Intralot Integrated Lottery Systems and Services SA
ATHEX:INLOT
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Ladies and gentlemen, thank you for standing by. I am Galea, your Chorus call operator. Welcome and thank you for joining the INTRALOT conference call to present and discuss the fourth quarter 2018 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Sokrates Kokkalis, Chairman and CEO. Mr. Kokkalis, you may now proceed.
Good afternoon, good morning, gentlemen and ladies. The reported revenue of '19 -- of '18 about earnings points to the need for a wide reorganization of our production and operational capabilities towards significant cost reductions and operational efficiencies. We are currently conducting management reshuffle in order to design and implement a new cost-reduction plan with better synergies between divisions and between headquarters and subsidiaries. INTRALOT has grown in the last years to become a leader in lottery and Sports Betting technology and end-to-end services. While retaining our strength in the retail channel, we invested in upgrading our capabilities for online services through a new dedicated digital division. We are looking to capture new business opportunities, especially in the area of the Sports Betting in The United States and in Europe.
In the last 3 years, INTRALOT has invested in the development of next-generation products and services for lotteries digital transformation. This year, we launched a new lottery platform LotosX and the new betting platform INTRALOT Orion. The cost of new product development will be significantly reduced during 2019 and 2020 as our products become mature, resulting in recurring cost savings. Our strategy is to reorganize our markets portfolio through both divestments from emerging markets, a new business development, investments in mature markets. Our U.S. operation is today our most strategic and important asset and we look forward to capitalizing on our presence in this market, including a significant contribution to our earnings from the new operation in Illinois that started in February 2019.
I am personally committed and focused on our mission to best address the needs of our clients and to improve the cash flow generation of our businesses through a combination of new business and organic growth opportunities, coupled with cost optimization, while continuing these investments from non-core assets when market conditions will be favorable. Thank you.
Thank you, Mr. Kokkalis. Now we will briefly present the 2018 financial results. Please, you may refer to the presentation that you have in front of you. And the developments of 2018 shed some light from the 2019 expectations. And after this, the Q&A session will follow. As Mr. Kokkalis already mentioned, 2018 has been a transitional year for INTRALOT, which was also reflected in our financial results. The combined implications of issues that we control for new already as well as elements that we do not control, such as the FX, have contributed to the financial results of 2018, which is compared to those of 2017 but also in terms of the last quarter's performance over the previous 3 quarters like material. The impact of our investment program, primarily depicted through the increased CapEx in the U.S. market, but also through the finalization of our Sports Betting platform investment have also affected substantially our cash flow in 2018. However, these investments have already started yielding additional cash flows for the group in current year primarily by the go-live of the Illinois contract. Furthermore, as the CEO said, our new lottery suite called LotosX as well as our Sports Betting platform called Orion are in a pretty mature phase and have already started being implemented in our new contracts, and this will be intensified in the near future in our new business ventures.
Our footprint rebalancing is progressing well with the most recent examples being the divestment from Poland and the enhancement of our presence in the U.S. On the other hand, the majority of our products development investment plan allows us to prepare and implement a wide range reorganization of our production and operational capabilities towards significant cost reductions and operational efficiencies. Having said that, and returning to the 2018 results, 3 were the main areas that affected 2018 results and the respective financial performance being reflected in the operating metrics of our P&L.
The first one refers to the projects primarily in Greece and in the U.S. that were discontinued, altered to a new status or prepared to commence. More specifically, the OPAP contract in Greece entered into a new era from August 2018 onwards, which, due to its smaller scope, contained subsequently lower remuneration affecting Q4. On the other hand, the Illinois contract, which went live on the 18th of February, fairly affected the last quarter of 2018 due to the intense start-up costs intensified prior to its go-live. Furthermore, the discontinuation of the South Carolina contract and it stays on the cost side until closing down as well as the suspension of our licensing cycles also had a negative impact on the financial metrics.
The second area refers to elements that affected positively Q4 2017, but were not there in Q4 2018. Being more specific, the sale of the terminals in Ohio in December 2017, which did not occur in 2018, however we expect it to materialize in current year since it is already contracted and a one-off fee in relation to Hellenic Lotteries project also had an adverse effect in Q4 2018 versus a year ago.
Last, but not least is the FX turmoil primarily in the markets of Turkey and Argentina and to a lesser extent in the U.S. and Australia. On the other hand, high jackpot in the U.S. market in Q4 2018 mitigated in part the lack of the terminal sale. All these elements primarily affected the last quarter of 2018. So if you move on to Page #8 and starting from the revenues line, we see that we have a deficit of around EUR 48 million in Q4 2018 versus a year ago, of which EUR 30 million comes from the markets of Argentina and Turkey, primarily due to the FX, EUR 13 million comes from the U.S. and Greece related to the non-materialization of the terminal sales this year, and the new reduced contract with OPAP and the rest coming from the suspension of the license in Cyprus. Same reasons primarily affected full year results versus a year ago. GGR growth also attributed to the same reasons, further deteriorated by increased payout in Q4 2018 versus last year, but also for the full year. In terms of EBITDA, the worsening margin in Greece mainly affected Q4 2018 versus 2017, accelerating the same trend on the 9-month period. The combined effect of all above dynamics led to an EBITDA deficit of approximately EUR 23 million in Q4 2018 and EUR 34.5 million for the full year versus 2017.
