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Edited Transcript of CDR.MC earnings conference call or presentation 28-Feb-20 3:00pm GMT

Q4 2019 Codere SA Earnings Call

Madrid Mar 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Codere SA earnings conference call or presentation Friday, February 28, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angel Corzo Uceda

Codere, S.A. - CFO

* Vicente Gabriel Di Loreto

Codere, S.A. - CEO

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Conference Call Participants

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* Gaurav Koolwal;Altana Wealth;Analyst

* Maxime Kogge

ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst

* Nick MacDonald

BofA Merrill Lynch, Research Division - VP and Senior Analyst

* Ronan Bernard Clarke

Deutsche Bank AG, Research Division - Research Analyst

* Victoria Elaine Pease

Edison Investment Research Limited - Director of Gaming & Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Codere's Fourth Quarter 2019 Results Presentation. The management of the company will run you through the presentation and financial highlights of the period. (Operator Instructions) I am now pleased to hand over to Mr. Angel Corzo, Chief Financial Officer of the company. Please, sir, go ahead.

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Angel Corzo Uceda, Codere, S.A. - CFO [2]

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Good afternoon, everyone, and thank you for joining us today for our Q4 2019 financial results presentation. As usual, our CEO, Vicente Di Loreto, will cover the most relevant events of the quarter. After his remarks, I will cover the financial highlights of the period. And then we will both take your questions. Vicente?

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [3]

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Okay. Thanks, Angel. Good afternoon, everyone, and thank you for joining us today. In this call, we will share our latest developments and our early view for 2020.

As you may know, 2019 has been a year of highs and lows in which we have faced again difficulties beyond what was expected but also a year of reinforcing our inner convictions and our resiliency in which many important projects and initiatives for the future of the company are starting to gain traction. Also a year in which we have had to take a step back in some of our key markets to analyze the offer of our clients in order to enhance it and come back stronger. We are working very hard to achieve this, and our team is fully committed to continue delivering results as we have done during the last few years.

But we have -- as I have always said, this company faces many challenges. Leaving aside external factors such as changes in regulation and taxes, one of the most important challenges is to change the culture of the company to one of professional excellence, relentless commitment to performance and transparency.

My goal is to keep motivating every member of our organization to achieve this change, to keep enhancing our internal procedures and to embed our values in every corner of the company. We are working to create a better company based on integrity, transparency and responsibility, a company where people can create new opportunities and provide ideas to grow revenues, margins and to -- and the reach of our products and services to customers. The goal is clear, but it takes time and conviction. And despite any setback we may have along the way, we are committed to achieve it.

Moving to 2019 results, the business performance has been quite in line with our latest guidance and would be more or less in the middle of it if the take percentage of our sports betting unit hasn't fallen towards the end of the year below what we consider normalized levels. By the way, this trend reversed itself in January with a higher-than-usual take percentage.

To put these results in perspective, although the top line and adjusted EBITDA figures show a step back from last year, there were a number of positive developments that we believe should be beared in mind.

First, the company has delivered positive results in Spain, thanks to our efforts to grow profitability per point of sale while maintaining our leadership position in the sports betting market. We expect that this growth in profitability will continue in 2020 as the improvement initiatives introduced last year and new ones continue to produce results while we expect to -- that the sports betting business mature and more -- and some softness in the overall economy.

Also in Spain, our online operations continues to gain ground with a growth rate more than double that of the market, resulting in an increase in market share. Also, Codere has been placed among the top 3 brands with the highest growth in brand value across all business categories in Spain.

In Argentina and Uruguay, we have also performed in line with our expectations. In Argentina, we have started accelerating revenue growth to close the gap with inflation while reducing margin erosion. In short, the operational excellence and continuous reengineering initiatives implemented are paying off.

In Uruguay, HRU continues to present solid results and contribution from our operations in the Carrasco casino hotel continues growing. Our team is adapting continuously our client offer in both markets, I'm referring to Argentina and Uruguay, and spending and investing with great care to continue generating positive financial results for the group.

Unfortunately, in Mexico, Panama and Colombia, it has been a year in which we have taken a step back. In these markets, we have recently deployed some of the best resources throughout our organization to analyze the situation, revisit our strategy and take action to recover our competitive edge and start growing again. The new team has a clear diagnosis as to how to gain back our customers, generate more business to grow revenue and recover profitability. These action plans cover each and every aspect of our operation. Among others, a revamped promotional plan is being launched, which we are revisiting product agreements, mix and layouts and assessing the needs and potential of each one of our gaming halls.

All these efforts and many more that are being deployed will help us to bounce back in the second half of 2020 once the full impact of these measures is attained and we have mitigated the recent broad increase in local gaming taxes and expanded the footprint of the competition. We are also opening a new hall this year in Mexico and another couple in Panama where we continue our strategic redeployment of licenses to more attractive locations. In that regard -- I mean moving from downtown to residential areas and suburbs.

