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Latin America – Argentina and Mexico leave Codere trailing last year

Poor trading in Argentina and Mexico hit Latin American operator Codere hard during the first half of the year with revenue down by 15.2 per cent to €656.6m ($862.7m).

The depreciation of the Peso was the citied as the main reason behind the fall in revenue in Argentina whilst the Mexican decline was blamed on several slot halls closing. EBITDA dropped by 15.7 per cent to €91.6m whilst net income increased by 13.5 per cent from a loss of €74.7m during the first half of 2013.

Angel Corzo, Codere’s CFO, said: We believe that significant progress has been made. The results of this first half of the year confirm the ability of the Group to continue improving the underlying basis of its performance despite the complex macroeconomic environment in Argentina and Europe and the liquidity and business constraints derived from the financial restructuring process. EBITDA for the Group grew in all of our markets, but Panama.”

Mr. Corzo went on to explain that second quarter results were also affected by an adverse seasonal context due to the World Cup in Brazil in June 2014 and the slide of the Easter holiday from Q1 in 2013 to Q2 in 2014.

Argentina accounted for 34 per cent of revenues and 34 per cent of Codere’s EBITDA with revenues in the second quarter reaching €109.8m, a decrease of €39.2mm or 26.3 per cent versus last year.

“Revenue decreased mainly due to the devaluation of the Argentine Peso and to a lesser extent the devaluation of the Mexican Peso,” he added. “Our business in Argentina is showing remarkable resilience in a very challenging macroeconomic context. The country is facing negative GDP growth in real terms, high inflation rates, and accelerated devaluation both in the official and parallel exchange markets. In this context, our revenue is growing faster than in 2013, though still below inflation estimates. This growth is helping us to maintain our leading position in the market despite of our slower deployment of smoking club facilities in the bingo halls. Our revenue market share has only changed to reflect variations in the market share of the number of machines in the market.”

Codere continues working on renovations in Argentinian portfolio and has spent €3.3m in efficiency projects in the second quarter of the year. “We are progressing on the deployment of the smoking clubs in our halls in the Gran Buenos Aires area. Two new smoking clubs were opened in the last days of June and one more has been opened in August.”

The performance of the business unit of México has rebounded in the second quarter from a weak first months in 2014 despite a still weak macroeconomic context and the World Cup. Mexico accounted for 26 per cent of Codere´s revenues and 36 per cent of the Group´s EBITDA in the second quarter of the year, becoming the largest contributor of EBITDA to the Group. Revenues in the second quarter of 2014 fell by 12.6 per cent to €84.1 compared to the same period of 2013.

“The business unit in Mexico is progressively adapting to the changes brought by the new Anti-Money Laundering regulation issued last year and is showing recovery in wins per day, fuelled by a growth in the number of visits to our halls from January to June, up 1.4 per cent,” Mr. Corzo explained. “The Government keeps sending the right signals towards the normalisation of the activity, by taking action against some of the non-compliant operators and by launching internal discussions about a new legislation for the activity.”

Italy accounted for 19 per cent of revenues the second quarter of the year and 13 per cent of EBITDA. Revenues decreased by 0.9 per cent in the second quarter of the year to €62.6m versus €63.2m in the same period of last year.

“The Italian operation has improved significantly its results in the last quarters by successfully deploying multiple efficiency projects that have increased our first half margins by 2.5 per cent excluding non-recurring items,” Mr. Corzo explained. “These results are more remarkable if we take into account that they have been obtained in a receding market in terms of revenues due to the adverse macroeconomic context in Italy. Revenues have decreased 2.4 per cent in the first six months of the year, a bit better than market estimates of a reduction of three per cent in the gaming activities in which we participate. This has happened despite the closure of two non-profitable small halls in northern Italy. We expect to be able to deploy a good part of the unused VLT licenses in the second part of the year. We have experienced growth in daily wins both in the VLT, up four per cent, and the AWP, up 0.8 per cent. The increase of 1.5 per cent in the number of machines connected to our network and, more importantly, the increase of the activity ratio (number of operating machines versus existing licenses) from 85.6 per cent to 91.3 per cent, have also contributed positively to our revenue line.”

Spain accounted for 12 per cent of revenue and 10 per cent of EBITDA in the second quarter with revenues decreasing by 1one per cent in the quarter to €38.0m versus €38.4m last year.

Mr. Corzo added: “Our operation in Spain continues its successful deployment of the Sports Betting operation where we continue to lead the market in terms of Post of sales and revenues with an estimated market share above 30 per cent. As regulation has allowed, we have continued to deploy investment efforts to cover new markets and reinforce our position in existing ones to leverage our scale and platform. At the same time, we continue to rationalise our portfolio of machines in the traditional AWP market while reengineering our operation and organization to adapt to the current performance of the machines and the introduction of the sports betting revenue line in new geographies. As a result of these, the business unit is delivering stable revenues and growing EBITDA margin in the quarter.”
Codere predicts that it will reach full-year EBITDA of €190 to 210m, down from the €287.3m it generated in 2013.