In terms of operating cash flow, the EBITDA deficit, but also the adverse working capital movement impacted largely by the payment of a loan due interest-bearing liability of EUR 13 million already communicated throughout the year as well as the inventory buildup for the Illinois and Ohio projects of around EUR 14 million, again this was already communicated, had led to an adverse decrease -- to a decrease of EUR 65 million from the total operations and of EUR 56 million if excluding the discontinued operation. Net CapEx also was higher by EUR 30 million year-over-year with a headline variance coming from the U.S. implementations, mainly Illinois. All in all, net debt movement presented in Slide #10 increased by EUR 105 million, driven mainly by the investments in the U.S. and on the new Sports Betting platform as well as related inventory buildup for the new projects. So nearly 75% of the net debt increase is attributed to the new investments of the Group and to a lesser extent from one-off obligations, purchase of own shares and the normal course of business. Here, it is also worth mentioning, as we've seen Slide #11, second graph, that the U.S. business along with the Turkish and Bulgarian one account for 75% of our EBITDA performance, while introduction of Illinois contract in Q1 2019 is expected to increase the contribution of the U.S.A. substantially in 2019 and onwards.
Talking about 2019, we will now provide the guidance for 2019. So regarding current year, all our efforts and actions are focused towards an at least cash flow neutral position for the shareholders of the parent view. To this end and in line with the guidance given by our CEO, we are currently in the process of crystallizing the actions to be undertaken within this year towards this direction. These actions are a combination of reorganizing our production and operational capabilities as well as some low-hanging fruits on the cost side, both in H2 and in major subsidiaries. The utilization of stock we built last year, which not affecting our cash flow for this year, but also a more intense cash pulling from subsidiaries that we control. In line with our strategy to dispose non-core assets, our cash flow may be assisted by such disposals as well if market prospects are favorable with the proceeds being allocated to support the cost-reduction initiatives. Regarding the CapEx, we expect it to return to its normal levels in the range of EUR 55 million to EUR 60 million after 2018's excess spending as already communicated, mainly due to the investments in the U.S. However, we do not expect these actions to be materialized within H1 2019, which will be negatively affected by a further EBITDA deterioration due to the OPAP full year effect, counterbalanced however by the introduction of the Illinois contract, which is already performing as initially expected. All our actions are expected to have material impact from 2019 and onwards.
And with this final statement, I would like to close the analysis and inform you that the INTRALOT team is at your disposal for any questions you may have.
[Operator Instructions] The first question is from the line of Tzagkournis, Menelaos with Imperial Capital.
It is very encouraging to see that your intense focus on cost rationalization and business continuity in conjunction with asset sales. Touching on cost reductions, my first question would be, and it looks like you have, but we would like some more color on that. Have you identified specific areas where you have started already implementing cost reductions? The second question is, are there any big contracts in the pipeline that you would expect to be announced within 2019? And lastly, have you -- do you have any updates on your RCF facilities? Have you signed a new one, when can we expect an official update or announcements on that front?
Good afternoon and good morning. This is Chrys Sfatos, Deputy CEO of INTRALOT, I'm happy to take your first question. On the cost reductions, we have identified many areas. Primarily, we are looking into ways to reorganize our production and operation capabilities in ways that, as the Chairman said, will produce more synergies. More importantly, as you know, we have had very intense CapEx expenditure in product development as well as in markets development. As our products become mature, we expect that our production costs will be significantly lower, but we have identified other operational expenses. And what we can say at this moment, although the plan is developing, but we can commit that you will see a difference and an impact on our numbers by the third quarter of 2019, the impact will be very significant and visible. On the area of big contracts, yes, we do expect to have some big contracts of material impact during 2019 across the Atlantic. It is the same project we have referred to in the past, it is maturing and it's actually better prospects than we knew like 6 months before when we first discussed it, and it will be announced during 2019 and will have an impact on the results of 2020, however.
Finally, on the RCF, we understand this is an important issue for everyone following our finances. However, let me first say that we have not had any drawn lines. So all the lines we had in the past were undrawn. Now you also are aware of the fact that on the 28th of December, we closed the deal of Azerbaijan, and Azerbaijan was a significant part of our revenues and of our EBITDA. And this part was deconsolidated in our 2018 results and therefore had significant impact on the various ratios in the RCF covenants. We are in the process of renegotiating and restoring these covenants, although we don't anticipate that we will be in need of these credit lines this year based on our analysis and the results of our plans and efforts that we are developing right now. In addition, we do have other options for senior or junior debt on the table, and clearly we're exploring every option, but we have not committed to anything. But on the RCF, the combination of the loss of consolidated revenue and EBITDA from Azerbaijan, in combination with expenses and impact on our cash flow, which consequently influenced our net debt final number, all of these issues, we consider as a consensus in last year with the help of new revenue from projects like Illinois and the cost reductions, we will be able first to improve these ratios. And second, through this ongoing discussion with the banks, we will be able to have a new deal on the RCF front or in any other credit lines that we will announce as soon as we have something concrete.