Coming back to online. Besides the positive evolution I mentioned before when speaking about Spain, in the past 18 months, we have built a first-class online team, and we continue working to reinforce our position in Mexico and Colombia while awaiting for the crystallization of regulation in other markets such as Argentina, Brazil or even Chile.

While we have built in Spain, our early results in other markets and the online regulatory environment evolution reinforce our view of how critical integrated omnichannel approach to the customer is, and we continue to believe we are probably the gaming company that is best positioned to seize that opportunity in Latin America. In 2020, like in 2019, we will continue investing in our online ventures outside of Spain where we already have a positive contribution, and we'll also invest in the enhancement of our online technology platform.

Regarding our staff functions, especially in finance and HR, we are accelerating our digitalization and centralization plans. These plans cover both sets of individual initiatives that will allow us not only to operate more efficiently but more importantly, to do it more robustly, enhancing information delivery, internal controls and segregation of responsibilities. Everything said, as part of our transformation plan with a focus, in this case, on the simplification of our organization.

As an illustration of this, in recent weeks, our payroll and accounting shared services center in Buenos Aires went live. They will operate under unified systems, definitions and procedures for the whole group having transparency, simplicity and control. Obviously, these, as with many other initiatives, are long-term projects that will keep our teams busy for the next 12 to 24 months. That will help us continue improving margins but will also -- we will also gain transparency, reliability and valuable information from our enhanced systems.

On top of this, we are updating our compliance procedures and creating an Ethics and Fraud Prevention Committee to further our capabilities to anticipate risks and continuously improve our controls as our operating environment quickly changes and relies more heavily on digital automated processes and online systems.

Finally, another relevant takeaway from our full year results is cash generation. As we committed at the beginning of the year, this was a key priority for us and we have closed the year with EUR 103 million of cash, EUR 20 million above 2018.

Finishing up on 2019, I would like to add a bit of context to the performance of the group and its ability to deliver results, growth and find new opportunities. In Q2 of 2016, the last time the company refinanced its bonds, our EBITDA was EUR 2,060 million (sic) [EUR 268 million], but half of that was generated in Argentina. Today, we delivered EUR 250 million, but only 1/4 of that comes from that market. We have compensated the decline in Argentina by producing growth in other markets.

On top of that, the company has reduced minority interest in Mexico and Uruguay, created a formula -- formidable initiative in the online market and made tangible progress in an ambitious and a still underway transformation program, resulting in sizable cost reductions in [HUs] and a more agile organization, among other benefits.

In this context, we faced 2020 with a conviction that the team will be fully focused on delivering improved results and cash generation metrics despite facing a challenging year on the regulatory and macro fronts. As I am sure you are aware, we face gaming tax pressure in certain markets such as Mexico or Italy, regulatory pressure in other markets such as Spain and have further macro uncertainty in Argentina.

But this is nothing different from what we have been dealing with in recent times. And despite of all these headwinds, we expect to be able to beat 2019 figures. This expected growth will come progressively in the year as the first part would still compare to a semi-devaluated Argentina -- Argentine peso and the mitigation measures for new gaming taxes in Mexico and Italy will flourish in the second half of the year.

In the meantime, we continue to work on strategic alternatives for our Uruguayan and Italian assets and on further local financing opportunities. On the first one, we expect to come soon to a conclusion, hopefully positive, as the decision-making progress has been slowed down by factors outside of our control. On the last one, we do expect to close a new loan in Mexico in March, which would be a positive development from a financing standpoint.

Lastly, in our Board meeting yesterday, an updated long-term incentive plan for the management team was approved. We will disclose the specifics through an official filing to the CMV (sic) [CNMV] right after this call, but it's basically an update of the thresholds on our former incentive plan from 2017, which was not acting as such given the current trading levels of our share. It also extends the maturity of the plan until the end of next year and as retention of talent component through the delivery of shares upon permanence in the plan. As a management team, we believe it is critical that our top executives are fully aligned with the interests of the company and our shareholders and that they are -- that they share our long-term view for this project and work towards achieving its targets.

I will leave it here for now. Thanks again for joining us today, and we'll be happy to respond to any questions afterwards. I will now hand it over to Angel to cover the financial results of the quarter.

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Angel Corzo Uceda, Codere, S.A. - CFO [4]

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Thank you, Vicente. Now as usual, I will be following the presentation that we shared with investors earlier this morning. Unless otherwise noted, we will be referring to figures in euros and excluding nonrecurring items of our EBITDA. We will also be excluding inflation adjustments due to the application of IAS 29 on Argentina's reported figures and continue to analyze the figures pre application of IFRS 16, though the results applied in the new accounting standards are provided in the earnings release. After this year of transition, beginning in Q1 2020, we will be fully moving to IFRS 16 figures to simplify the analysis once we can fully compare to actuals and not pro forma free cash.

As an initial remark, please -- let me please remind you this set of results has been subject to a very detailed and comprehensive work from our external auditors, EY, which have nothing but confirmed the initial findings we shared with you in November, in line with the limited review they had performed on Q3 numbers and that we released in December. With their audit report, I hope we can finally put any issues to bed and focus our time and energy on what lies ahead of -- for Codere.

