Edited Transcript of IVS.MI earnings conference call or presentation 15-Nov-19 3:00pm GMT

But there are probably in Italy or in other markets, some other smaller players that are not so diversified and as we are — or depending to the — on a small area on — or on a specific industrial district, that could be hard in terms of the budget crisis. And these companies are becoming good acquisition target for us, probably with interest in price and neutral tools for investment — as it happened during the last phase of prices in 2015 and 2014.

Of course, in the short term, the market will be weak for everybody, but this is an opportunity for the strongest. This year, we are letting approximately EUR 2.7 million of Italia with respect to what we would have expected in normal market conditions, and this is due to some specific factors that possibly could be very temporary.

The first, that I entered before, is related to Spain, the slowdown in the automotive sector that is quite important for us in Spain explains approximately EUR 1.3 million of the lower EBITDA. The automotive sector in Spain sooner or later will recover, but in the meantime, we already started to work on cost cutting.

However, keep in mind that we — that you are in a business where logistic efficiency is a key aspect. You have to work on the fine-tuning and not with [access] — and we do not want to have additional risk as strikes at our failing workforce as a competitor experienced last month when he tried to restructure too quickly and without any positive results, its Spanish subsidiaries.

The second factor that affect our EBITDA was a rating institution mentioned on the conference call in September, and it is related to the bad weather in last May. In that month, we sold 2.5 million, but less than the same period of 2018. That imply another lack of margins of around EUR 0.5 million. In this, it is true that we also have — we also very hot week in July and August, but this month, universities and many corporates are closed, and you cannot compensate what you lose in May and June.

Finally, enter the factor the overall decrease in volume in Italy of 1.3% at like-for-like, the working days basis, although it should be split in between the different areas segments, explain approximately another EUR 1 million of lower EBITDA. What I can say, without entering in too much detail, it is that the OCS segment volumes are suffering further more than the automatic vending machine segment.

In fact, this is probably due to the slowdown of advertising campaign by Nespresso, impact is a general effect of the consumption pieces. By the way, another EUR 0.5 million of lower EBITDA, more expressively, EUR 365,000, is the negative effect of the consolidation of the recent acquisition of the payment institution, Moneynet, from Nexi.

Moneynet is a part of a project within our Coinservice Division, the mainstream driver for the project is the integration between coins, vending machine network, apps and digital service payment. As we brought in Moneynet transaction, we received 3 tiers of cash offsets expected loss of the money for the next 3 years. Of course, we are confident to earn back numbers Moneynet in less than 3 years.

You’ll certainly agree with me that if our total EBITDA had the same account principle and the profits were EUR 3.5 million higher, our performance now on this interim report would be much different. But I think that is important to know precisely why we have this lower EBITDA and that, at least in part, this is due to contingent reasons. I will leave the CFO to comment on prices figures, especially of the mysteries arising from application with the new IFRS 17 definition.

I will give you just a few comments on our recent EUR 300 million bond issue. Those investors that knows IVS since a longer time, remember that we entered into debt capital market in 2015, with the first high-yield bond of EUR 200 million, 7-year duration, on contrary, at a fixed rate of 7.125%.

After 1 year, we made a start of additional EUR 50 million, issued over par at 106%. So with the highest maturity reduced to around 6%, on November 2015, we refinanced these notes, with the new issued bond of EUR 240 million, offered also for retail investors, 7-year on contrary at point — 4.5%.

And today, we have just redeemed that bond using the proceeds of the EUR 300 million bond issued at the beginning of the last month, with the maturity October 2026 at 3% fixed rate. We believe that this declining trend of interest cost, it is not due to the market — only to the market condition, but it’s also a good proof of the quality of our job and growth.

Probably we have also hit the right timing for the new issue. In 2018, and in the first part of 2019, we received many proposals from major banks, but we decide to wait for almost one year, looking for better market conditions. And at the right time on last September, when we saw the right windows opening on the debt market, we were ready with the competition. And finally, we were able to close the new bond offering in few hours, with a significant participation also from the retail investor that, by the way, means also lower CP.