The next question is from the line of Cope, Jeffrey with Stifel.
I was just wondering, I mean on the previous call, you -- I believe you guided us to EUR 90 million of proportionate EBITDA. And I guess the call was pretty late in the quarter. I was kind of wondering why proportionate EBITDA came in considerably lower than that, if there is any color there?
Of course, yes, the guidance was for EUR 90 million, but by the time of this call, the Azerbaijan was included in the guidance that we gave. So one reason is that the deconsolidation of Azerbaijan affecting this figure by nearly EUR 5 million to EUR 6 million. And the other issue that we had in mind when we gave this guidance was the sale of the terminals in the U.S., which would have a contribution of around EUR 6 million to EUR 7 million on this figure, which did not materialize in 2018 Q4. But as I already said in the presentation, we expect it to materialize within current year and support our cash flows of this year. So this is the discrepancy of EUR 13 million that you see from the guidance that we gave back then and the actual EUR 77 million that was finally the result of 2018.
Okay. So the U.S., I guess, now according to the slides is EUR 23 million of LTM EBITDA. I guess, you're suggesting EUR 7 million of that we will see in 2019 from these terminal sales?
Actually, it was not EUR 23 million, it was EUR 29 million. So the variance is EUR 4 million, which is just a combined effect of the terminals that did not materialize, counterbalanced, however, by the jackpot that occurred in Q4. So the real variance is EUR 33 million to EUR 29 million because EUR 29 million is the number LTM -- the Q4 LTM and not EUR 23 million. So there is a discrepancy of EUR 4 million, which can be explained by, as I said, by the non-materialization of the terminals in 2018, counterbalanced, however, by a higher jackpot in Q4.
Okay. So then -- so the EUR 29 million, including Illinois, what do you guys see now is a run rate U.S.-based EBITDA?
Okay, the EBITDA, the guidance for the U.S. EBITDA is in the -- we have said it in the past, more or less, it is in the range of $50 million, excluding any sale, any MPNGs, any terminal sale in the market. And in fact, the performance of Illinois, as I said already, it seems that it is in line with our expectations. So on an annualized basis, we expect Illinois to have a positive impact in the range of $20 million to $22 million moving forward.
The next question is from the line of Felix, Wolfgang with Sarria.
First one, what is your liquidity now or as per last date that you looked at it?
Okay. The liquidity -- so the cash balance of end of December 2018 was EUR 163 million, the group cash. However, the cash that is fully controlled by the H2 perimeter, so excluding the cash that resides on our partnerships is -- was EUR 85 million. Out of this EUR 85 million, around EUR 30 million is considered as the necessary working capital in order for our operating entities to operate on a daily basis. So the amount -- the cash amount that is readily available for servicing debt and covering all other means of H2 perimeter, as we call it, is EUR 55 million. This more or less is the amount as we speak. And this is also our target, as we said, giving the 2019 guidance, that this will be the amount of cash that we will have readily available at any moment throughout this year.
Okay. Second question. Which assets would you classify as non-core? Is that, I mean, second Gamenet obviously. Do you have a list that you feel you can already commit to, perhaps...
Yes, thank you. We have a list, but in general, we classify as non-core the assets that we do not consolidate in our balance sheet. So any disposal of these assets will not have any visible impact on the consolidated sheet that we discuss here. That being said, there are smaller assets and bigger assets. For example, the assets of Gamenet is a non-core asset in that sense, in the sense that we are a minority there, and we do not consolidate it. But it is an important asset from the point of view that it is a company that's very healthy with great prospects, and there is great interest in this market, which has done unexpectedly well in spite of regulatory headwinds. So the regulatory headwinds this year were proven, the markets were expecting adverse regulatory effects from the new government in Italy, it did not materialize, instead our company Gamenet did very well in the area of Sports Betting. It is the biggest Sports Betting company in Italy today across channels, both online and -- combined online and retail due to the integration of this buyout of Goldbet. So the company performed EUR 105 million EBITDA this year and is a forecast for nearly EUR 135 million EBITDA. I'm just throwing the numbers so that you can make an assessment of the value of this asset, which is very important. That's one asset that we could dispose if we have the right price, but we will evaluate together with our partners to assess what is the right price. Of course, other assets are the asset in Peru, the Hellenic Lotteries, many assets of this type. Okay?
Okay, yes. One more question or 2 more questions perhaps. And perhaps there is more detail out there than I've immediately found. But you showed some EUR 37 million, I believe, of short-term borrowings, can you shed some light on that? I believe you have a facility somewhere in the U.S. How are they composed?
Can you please repeat, you said EUR 37 million short-term borrowings, you said?
Short-term borrowings is my understanding.
Okay. These primarily are the loans, the term loans that we have with Nomura which is EUR 50 million. The other one, another component is the revolving facility utilization that we have in the U.S., which was utilized for the investment plan in the U.S. in the range of EUR 10 million. And there is, again, in the U.S., a lease that we have in Ohio in the range of EUR 8 million. So primarily, these are the main elements and some small other I think, in total [ loan book ] as well. So these more or less are the components of the short-term debt.
And last question, I realize it's already been asked to an extent, but in your negotiations with the RCF lenders, is there anything, is there a specific ratio they are asking you to achieve before they increase their covenants, perhaps or allow access or waive? Is there something that we're playing for here?