In this regard, please note that the facts we released of materials this morning with the unaudited stack corresponds exclusively to the fact that during yesterday's Board of Directors meeting, the Board member representing the founding family voted against signing the accounts. While we believe there are no technical accounts to justify that decision, his claims triggered a legally required specific procedure to be performed by our external auditors. This procedure already concluded, and the audited accounts have been uploaded to the CNMV as we speak now.

Also, the full year earnings reports and presentation that you can find in -- that you will find in the website will exclude the unaudited stack as these are now fully audited results. Needless to say, there is no other change in the documents or figures.

Moving on to Q4 2019 operating results and starting on Page 6. Our revenue declined 4.7% year-on-year to EUR 344 million but were flat on a sequential basis. On a full year basis, revenue dropped 6% to EUR 1,389 million. This was mainly driven by Argentina but to a lesser extent also by Mexico, Panama and Colombia. As we will see later, our revenue would have been EUR 5 million higher had take in sports betting not take a deep dive in Q4, in practice nullifying the sequential descent you see in LTM revenues.

On a more positive note, our geographic mix continues to get more and more diversified as Argentina decreased its weight by 5 percentage points from 28% to 23%. On Page 7, our adjusted EBITDA came in at EUR 64.7 million, a bit below our expectations for the quarter and making the full year figure EUR 249 million, just below the low end of the guidance we shared in November.

As I just mentioned, and as you can see on Page 8, this was mainly the result of a weak take in sports betting that implied EUR 5 million less revenues and approximately EUR 2.5 million less EBITDA. Additionally, we lost a tax subsidy for the racetrack in Mexico, where in terms of operations, we more or less performed as expected.

Coming back to Page 7 for a second. We included the cash EBITDA measure, this is adjusted EBITDA minus nonrecurrings, so that you can appreciate how in cash generation terms the loss of adjusted EBITDA was somehow mitigated by a reduction in nonrecurring items. In terms of geographic mix, Argentina decreased its weight by 5 percentage points to 28% in favor of Spain, online and Uruguay.

Skipping Page 9, which provides figures in U.S. dollars for reference, Page 10 shows our reduced exposure to Argentina over the last 3 years. While Argentina has shrunk due to its currency devaluation and tax increases and despite a step back in Mexico, we are now producing EUR 40 million more of adjusted EBITDA in other markets than in 2016.

Looking now at country-level results and starting with Mexico on Page 11. Q4 revenue in Mexico declined by 8% to EUR 73 million. On a sequential basis, however, the reduction was 3%. At the EBITDA level, the decline was more significant at 47% given the high comparable last year. This resulted in a 17 percentage point decrease in the margin to 22%.

This trend has to be put in context of the management transition we executed during the period, and that was not effective until November. We're executing a full forensic analysis in the market since early October. This exacerbated the pressure that we had on our operations from incremental competition, macro slowdown and security issues. Also, it reflects our efforts towards the end of the year to focus more on our customer-centric approach in order to gain back customers.

On Page 12, we are providing figures in local currency, which somehow show saw a weaker performance given the strength of the Mexican peso versus the euro.

Let me focus for a couple of minutes on Slide 13, which is the most important of the Mexican set. This slide illustrates, first, how the context has deteriorated in 2019 macroeconomically and how the IMF expects the economy to start providing some belief on positive growth in 2020; second, how the opening of halls, though not frozen, is starting to slow down as government officials pointed out; third, how we have understood where the prior operational team had taken peso to the limit, mainly [perceived] pricing and product returns and how we are acting to recover our growth path in our operations with tangible results in the second half of 2020.

Focusing on what is in our control, we have made material changes to return our business back to growth. On the organizational side, our former Italian CEO, who has done a tremendous job in such a challenging market, has taken over as Operations Director in Mexico. He's already enhancing and reinforcing the local structure to bring it closer to the halls and to make it more flexible and reliable to anticipate market needs.

In terms of value proposition, as discussed before, we want to reinforce our customer-centric approach, improving our value proposition to recover and gain new customers, relying on our advanced CRM capabilities to target specifically mid and high segments. In practical terms, we're increasing our commercial spend to recover visits and gain revenue. On top of that, we are leveraging our information and technology to improve our customer journeys and our omnichannel offering.

In terms of slots, we are optimizing our portfolio, reducing leased machines and focusing on upgrading the ones we own. We are also planning to increase the number of tables in our large halls.

Finally, we are taking a look on a hall-by-hall basis, and we'll be improving customer service, upgrading facilities and layouts to return to the operational excellence levels we have always had as market leaders. In the meantime, we will be addressing the significant move in local taxes this year, by which, in 65 halls, more than 5 -- 50% of our EBITDA, we are now subject to a 10% cash-in tax. Altogether, we will progressively get back to grow our business in the second half of the year.

