof the proposal to settle the NoF issued at the end of the year to the Parent bythe Tax Authorities (on the years 2006-2009) for a total of EUR 7.1 million (includingfines) and voluntary disclosure of the unreported taxes in the process of beingpresented, relating to the tax year 2010, for about EUR 1.4 million. The differencebetween the reported tax charge and the theoretical tax charge computed on thepre-tax result using the tax rate of 31.7% is mainly due to the non-deductibility ofassimilated personnel and collaborator costs for IRAP purposes, the effect of theabove prior years’ taxes charges and also the partial deductibility (96%) of interestexpenses charged during the year by the Parent.Result attributable to assets held for sale/discontinued operations(41)There are neither assets held for sale nor discontinued operations recorded in 2011.Other comprehensive income (42)There is no other comprehensive income in 2011.Significant events occurring after the end of the yearReference should be made to the Report on Operations.Milan, May 30, 2012On behalf of the Board of DirectorsThe ChairmanProf. Augusto Fantozzi113 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Annex 1List of Companies Included in and Excludedfrom the Consolidation AreaCompanies consolidated line-by-lineName Headquarters Closing Date Share Capital % OwnershipDirect and indirectin Euro 2011SHIP S.p.A. Milan Dec 31 102,500,000 PARENTSHIP S.p.A. Milan Dec 31 125,822,467 99.81%Services sectorSisal Point S.p.A. Milan Dec 31 600,000 99.81%AWP (Amusement With Prizes) gamingmachines (slot machines) sectorSisal Slot S.p.A. Milan Dec 31 2,131,622 99.88%Betting and gaming halls sectorSisal Bingo S.p.a. Milan Dec 31 120,000 99.81%Sisal Match Point S.p.a. Rome Dec 31 24,020,000 99.81%Ilio S.p.A. Trani Dec 31 1,500,000 99.81%La Martingala S.r.l. Trani Dec 31 250,000 99.81%Arezzo Giochi S.r.l. Rome Dec 31 100,000 99.81%Thomas Morden Course Ltd*Pound sterlingByfleetGreat BritainDec 31 30,000* 99.81%Companies accounted for using the equity methodName Headquarters Closing Date Share Capital Equity2011% OwnershipDirect and indirectin Eurothousandsof Euro2011Consorzio Promoippica in liquidation Rome Dec 31 25,825 88 25.23%114 Sisal Bilancio Consolidato 2011

115 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

116 SISAL ANNUAL REPORT 2011

117 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Sisal Holding Istituto di Pagamento S.p.A.Registered officeVia Alessio di Tocqueville, 1320154 Milan, ItalyTel. +39 02.88681Share capital: subscribed and paid-in Euro 102,500,000Milan Registry of Companies – ordinary section No. 05425630968R.E.A. Milan No. 1820505VAT No: 05425630968www.sisal.com

Editorial CoordinationEdizioni Olivares, MilanGraphic designDario ZannierPhoto creditUgo Nespolo

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