This is an ongoing discussion so we would not like to comment on this right now.
The next question is from the line of Pobjoy, Jack with Barclays.
Actually, I'm all good. All my questions have been answered.
The next question is from the line of Kogge, Maxime with ODDO.
Can you give first a guidance for EBITDA, both consolidated and proportionate for 2019? Second question, how many CapEx are still to be cashed out on Illinois? I understand that not everything was spent in 2018. And third question, what should we expect with the Nomura loan which expires in May? Are you going to extend it or is it going to be repaid?
So regarding the EBITDA guidance, as I said, when I gave the guidance of 2019, we would not like to provide specific metrics. All you can keep is that we will be at least cash flow neutral. And the reason we are not providing the 2019 is that we are currently in the process of crystallizing everything, so we wouldn't like to provide any specific guidance. Regarding the CapEx of Illinois, as I said, again, I wouldn't like to decompose this figure, so the CapEx for 2019 is expected to return at its normal levels in the range of EUR 55 million to EUR 60 million, including also some payings for the Illinois. And regarding the Nomura loan, this is a loan that matured on the 31st of March. Half of it has already been repaid and the rest of it will be repaid by mid-May. This was a decision that we took when discussing with Nomura. We evaluated that the best option for us, although our discussion varies other options, the best option for us would be to repay the loan. So this is why we are currently implementing this plan.
Okay. And when you speak of cash flow, which would be neutral at the balance level, how should we understand what will be the cash flow at consolidated level? Should we expect neutral cash flow to pass payment to [ GGR ] partners?
No. And then primary reason and the reason we are talking about the parent level is because in 2019, we have the issue with INTELTEK, which, according to what we know as we speak, this contract will terminate in August, meaning that the cash that is with INTELTEK will be distributed to the shareholders, so there is going to be a huge outflow to our partners as well. So in -- from what we know now we expect that on a group level we will not be neutral, however we will be positive, especially for 2019, and I will shed some more light regarding the INTELTEK issues here. So from INTELTEK, INTELTEK at the end of 2018 have an amount of EUR 63 million cash, excluding any assets or liabilities, so the equity of INTELTEK at the end of 2018 was EUR 49 million. Out of this EUR 49 million, INTELTEK has already announced that it will distribute EUR 40 million to both partners. Out of this EUR 40 million, EUR 17 million to EUR 18 million will return to us, I mean, in INTRALOT, including also our stake from the sale in Azerbaijan. So this leaves another EUR 9 million in INTELTEK. And according to the projections of -- for the performance of INTELTEK, it is expected to generate another EUR 7 million to EUR 9 million until August. So this leaves a cash balance by the end of August of around EUR 17 million to EUR 18 million, out of which we expect to get our stake. So we expect from INTELTEK after August to receive another EUR 5 million to EUR 7 million. So this makes an overall positive impact for 2019 for INTRALOT of around EUR 22 million to EUR 23 million. Although, on a group level, it's going to be negative. This is why we're talking about the shareholders of the parent.
The next question is from the line of Kandalam, Jayanth with Lucror.
Quite a few of the questions have been answered. But just on cost reduction, I see that you have given a little bit of detail, but I'm just wondering if you had any targets actually. Because you just mentioned that you see a significant impact beginning Q3, but if you can provide a ballpark estimate and also if you have any costs involved in this regard, that will be helpful.
Yes, we do have a target and it is substantial, but we will not share it right now. But what I can say is that we have identified the areas, and we're comfortable with our targets.
Okay. Is there -- I understand maybe we'll await for the next call to have more clarity. But what exactly is the time frame for achieving this, I mean the full run rate savings? Is it this year or the next?
As we said in the beginning, we expect that these efforts will crystallize in our results later this year, but we're basically looking for recurring savings. So these will be crystallizing also for the coming years and our plan is to have increase in incremental savings actually in the years to come in order to improve our overall performance model.
All right and if I could just squeeze in a question on cash flows. You had some one-offs, especially because of the U.S. investments on working capital -- on the working capital front. So is it fair to assume that working capital would become kind of a flat or neutral number this year? Or is it going to be still more pressure? And also if you could give us a ballpark estimate of minority outflows, dividend outflows for 2019, if you have it?
Regarding working capital, it is, again, the INTELTEK issue will have a negative effect because it has liabilities primarily towards the network. So on a group level, this is going to be a negative flow. Now in terms of the dividends to third parties, to minorities, for the same reasons that I explained the issue with INTELTEK, we expected -- we expect them to be higher in 2018 -- '19, sorry. So the outflow in 2018 was around EUR 36 million and the figure for 2019 is expected to be in the area of EUR 44 million to EUR 45 million.
The next question is from the line of with Ossowicz, Piotr with Ironshield.
We cannot hear from -- we will go with our next question Mr. Chang, Chris with Nomura.
Just a few housekeeping questions. So in Q3 '18 conference call, when you mentioned the winning of the Hamburg contract, expansion of New Mexico and Croatia, which combine run rate of EUR 10 million EBITDA going forward. You also hinted that there are some near-term pipeline opportunity that may amount to same amounts. Could you give us an update on that just on a qualitative level and whether or not that number, in your opinion, has gone up or down?