Moving on to Argentina on Page 14. Q4 revenue and EBITDA were down by 8% and 4%, respectively, compared to 2018. The former was affected not only by the exchange rate but also by the new taxes. On a full year basis, revenue was 22% lower at EUR 317 million, and EBITDA reached EUR 73 million, a decline of 24% versus EUR 96 million posted in 2018.

In local currency, on Page 15, you can see how trends have started to improve significantly since Q2 2019 with gross win per slot and consequently, revenue growing more than 40% in Q4 with respect to last year. On the cost side, efficiency efforts resulted in a greater improvement at the EBITDA level with a 49% increase year-on-year and a recovery in margins.

A key dynamic depicted in the lower right-hand side is the progressive reduction in the gap between slots gross win growth and inflation, which, as of January 19, stood at 10 percentage -- sorry, which, as of January 20, stood at 10 percentage points versus nearly 30 percentage points a year ago.

Despite the challenges Argentina will face this year, we are seeing a strong operation in local currency, which should help us compensate the FX headwind in the first part of the year as the devaluation in 2019 took place mostly after the PASO elections in August.

On Page 16, the revenue in Spain was relatively flat as a result of the decrease in take in sports betting in the fourth quarter. EBITDA, however, sustained the growth trend in the year, increasing by EUR 4 million or 47% to EUR 12 million. On a full year basis, EBITDA was up 29% to EUR 41 million with a 4.5 percentage points margin improvement at 21.5%. This was primarily the result of our efforts to optimize our cost structure and portfolio.

As you can see on Page 17, our Slot Route operation had a slight decrease in the number of slots and [unit GLs]. Sports betting gross win decreased 7% in Q4 to EUR 24 million despite an increase in amounts wagered year-on-year as a result of the decline in sports betting take we have been talking about.

More specifically, the results in the Champions League mid-December were particularly unfavorable to us with 12 out of 16 games won by the favorite teams and only 1 draw. 2 of the other 3 games were won by Barcelona and Valencia to which we have high expectations, thus creating a significant loss on accumulated bets. This trend, however, improved materially in 2020, particularly after this week's defeat of Real Madrid and Juventus, bringing our sports betting take to over 22% in Q1 this year after this week. This is a reminder for all of the volatility in take on how it can impact one specific quarter up or down, and we'll have to focus on the long-term evolution of the business.

On Page 18, we are illustrating how Spain has systematically improved its operations and profitability over the last couple of years with revenues and adjusted EBITDA per point of sale increasing significantly and with a materially lower level of CapEx needed to run the operation.

Finally, in Spain, the new government, through its Ministry of Consumption, passed a new law proposal for public consultation earlier this week that, among other things, will limit TV and radio advertising for online gaming or for gaming to between 1:00 a.m. and 5:00 a.m. except for publicity we see in events starting after 8:00 p.m. It will also regulate the content of the adverts, the instance banning -- for instance banning celebrities and restricting promotional means such as welcome bonuses.

At this stage, we do not expect a material effect for these restrictions given our retail footprint, which allows the Codere brand to be well recognized, and the impact of our sponsorship with Real Madrid is limited. As we have always said, these restrictions should have a greater impact on more aggressive pure online players.

Turning to Italy on Page 19. Revenue was relatively flat in Q4 and increased 2% to EUR 343 million in the full year. Adjusted EBITDA, on the other hand, declined 24% to EUR 7.4 million in the quarter or EUR 21 million in the full year. This was the result of the payroll increases in 2019 as well as the capacity reductions when compared to 2018.

On Page 20, we started to increase the number of AWPs and to a lesser extent, VLTs in Q4, although unit yields reduced slightly. In terms of regulation, the government passed its 2020 budget, which, on top of further increases to almost 24% for the AWPs and 8.5% of a month's wager to VLTs, included the requirement for customers to identify themselves with a health card to play VLTs.

It also raised the withholding tax rate on prices from 12% to 20% and lowered the thresholds on which it is applied for EUR 500 to EUR 200. As a result, we have seen an approximately 30% decline on year-on-year in a month's wager and 20% in gross win since these measures became effective.

It is relevant to mention that the early signs of recovery we were perceiving in the market have been seriously disrupted by the arrival of the coronavirus to Italy, which is resulting in a sequential reduction of revenue of around 50% -- 15%, 1-5 percent, versus early February. So far, all of our halls are in operation and only one of them operates on restricted hours.

In other operations on Page 21, starting with Uruguay, HRU continued to perform steadily in the quarter at the revenue and EBITDA level, while Carrasco had an impressive Q4 with a 14% increase in revenue and doubling its EBITDA. This was the result of a particularly strong performance in table games.

Looking at Panama on Page 22, the revenue trend continued to worsen with respect to last year with a 12% decline, although it improved sequentially by 3%. EBITDA, on the other hand, dropped by nearly EUR 4 million, affected by management transition and early prepositioning actions in the market.

