Operator News
Argentina – Codere makes strong defence in face of rating agencies’ reviews
By Phil - 16 September 2019
As a result of the uncertainty generated in the markets following the results of the primary elections in Argentina, rating agencies have conducted a review of Spanish gaming operator Codere due to the group’s exposure to the market.
The credit rating agency S&P maintains the B rating for Codere, although it will be monitored for the next six months (Credit-Watch Negative), when the group approaches the period of two years prior to the expiration of its bonds. Moody’s downgraded Codere’s rating, from B2 to B3, keeping the perspective stable.
Codere in a statement however said: “The arguments put forward by the agency (S&P) respond to strictly technical criteria on the term of refinancing, balancing the uncertainty generated in Argentina with the favourable evolution of the company and its ability to face adverse scenarios, due to macroeconomic or regulatory circumstances, generating growth”
Meanwhile Moody’s downgraded Codere’s rating, from B2 to B3, keeping the perspective stable. Moody’s highlighted the potential impact of the situation that Argentina is experiencing after the last primary elections.
Codere however says it does not share the decision taken by Moody’s, understanding that the new report issued does not properly reflect the current situation, nor the company’s outlook.
Codere said: “This rating reduction does not take into account the company’s recent communication, which reports on the effects of Argentina’s situation in its second quarter results and reaffirms its expectation of complying with the adjusted EBITDA guide for 2019, which entails both an improvement significant of the with respect to the previous year, as of positive free cash flow generation for this year.
“In these first six months of the year, the company showed lower levels of non-recurring expenses and investments in maintenance and growth (CapEx), thereby improving the expectation of cash flow generation for the year. Consequently, and in contrast to the expectations of the rating agency, the company expects to generate a positive cash flow during 2019.
“The results at the end of June 2019 (and put forward on August 26), reflect that, both the company’s EBITDA and the adjusted EBITDA, the geographical diversification of both and the cash generation, reach, by the middle of this year, their highest level since 2012, while net leverage stands at 2.7x lows.
“Likewise, Codere continues to implement its Transformation Plan within the company, digitizing its front and back offices, and activating levers capable of generating significant growth in adjusted EBITDA in coming years. In particular, this plan has allowed reducing exposure in Argentina, which has gone from assuming 131 million euros of adjusted EBITDA (almost 50% of the consolidated), to around 65 million in 2019 (less than 25%), while that of the rest of the group has passed in this period of contributing 121 million euros to approximately 220, according to the guidance provided to the market for 2019.
“In the context of the publication of the results of the first half of 2019, on Friday, September 13, the company will comment in depth on its data and expectations of cash flow generation based on the actual data of the second quarter of the year.”
In August Codere reported an adjusted gross operating profit (EBITDA) of €70.3m in the second quarter of the current year, representing an increase of 8.2 per cent compared to the €65m which it earned in the same quarter in 2018. According to preliminary data communicated to the National Securities Market Commission (CNMV), the company managed to compensate in the second quarter of the year for the lower contribution of its business in Argentina. All the same Codere’s results have been impacted by the recent devaluation of the peso as Argentina’s economic crisis deepens.
As a result the company reported an adjusted EBITDA of €17.3m in Argentina in the second quarter, representing a 29 per cent decrease compared to the same period in the previous year. However Codere stressed that the increase in overall adjusted gross operating profit in the second quarter is due to the “solid performance” recorded in Mexico, Spain, Colombia and Uruguay, despite the 29 per cent decline the company experienced in the Argentine market.
Preliminary data indicate that the company closed the second quarter with a turnover of €354.9m, 5.6 per cent less. Codere’s quarterly revenues were affected by the lower contribution of its activity in Argentina, which went from €109.9m in the second quarter of 2018 to €80m in the same period this year (-27.2 per cent).
Despite the impact of its operations in Argentina, in August Codere stated that its adjusted EBITDA estimates for the current year as a whole stand at €290m, thanks to the better evolution than expected in markets such as Mexico and Uruguay, amongst others. The company’s new annual forecast envisages a contribution of its operations in Argentina of €66m EBITDA, compared to the €72m as it had previously foreseen in its forecast announced last May (-8.3 per cent).