I guess you're referring to a contract that we said it was the other side of the Atlantic. What I can tell you is, we cannot disclose yet, is that I know this week, we are in the final stage of negotiations, and we believe that the contract is going to be signed either at the end of the month, maximum in the beginning of May. So this is the situation. And as Mr. Stafos said before, this is not going to have an impact on 2019 numbers, but depending on this fact, it's going to contribute in 2020 EBITDA-wise.
Understood. And then could you give us a very quick update on a potential -- I mean, the renewal that will be coming Morocco later this year and also presumably ongoing, the Bilyoner license renewal?
On Morocco, that is, as you know, still the process in place. We have participated. We are optimistic for a good outcome. But we cannot say more at this point. But just keep in mind that we are optimistic that we are going to have a favorable outcome. In Bilyoner, at this moment, the license we have an extension of 1 month. We presume it's because due to the elections that were in Turkey. We are in the process of collecting the necessary data that Spor Toto is asking. So to submit again an application for the renewal of the license for the next coming years. So still, it is an ongoing process. We are optimistic also there that this is going to have also a positive outcome. And I presume in the next conference call, we will be able to share more.
The next question is a follow-up question from Felix, Wolfgang with Sarria.
You mentioned that your cash balance at the end of the year and currently is approximately the same. Now I understood that you were going to spend another EUR 15-ish million in CapEx in Q1, roughly, in the U.S. You seem to have paid EUR 8 million to Nomura as well. I understand the Azeri business was already consolidated as cash in the cash balance, I believe, in the Q4 numbers. What were the sources of cash in Q1 to keep your cash balance stable? Or maybe I've got my facts wrong here.
Okay. Apart from the outflows that you just mentioned, we also expect to have, which has not materialized yet, so it may not be exactly Q1, but it's going to be in April. So we expect to receive the proceeds from INTELTEK, which more or less will counterbalance the variance and also Bilyoner. So these 2 elements, more or less, will contribute positively, yielding the same cash balance as we had previously.
As a central cash balance, basically, for your...
Yes.
The next question is from the line of [ Clark, Rowen ] with Deutsche Bank.
It's [ Rowen Clark ]. You've answered most of my questions, actually. But maybe just on Bilyoner. Could you just explain if there's any implications from the INTELTEK contract, why you might or might not be able to maintain that Bilyoner contract separately? Or is there any link between the 2? Or does it make it any more or less likely that you will win the renewal of Bilyoner? And then just some clarification on the guidance for positive free cash flow. Sorry, if I'm being a bit vague here, but just to be exactly clear about what you're saying, it's group operating free cash flow after cash interest, after CapEx of what you said, EUR 55 million, EUR 60 million, but before any of those flows from cash in from INTELTEK or Bilyoner, and obviously before minorities as well, so just to be exactly accurate, please.
I will start from the operational point of view. This is Nikolaos Nikolakopoulos. We do not expect any implication, [ in terms of ] relationship between the INTELTEK contract and Bilyoner. As you know, in Turkey, there are already 6 licensed -- electronic agents licenses. So the fact that someone has now, or will have in the future, the contract [ laid out ] with Spor Toto has nothing to do with the number of the electronic agents and the way forward. It just happened that we have, let's say, at this moment and until August, we have a dual role in Turkey, both in terms of INTELTEK and as part of an electronic agent. I will hand now to Mr. Chrysos about the cash flow issue.
Now regarding the cash flow, we said that we are going to be cash flow neutral, not free cash flow neutral. So all the elements that we discussed and the actions that we will undertake will maintain our cash balance on the shareholders of the parent view at the same level. So it's a combination of all actions that we said on the cash flow and of course, on the cost-saving initiatives and everything that we have discussed already.
Okay, it's, in total, the cash balance at the end of the year will be similar.
Yes.
And just to be clear again, is that excluding...
Not on the group level. Not on the group level. On the shareholder of the parent view, okay. Because the group level, it's not going to be neutral, I said it already...
Yes. And that's not implying any further drawdown on the RCF, is it? That's before any additional debt?
Correct, correct. No additional debt included in this figure.
The next question is a follow-up question from Tzagkournis, Menelaos with Imperial Capital.
A few things that I would like to touch on. First of all, you mentioned cash from INTELTEK. Does that include the dividend that you received for 2018? If I'm not mistaken, you received a dividend from INTELTEK in March or April of next year for the previous year. So you will receive any cash balance available at INTELTEK, plus the dividend, plus Azerbaijan, plus any contribution from January 2019 until August 2019. So if you could break that out again, we would be -- that would be very helpful. And then 2 more things. Could you tell us at what stage the D.C. Sports Betting contract is right now? Specifically, I think everybody is interested on your mobile contract there. And then EBITDA from the U.S., we have 2 different figures: one is 25, the other is 19 -- 29, sorry. One includes a project from the Philippines, that we -- I don't think we have ever discussed on one of the calls. So could you just clarify that as well?