We have internally launched an action plan to turn these results around, starting with the appointment of a new operations director and with many similar measures to the ones we are deploying in Mexico. This market, however, is requiring further restructural considerations related to our footprint.

We are opening 2 casinos this year in March and October 2020 to compensate the increasing demand in the suburbs of Panama City. We are also tackling our cost structure, particularly rental expenses where we see room for improvement, and finally, doing -- on a specific plan to reenergize our table game software. All in all, we should be seeing improvement towards Q3 this year.

In Colombia, revenue and EBITDA were stable on a sequential basis but still some -- far from our targets. Together with Mexico and Panama, we are focusing in this market to take decisive actions to improve performance.

Finally, our online unit on Page 23 continues to show strong results with a 12% increase in the quarter and 34% in the full year. The small sequential decrease in revenue in the quarter was driven by take in the sports betting products, as we explained before. Our adjusted EBITDA in the quarter reached EUR 4 million, bringing the full year figure to EUR 10 million.

On Page 24, you can see how we are increasing market share substantially both in the online sports betting and online casino games in Spain, growing between 2 and 3x as fast as the market. Sports betting active users increased by 23% in Spain, and we currently have over 35,000. While in Mexico, they increased 82% to almost 15,000. As Vicente stated earlier, we continue to see this as a reinforcement of our multi-omnichannel approach and as an indication of how we have to play the game in Latin America.

Moving now to the credit overview section on Page 26. Free cash flow before growth CapEx continued to navigate close to the EUR 130 million level. This evolution is a result of efforts and actions in many lines of the cash flow, including working capital, CapEx financing or maintenance level -- or maintenance CapEx. In addition, corporate income tax paid has gone in our favor due to the devaluation in Argentina.

Being so, we have seen a material improvement in what we refer to as discretionary cash flow, which is prior to investments in the form of growth CapEx and online marketing growth expenses. We generated EUR 44 million in 2019, thanks to the significant reduction in maintenance CapEx, corporate income tax and improved working capital management.

As you can see on Page 27, maintenance CapEx decreased by EUR 9 million in the year and remains at around 5% of our consolidated revenues.

In terms of working capital, on Page 28, we have carried out certain corporate initiatives to drive the improvement, including a redefinition of our supplier strategy, a reduction of nonavailable cash in transit and operations, a renegotiation of CapEx disbursements to accommodate to cash flow generation and a focus on investments on short-term generation initiatives, among many other measures.

We are also working on local finances. In Q4, we secured new instruments, the most important being in Uruguay in the form of $30 million of local bonds with a 10-year maturity and in Mexico, where we secured a MXN 200 million credit line.

Finally, on Page 29, we maintain a healthy credit profile with EUR 904 million of debt, excluding IFRS 16 capitalized operating leases and EUR 145 million of available liquidity, of which EUR 103 million are cash on balance. The decline in EBITDA this year, however, has increased our leverage to 3.2x compared to 2.8x a year ago. As you know and we have stated earlier, we are getting prepared to go to the market to refinance our 5-year bonds. We do believe our expectations and performance remain consistent with the long-term value -- view for the company. And we'll be engaging with investors to consider our options on timing.

This is it for my prepared remarks. Vicente and I will now be happy to respond to any questions you may have. Operator, please open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Nick MacDonald from Bank of America.

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Nick MacDonald, BofA Merrill Lynch, Research Division - VP and Senior Analyst [2]

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Three main questions, if I may, to start with. Firstly, on Mexico, I was a little surprised how weak the performance was in the quarter from an EBITDA perspective. If I understood your comments correctly, is it fair to say that a lot of this was related to investment on your side related to marketing and the CRM systems?

How do you see that evolving as we go into 2020? Is the sort of margin that you've got in Q4 for Mexico a reasonable margin to look at going forward as we go into next year? Or do you expect that to improve? I think you talked about growth in Mexico in 2020. Does that -- in the second half, sorry. Does that refer to the revenue or on the EBITDA side as well?

Secondly, just on the inorganic measures. I think you mentioned just Uruguay, if I heard that correctly, that -- was it that the process was on hold at the moment given the fact -- given there are a couple of factors outside of your control. Could you just elaborate on that a little?

And then thirdly and finally, I guess, on the group outlook, which we don't have a formal 2020 guidance from you guys this time around. Is there anything you can help us with, with respect to color for 2020 in terms of EBITDA and cash flow, perhaps around cash restructuring, CapEx? Just any items that you feel relatively confident in.

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Angel Corzo Uceda, Codere, S.A. - CFO [3]

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Okay. I will take the first one first, and I'll leave the second one for Vicente. In Mexico, the fourth quarter is a difficult read. You mentioned a couple of topics, but I think that the most important thing that we need to have in mind is that October was completely a transition month because we had one operational team in place that was coming out in November, and the new team came out at mid-November, towards the end of November. And you can bet that the situation in Mexico and the organization was quite uncertain on those couple of months. So those were difficult times to run a business. So that has an impact.

Starting in December, we started to accelerate marketing spend or change to -- or promotional activity to be -- to make it a bit more attractive, and that has an impact. In 2020, what you will see is that we are doing many things. We are -- and I have said many of those already. We are being more aggressive on our promotional activities, we are investing in our halls. We are changing a couple of decisions, of management product decisions to improve our offer, but also make it more -- improve our margins in terms of product. All of that will happen. And it should bring results up sooner if it hasn't been for the tax increases we are suffering just with the start of 2020.

I have said that in the speech, but it's important that you understand that more than 60 halls now, around 40 halls more than last year. Half of it is called [impuestos de locaciones], which is tax on cash-in, which is 10% of the amount that people deposit to play in a hall, so it's not an insignificant tax, and that has started in January. So that is why we are delaying the recovery of Mexico towards the second half of the year.

If I can give you a bit of color, by mid -- in August last year, we were losing 12 to 13 points in year-on-year revenue. By the end of the year, we were down to 7%. And in January, we are down to 5%, pre-consideration of these taxes. So we are confident that what we are doing is improving our operations. We have been a bit more prudent on how long it will take us to recover growth. And I'm not saying growth in revenue only, I'm saying growth in revenue and EBITDA because of the impact of these new taxes, which, by the way, being an indirect tax, you will not see on our P&L. You will see a reduction of revenue because it works like a VAT, it's not a gaming on a -- it's not a gaming tax on us, it's an indirect tax on players.

And on top of that, you will have a new opening early in the year. And I think it comes between March and April. And some of the acquisitions we made last year should start contributing a positive EBITDA in 2020. So operationally, we are confident we are doing the right things, and we are moving in the right direction. The only thing that brings sort of attention and make us a bit more prudent is the new tax, which is sensible for players. And they need -- they will need a bit of time to adapt. Do you want to take the Uruguayan question?

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [4]

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The second, sure. Yes, in terms of the negotiations we are having, sorry if I was not clear. I mean no, but what I was saying is that we continue in the process. It is -- we are making progress. Unfortunately, it is taking longer than we expected. And this is for -- recently, in our control, but we are still in the process and optimistic in terms of having a positive conclusion in the coming months.

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Angel Corzo Uceda, Codere, S.A. - CFO [5]

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And then finally, on the outlook. Well, Vicente said it. I -- the expectation is to grow year-on-year on adjusted EBITDA. Having said that, we have been a bit more prudent this time for a number of factors, including the uncertainty in Argentina in terms of macro, the new taxes in Italy and Mexico, which we need to digest. And I have to say it because the coronavirus happens, and it is starting to kick our operations in Italy, and nobody knows if it is something that is going to disappear in 2 weeks or if what we are seeing today in Italy can come to countries in Argentina or Mexico and have an impact. Today, we are seeing none outside of Italy. But we have to be prudent in whatever we say, to that respect.

Regarding other factors of the cash flow statement, just maintenance CapEx will be aligned with what we always say, very low 70s. Corporate income tax paid will probably continue decreasing slowly, unfortunately, more slowly than the accrued corporate income tax, but will definitely be below 40% and probably in the mid-30s next year.

In terms of working capital, we expect to continue improving our numbers. This year, at the end, we have reported slightly positive, and we are confident that it will not be significantly negative next year. We are -- I would take plus/minus 5%, depending on how conservative you want to be.

CapEx financing should be, again, a negative number. This year, we were gearing until -- to EUR 20 million. At the end, we were able to contain it to a bit over EUR 10 million. I would take EUR 15 million, again, EUR 15 million to EUR 20 million next year to be on the prudent side. We will be working to improve that anyway.

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Operator [6]

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The next question comes from Ronan Clarke from Deutsche Bank.

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [7]

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Can I ask you first, just to -- on the coronavirus impact in Italy, I didn't quite catch what you said. You said that there was serious disruption since the outbreak. You mentioned a figure of 15%, but I didn't quite get what that was referring to.

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Angel Corzo Uceda, Codere, S.A. - CFO [8]

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Yes. The coronavirus so far is affecting us -- well, affecting us that we see only in Italy, which, as you probably know, there is a significant impact of the virus. What I said is that revenue in the second 15 days of February, and I would say that until yesterday or the day before yesterday, versus the first 2 weeks of February have gone down approximately, 14%, 1-4 percent. I said 15% to round up, but the exact number is 14%.

We have no halls closed. Once -- one hall in the city of Mortara is operating at restricted times, so it has to close at 6:00 p.m. or something like that. But what you will understand is that attendance to any of our halls is diminishing seriously. Obviously, the impact of this is much more significant in Northern Italy where decreases can be as high as 20% than in Southern Italy where decreases can be single digits.

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [9]

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Okay, got it. I only have one other housekeeping question. Just on the point of adoption of IFRS accounting, are you going to apply inflation accounting going -- like this year and also IFRS 16?