Of course. Let me elaborate on questions #1 and 3, and Mr. Nikolakopoulos will elaborate on the D.C. So let me decompose, again, the INTELTEK proceeds. Correct, as you said, in 2019, we will receive the dividends in relation to the results of 2018. So this amount, dividends and fees for the services, because apart from the dividends that we get as a shareholder there, we also have a technology contract. So dividends and fees to be received soon within April or beginning of May, as I said, will be in the order of EUR 10 million. So over and above of this, there is going to be another EUR 7.5 million, which is our stake from the sale of Azeri INTELTEK. So this makes a total of EUR 17 million to EUR 18 million for 2000 -- referring to 2018 to be received within this month or beginning of next. And then I said that this will leave the company with additional cash of EUR 9 million. And according to the performance expected for the company, it will generate another, more or less, EUR 8 million. So EUR 9 million plus EUR 8 million is EUR 17 million. So our stake will be in the order of EUR 5 million to EUR 6 million if, finally, these are the numbers moving forward. So this makes a total inflow for Intralot in the range of EUR 23 million to EUR 24 million for 2019, all inclusive. I hope I covered the question. However, if there is any unclear topic, please let me know. Now in terms of EBITDA in the U.S., correct, the EUR 29 million includes also the Philippines contract, which is in the order of EUR 4 million. The EUR 50 million, as I gave -- the guidance that I gave for the EBITDA of the U.S. does not include the Philippines contract. So it's going to be [ progress ] dollars, again, so this makes 46, more or less, in terms of euro.
Okay. Also, for the D.C. contract, as I said, previously, we're in the phase of due diligence. We expect that to conclude soon and we start the contract negotiations. It is -- definitely, there's not going to be any revenue generation within 2019. And we expect that if the time table goes as we plan and all things go well, to commence the project beginning Q1 of 2020.
The next line -- question is from the line of Ossowicz, Piotr with Ironshield.
Just following up on a couple of points you made before. So first, you have mentioned that the proceeds from non-core disposals will be used to finance the cost of efficiency programs. So can you provide more color on whether you will also consider using those proceeds for debt reduction, which I think has been the comment and the intention for the past couple of calls. So that's one question. Then the second question, I just wanted to make sure that when I look at your Q4 cash EBITDA, so EBITDA from 100% consolidated entity plus dividend, that's about EUR 10 million. I understand that there was an impact of net EUR 4 million between the terminals and the jackpot in the U.S. So that would bring us from EUR 10 million to EUR 14 million. If I annualize it, I get EUR 56 million. There is still some impact from OPAP, so I know around maybe EUR 5 million if you annualize the loss. EUR 18 million from Illinois, so that will bring us to around EUR 70 million of EBITDA for 2019. And then, of course, against the EUR 60 million CapEx -- CapEx and tax, EUR 45 million interest and EUR 23 million from INTELTEK. So that's still negative EUR 14 million. I'm just trying to get a sense whether there's any reason for -- am I missing anything? And whether there's any reason for not to annualize the Q4 numbers as I just discussed? And the third question will be whether you can provide a bit more color, like how much do you expect from -- in savings from those initiatives?
On your first question about the destiny of our proceeds from cost savings or asset sales or organic growth, well, thank you for giving us the opportunity to clarify and elaborate. Currently, as our Chairman said in his opening statement, we are committed in a business-first approach. So our primary concern is to use all our liquidity towards, first, serving our business, and then protecting the interest of all stakeholders. So at this point, we will not comment on the possibility of using the proceeds for debt reduction. Obviously, the capital structure is an issue we are looking at. But right now, our approach is -- our business is first, and we direct our liquidity towards serving all our obligations and our contracts, winning new contracts, entering new markets and improving our products with cost efficiencies and operational efficiencies. On the second question, Mr. Chrysos will follow up.
Okay. As we said already, Q4 was heavily impacted by items such as the start-up costs in Illinois, the new OPAP contract affecting [ heavy ] in Q4 2018 compared to 2017. So as I said in the beginning, we wouldn't like to decompose all elements of the cash flow. What -- I will stick to what we said already, that we will ensure that the cash balance will be the same year-over-year with all the initiatives to be undertaken. So I would refrain from decomposing all elements because there are extraordinary items in 2018, which will not be there in 2019. I will just stick on what we have already said regarding the guidance that we gave.
Okay. And regarding savings, what's the magnitude?
Yes. We already answered this question, that it will be substantial and it will be visible in the third quarter of this year, but we will not commit to a number right now. But we are comfortable with the areas that we have identified.
Okay. Maybe just to rephrase the question on the cash flow. When you are guiding to be in cash flow-neutral, at which point do you expect to be cash flow-neutral on the purely EBITDA, minus CapEx, minus tax, minus interest base, excluding all the one-offs in terms of asset disposals or exceptional CapEx? Is it 2019, is it 2020, or how should we think about it?
On the cash balance?
On the cash flow, on the free cash flow.
For the cash balance? The EUR 85 million?
No, no, sorry. I meant free cash flow. At which point do you expect to be cash flow-neutral or cash flow-positive, excluding one-off cash inflows like INTELTEK or asset disposals, which, of course, will help you in 2019.
As I said, already, I would refrain from decomposing all elements. We'll speak again on what we have already said, that we are going to be -- we have -- we will have the same cash, not decomposing all elements.