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Angel Corzo Uceda, Codere, S.A. - CFO [10]

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IFRS 16 is going -- we are going to stop reporting pre-IFRS 16. For the inflation accounting, we will continue to give open numbers. For this year, inflation accounting, the impact has been nearly null. It has been a negative EUR 2 million in EBITDA. So it, unfortunately, has a significant impact in corporate income taxes. But in the rest of the P&L, the impact of inflation accounting this year has been very limited.

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Operator [11]

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(Operator Instructions) The next question comes from Victoria Pease from Edison.

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Victoria Elaine Pease, Edison Investment Research Limited - Director of Gaming & Analyst [12]

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Just back on Italy, just prior to the coronavirus, you talked about a decline in wages. And I just wondered if you could quantify that. Is that the new law that's coming through just now? Or is it something that you're talking about for last year? So I'll start off with that.

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Angel Corzo Uceda, Codere, S.A. - CFO [13]

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Victoria, maybe just -- what we were talking about was that the new loss is starting to apply in January 2020, which were the need to be identified to play a VLT with the Italian health care as there is no proper ID in Italy. And the fact that they increased retention on prices from 12% to 20%, and on top of that, they lowered the first hall upon which those retentions were applied from prices over EUR 500 to prices over EUR 200.

Those 2 measures combined decreased the gross win in VLTs in Comma 6a or Bingo, there was no impact. In VLTs, they decreased the amounts wager by 30% and the win by 20%. We were starting to get in the high teens in early February, and we were starting to see the cases of 18%, 17% in winning VLTs when the coronavirus hit. So -- and then we have what I just said.

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Victoria Elaine Pease, Edison Investment Research Limited - Director of Gaming & Analyst [14]

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Yes. Okay. And just on your nonrecurring costs, if you could just give us an update as to what you might expect for this year. Is there any more exceptional marketing cost for online in there? And any update on litigation would be helpful.

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Angel Corzo Uceda, Codere, S.A. - CFO [15]

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No. Thank you very much, Victoria, because I had that in mind that you didn't say to me. So in terms of nonrecurring items, we believe that we will continue to decrease the figure. And this time, it should be closer to 10% than in 2019. In 2019, the final number has been around 16%. It should be lower than that and closer to 10% [than the amount of 15%].

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Victoria Elaine Pease, Edison Investment Research Limited - Director of Gaming & Analyst [16]

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That's the marketing -- that's right, that's the marketing...

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Angel Corzo Uceda, Codere, S.A. - CFO [17]

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No, that's the nonrecurring items, the pure nonrecurring items. In terms of online growth, we believe that we are going to be spending a similar amount to this year. We are -- as I have said and Vicente has explained, the results that we are getting are positive, especially in Spain, where the operation is already contributing cash. So we are spending less that we are getting, small cash still, but we are getting positive cash in Spain, but we still need to -- many things to do in Argentina, in Colombia -- sorry, in Mexico and Colombia and other markets.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [18]

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Yes. Perhaps -- this is Vicente. The only thing I may add to what Angel was saying in terms of the numbers is that we don't know yet when the Argentinian regulation will be in place and more importantly, if we are willing to be able to initiate operations this year or not. That could -- I mean and the same, if you want, applies to Brazil. But in reality, we are expecting Brazil for next year.

So we're considering this year, to the numbers that Angel was mentioning, perhaps there could be an impact of Argentina if it is -- it gets regulated, which, of course, it would be a great opportunity for us considering our footprint there.

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Victoria Elaine Pease, Edison Investment Research Limited - Director of Gaming & Analyst [19]

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Yes, that was my next question. So just to clarify, it's another EUR 15 million of exceptional marketing costs for online for this year as well?

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Angel Corzo Uceda, Codere, S.A. - CFO [20]

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Yes.

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Operator [21]

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The next question comes from Maxime Kogge from ODDO.

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Maxime Kogge, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [22]

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So first question. Do you have some visibility on the new government's intentions in Argentina on regulation, whether they plan to reinstate the cushion tax? If you have already started discussing the renewal of licenses, which expire, some of them, '21 and '22, if I'm not wrong.

Second question. In Mexico, I know you're not that much interested, but do you have -- have you had anything about the sale process of PlayCity? And finally, in Italy, can you split the impact of the coronavirus on -- I mean between AWP and VLT operations? I mean I guess VLT should be a bit higher. And that's all.

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Angel Corzo Uceda, Codere, S.A. - CFO [23]

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Okay. Regarding Argentina, we have little to say. I understand that there is not even a new director for the institutional province gaming...

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [24]

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Yes. I mean the new government hasn't -- sorry, this is Vicente -- hasn't appointed yet the -- I mean the person in charge of the regulatory body. What we can mention is that it's -- I mean, any -- no tax increases around the table. And actually, the new government has approved, has passed the budget for this year. No news is good news, I would say, yes. So we will have to wait and see for that one.