The next question is from the line Doerane, Thomas with Oak Hill.
First question, it's a bridge. I know you don't want to -- you want to refrain from breaking down all countries, but I'll still ask my question. If I focus on Q4 exclusively, EBITDA was negatively impacted by, more or less, EUR 10 million of adverse effects. If I exclude this, consolidated EBITDA in Q4 2018 would have been EUR 29 million versus EUR 42 million last year, so there is a EUR 13 million gap. Is there a chance you can guide me what those EUR 13 million was?
Can you please repeat?
So in Q4 2018 -- so not the full year, just Q4, EBITDA, if I exclude any adverse FX movement, was EUR 29 million. Last year, in Q4 2017, it was EUR 42 million. So there is 1-3, a EUR 13 million delta. I understand some of it is OPAP, some of it is the start-up cost in Illinois, but can you give us a sense for how much is coming from which country?
Okay. Okay. Let's decompose this one. It's -- the same reasons as we said in the presentation, so it's the terminals in the U.S. in 2017 Q4 which did not materialize in Q4 2018. This was around EUR 6 million. The second one has to do with the OPAP contract already mentioned, which was around EUR 5 million, EUR 5.5 million deficit in 2018 compared to 2017. A one-off sale regarding the Hellenic Lotteries project in Greece, which was in the area of EUR 3 million. So this makes 3 plus 5, 8; plus 6, more or less, this is the -- these are the major line variance items.
Got it. And then the second question on Argentina. I know now you apply the IAS 29 for the inter hyperinflationary accounting standard. What would have been the revenues and EBITDA if you didn't apply it?
Hold on a second, please.
So my understanding is since the second part of 2018, you need to change the accounting standard you use in Argentina. And you've restated the inflation rate both for the FX for the full year. So my question is, what would have been the revenue and the EBITDA if you didn't adjust for this new accounting standard?
Okay. It's around 30% impact. But I think, this question is too technical, so we may take it offline. But so it's in the range of 30%, the impact.
Okay. And then my last question is on Greece. The year-on-year EBITDA declined by EUR 12 million. All of it happening in the second half of the year. You mentioned 6 -- EUR 5 million to EUR 6 million OPAP, EUR 3 million one-off sale in Hellenic Lotteries. The remaining EUR 3 million, is that just increase in overrates? Or is there some coming from consolidated minorities?
The rest, impact of OPAP because the new contract started in August. So the EUR 5.5 million reflects the impact only of Q4. So the rest refers to the period from August until for the 2 months -- for the 2 more months.
The next question is from the line of Cowie, Simon with Societe Generale.
Most of my questions have been answered. Can we just confirm in terms of the cash flow, and I know you've been through this before. When you talk about being cash flow-neutral for 2019 at the parent level and the cash to be unchanged, are we talking about the EUR 85 million at the holding company and another [ number I can't see ]? Is that the number that we should be focused on to be unchanged year-on-year? And then as a follow-up to that, it seems like there's a first half, second half split to this, with first half, some cash drain; and the second half, better. But at the same time, you seem quite comfortable with the liquidity position despite not having access to your bank facilities. I'm not getting a sense that you're especially worried about selling, for example, the stake in Gamenet to generate cash or anything else. Could you talk about your access to liquidity away from the RCF, and whether my understanding that the profile H1, H2 of the cash flow is correct? And whether I should be focusing on the EUR 85 million as being flat year-on-year?
On general level, yes, you are right. We think that this combination of the 3 elements we presented in this call and in our results, the combination of growth, organic revenues increasing the top line and the EBITDA organically is the one. The other is the savings, which will be significant, and our changes will affect both our operational efficiency and our cost structure. And the third, of course, is the disposal of noncore assets. We feel that these 3 elements will be sufficient. Now the -- we will renegotiate, of course, with the banks, like we said. So this will be another potential source lines -- credit lines in the future. We do have the [ Malta ] facility right now for our needs in the U.S., plus we have other options for senior or junior debt with various lenders, so we feel that there is liquidity for us out there. Not that we take this issue lightly, that's why we are doing all these efforts. But we don't think that lending is absolutely necessary at this point for us to serve our needs with our clients and our business at the moment. Okay?
And the EUR 85 million cash, is that the number to be focusing on in relation to your comments on free cash flow-neutral at the parent level?
Yes, correct.
And should we assume that, that is going to be weaker in the first half and then stronger in the second half? Is that a fair profile assumption?
Okay. There may be some hiccups, some -- obviously, some intra-Q hiccups. But at the end of the day, it's going to be -- at the end of the year, it's going to be EUR 85 million, as we already said, because, previously, I also -- I said that in Q1, it may not be the same, but we expect to receive the proceeds from INTELTEK. So it will be balanced again in April or May, whenever we receive the proceeds. So on an annual level, it's going to be EUR 85 million, yes.
Okay. Understood. Kind of just as a follow-up and last question, so you have the liquidity that you need for Q1, and obviously, we're already through it. So was that because you have tapped other sources of liquidity? Or actually, it was by managing it with the cash that you had?
Managing the cash that we have.
The next question is a follow-up question from Kogge, Maxime with ODDO.