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Angel Corzo Uceda, Codere, S.A. - CFO [25]

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Regarding Mexico and PlayCity, we -- these are rumors. We know that the PlayCity deal continues to be live. We have said it many times. We believe that we are close or relatively close to the size in terms of market share we want to have in Mexico. So far, we are not playing that game. We know that it could happen in the future.

And regarding the breakdown of AWPs and VLTs. I'm sorry, I do not have it. I was receiving the data just one hour before the call because I knew this was going to be a topic. If you want further detail, please follow us -- follow-up with us, Maxime. We may have more color in next week or in some other days.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [26]

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In any case, what I can add, according to what I know so far, these are recent pieces of information. But the reality is that this situation is impacting in VLTs higher or more importantly than in AWPs because what we are speaking about is the fear of -- if you're one to population of -- I mean our clients prefer not to go to populated halls and perhaps stay in their home or go to certain route operations where they do not -- they are not in contact...

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Angel Corzo Uceda, Codere, S.A. - CFO [27]

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They don't -- going far, next door.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [28]

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Yes, they are not in contact with other people. So the impact is -- I think the numbers we were commenting were about VLTs in general terms, yes.

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Maxime Kogge, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [29]

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Okay. And perhaps on Argentina. So far, you were increasing revenue below inflation. But the differential narrowed in Q4. So do you think you can catch up with inflation this year, 2020?

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Angel Corzo Uceda, Codere, S.A. - CFO [30]

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If you look at our numbers in January, in the presentation, we have also included January because in January, we have continued to shrink the gap versus last year. Yes, what we are seeing is inflation is slowly suspected to go down a notch in the second part of the year, and we could expect to be continuing closing the gap. And even maybe beat inflation, but towards the end of the year or in the second half of the year. We want to be very prudent on that one.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [31]

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Yes. If I may add, as you may know, I'm in Argentina. So I can -- I think that in -- under current situation, status, make predictions about the Argentinian economy is very, very difficult and very -- it would be not very prudent to do them. So what we do know is that, as -- and as you see in the chart that Angel showed before, when inflation in Argentina is above the levels of 22%, 23%, it is difficult for the industry and for our business to catch up with inflation. When inflation begins to get milder, we are able to catch up and hopefully surpass it in order to catch up the previous gap.

How inflation and general inflation in the country both will depend on many subjects like restructuring of the debt, the evolution of the exchange rate, the final actual political -- sorry, economic program of the government, which has not been announced yet and many other related factors.

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Operator [32]

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(Operator Instructions) The next question comes from Gaurav Koolwal from Altana Wealth.

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Gaurav Koolwal;Altana Wealth;Analyst, [33]

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Just a clarification on Italy, please, again. So what is expected in hypothetically performance in the similar revenue? What would be the increase in gaming taxes this year compared to last year? I'm estimating roughly 10% increase overall for AWPs, 21.5% to 23.85% and similarly, around another 75 basis points for VLTs. So around EUR 23 million based upon the numbers for 2019.

How much -- what's your capability to basically mitigate it, through decreased payouts? A question on that. And also, you mentioned a 20% decline because of the new regulation in the gross win, but what's the -- considering it's a very highly variable cost business, what's the ultimate impact on EBITDA for a hypothetical 20% decline?

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Angel Corzo Uceda, Codere, S.A. - CFO [34]

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Okay. Let me try to go step by step. Yes, the beauty of the difficulty of Italy is that -- is very high taxes, but also most of the costs are variable. So we have -- whatever -- the revenue goes down, it impacts less our EBITDA than if it were a fixed cost or more fixed cost based business.

Having said that, regarding the VLT and AWP tax increases, the full impact would be higher than EUR 10 million if we were not to be able to decrease payouts. Like we are able to decrease payouts, and we will be doing so over the first half of the year. So the impact will be higher in the first part of the year. Towards the second year -- part of the year, we will mitigate approximately half of that impact, if not a little more. So the budget, so to speak, the decrease in EBITDA in Argentina is low single -- so in Italy is low single digits, not close to that amount.

The decline due to the health card use, et cetera, is more difficult to assess because this has happened previous -- as it has happened previously in other markets like it happened in Mexico in 2014-'15 when 100% identification was mandated. These are types of measures that have significant impact at the beginning that the players usually get accustomed to that. And progressively, the gap is reduced. If -- it will never go to the prior levels, but it significantly decreases over time.

With all that is going on in Italy, it's difficult to assess that trend today, but we hope that with coronavirus -- when coronavirus starts to tune down, we will see different measures. All in, we will probably increase the impact of all that is happening in Italy. And probably the decrease will be a bit more tangible than what we were expecting in the beginning.

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Operator [35]

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Ladies and gentlemen, we have now reached the end of our Q&A session. I will now give back the floor to Mr. Angel Corzo. Please go ahead.

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Angel Corzo Uceda, Codere, S.A. - CFO [36]

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Thank you. Thank you, everybody, for joining the call. If you have any further questions, please feel free to reach out to Guillermo or me. Thank you, again, for your time, and I look forward to speaking with you for our Q1 results in May. Thank you.