Yes. Regarding EBITDA, I understand you are quite reluctant to give a guidance for 2019. But if I look -- I mean, because of the shift in the perimeter. But if I look at Greece, which was minus 22 last year, is it possible to have a guidance on Greece? You gave a guidance on your U.S., so I guess that should be possible for Greece, too. So that's the first question. And the second question is on Malta, I mean, the business segments there in the U.S., there is a mismatch between the documents. The general reports says that it made EUR 12 million of EBITDA, and the presentation says EUR 9 million. So how should I understand the difference between the 2?
Okay. Regarding the guidance of Greece, again, I would not like to give specific guidance because especially in Greece, we are going to implement the plan -- the optimization plan that we just mentioned already. So I wouldn't give a specific guidance. I said it at the beginning that we are not going to enter into details regarding specific metrics. Now in terms of Malta, the variance is the first time consolidation of our company there, Bit8, which had the negative impact of around EUR 2.5 million. So this is the difference that you see in the presentation.
And Bit8 was consolidated from when exactly?
November 2017. So in 2018, there was a full year impact.
And this impact should remain the same in 2019?
Correct.
The next question is from the line of [ Dean Takib ] with BNP Paribas.
With the recent rating downgrades and given your bonds are trading at distressed levels, do you think this will be -- not be an issue when it comes to winning new contracts, especially in the U.S., where granting of these contracts is very politically sensitive and subject to public scrutiny? And don't you think actively investing in the capital structure will help that with the public image?
Okay. Like we said, first of all, currently we are not facing this issue. Whatever questions we see, we answer them satisfactorily. And I want to repeat that we are looking first into all the aspects of corrected moves that will improve the business and that will make everybody feel comfortable of our business continuity and our abilities to deliver innovative products and services in the retail and online channel. So this is the main challenge for us. And like I said regarding the capital structure, we keep all our options open. And we feel that once we address the significant business issues and we have a visible effect on our numbers, it will be much more productive to go this way and then address the capital structure issues because we feel that we have the luxury of time in that sense at this point.
The next question is a follow-up question from Mr. Chang, Chris with Nomura.
Just one very quick follow-up question. Perhaps I missed it from prior calls. Could you give us a little bit more details on the USD 20 million facility you have, vis-à-vis if it's pledged to any particular U.S. activity, any condition on what the proceeds can be used for?
No. This is a facility which is available. We are -- there are no specific uses in relation to this facility. We use it either for working capital needs. Currently, we have utilized part of it in order to retain the investment plan in the U.S. So there is no specific, let's say, purpose for this Azeri facility.
I see. And just on the collateral debt. Is it a secure facility, where certain U.S. asset is pledged to it?
No, no, no.
And apologies, can I just ask one very quick follow-up question? So in terms of the cash structure, I totally appreciate the operational efficiency is your current focus. But just to get a sense of your flexibility in a couple of years' time. Could you confirm what your secure debt capacity is?
We don't want to make any specific comment on this at this moment.
The next question is from Mr. Jivkov, Michael with Argo Capital.
Regarding -- you've said that at the end of 2019, you expect to have cash of EUR 85 million. Does that include any proceeds you might get from disposals? Or is it without?
It's the combined effect of all actions that we have planned. It may, yes; but it may also not. I mean, it's -- we said at least cash flow-neutral. So yes, part of them could be from the disposals.
So part could be from disposals. Okay.
[Operator Instructions] The next question is a follow-up question from Mr. Tzagkournis, Menelaos with Imperial Capital.
Two more for me. Regarding any potential new contracts that you may win, and if these are large, which if the contract is the one we are suspecting, probably, you will require large CapEx. Could you tell us if that's going to come in, in 2019, and give us an additional level on that CapEx requirement or potential CapEx requirement? That's the first question. The second question is, you've mentioned a couple of times during this call that you have other options when it comes to credit availability. We understand you don't want to give a lot of detail right now, but would those options include, for example, CapEx financing? Or would those options be bank debt or maybe other types of debt, like debt from a fund?
Okay. Because -- well, first of all, we said we don't want to go very much into specifics and details. We can take all these questions privately because if there is any other general question, we can answer in the context of our -- the comment of our earnings. But we can explain all of these things in a private discussion if you wish.
And let's take the last question, please.
The last question is from the line of Neill, Ian with Alchemy.
I just want to clarify 2 of the numbers you gave in the bridges for Q4. First of all, on U.S. terminals, did I hear right that in Q4 '17, terminal sales contributed EUR 6 million to EBITDA?
Correct.
Okay. And then regarding OPAP, the run -- what is the run rate impact of that contract loss or adjustment? Because I think, again, you said Q4 was EUR 5 million to EUR 6 million and the sort of 2018 full year impact was EUR 2 million or EUR 3 million higher than that book.
The impact of OPAP annualized is going to be in the range of EUR 20 million to EUR 21 million. So EUR 9 million has already been materialized in 2018. The rest will be during H1 2019.
Ladies and gentlemen, I will now turn the conference over to management for any closing comments. Thank you.
We would like to thank everyone for attending this call. We are available for more questions on our investor relations lines and all the executives. And I convey thanks also from the Chairman and the Board. And we look forward to the next call in the next quarter. Thank you.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.