In the past years, for all this transaction, we had to pay significant cost and also in the last part of this year, we will have some external transaction cost in our profit and loss for the last refinance. But in the coming years, we will have saving of interest rates corresponding to an increase of more than 10% of our profit. And with such longer duration of outstanding debt, I think we are now in a much stronger financial position than we were 6 years ago.

Above all, our position is probably much stronger than any other larger vending player in Europe, at least as it is possible to compare on the debt capital market and the banking sector. This is not only financial strength. It is a real strategic strength. It is a real — it is strategic because it means we will continue to grow compared to the rest of vending market. It is strategic because our negotiation position will be stronger with respect to any other of the potential partner or counterpart.

Again, it’s strategic because growth in better position will increase our opportunity and attractiveness for the coming changes in the vending sector and in the specialized distribution for the beverage that will be more digitalized and more integrated, with new skills for direct marketing on consumers — consumers also using their big data.

Now I pass the call to our CFO, Mr. Alessandro Moro, who can provide more details on the numbers.

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Alessandro Moro, IVS Group S.A. – CFO [3]

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Ladies and gentlemen, good afternoon. Alessandro Moro speaking, I will make a summary of the most important numbers of the first 9 months, that you can find also in the presentation that has been posted in the Investor Relations section of IVS Group website.

As you have probably seen from the presentation, we have given all the details necessary to explain the differences arising from the application of IFRS 16 new rules. And if required, I will answer to all questions also on this aspect.

Well, starting from the volumes. The total number of vends was 646 million, with an increase of 4.3% compared to 619 million of the first 9 months of 2018. In the first half, the total increase of vends was 3.7%. So there is a little improvement, despite the overall market weakness, as Antonio Tartaro stated before. The consolidated revenues amount leased to EUR 342 million, a growth of 6.6% from around EUR 321 million in 2018.

Again, as in the first half, the total revenue growth was 6.1%. There is roughly the same improvement that we have seen in the volumes. In more detail, revenues in the core vending business, calculated like-for-like and at par working days, grew by 0.7% in Italy and 0.1% in France. This increase is actually a little bit higher in the automatic vending machine, as in the OCS segment, we had a higher decrease, both in volumes and sales.

Antonio Tartaro already gave a short comment of the weaker performance in OCS. In both these 2 markets, really, we see decrease of volumes at our client base that is compensated by the continuous acquisition of new clients. This means that we are increasing our market share also on an organic basis. The decrease of volumes at our client base is clearly the effect of reduced working hours, especially in the corporate sector.

In Switzerland, we have significantly reduced the downturn of volumes and sales that are down in 9 months, only by 1.5%. That decline was initially due to the loss of a single major client that accounted a lot on the Swiss branch. On the other side, the volume sense is that we lost and we’re not so profitable. And in fact, the EBITDA in Switzerland has increased, despite the lower sales.

The total numbers of sales and EBITDA are not very significant for the time being, considering the small size of our Swiss business, but they confirm that the strategy is the right one, and this market, with much higher prices, is attractive. As we stated in the conference in September, the biggest decrease was in Spain. In the Spanish market, the like-for-like sales decrease was 6% and just a little bit — just a little bit better, minus 5.2%, considering also half our working days.

Since the beginning of the year, the big carbon factories that we have has lost a client, like the Renault, Selecta, Volkswagen, Mercedes, had a strong lease capital production, and consequently, there were much lower work hours in those factories. It may be that we are starting to see some small recovery, but it is too early to say.

And in the meantime, other clients and the small price increase that we were in this case, able to apply, did not compensate lower volumes overall. Also in the quarter, we had an acquisition rate of new clients, either by approximately 0.5%, than the churn rate and as I said before, the acquisition of new clients, partly compensated the volumes lost at a stable client base.

Leverage price per vend increased by around 1.1%, which is not bad in weak market conditions, and confirm our capacity to increase average prices, thanks to the constant work made on the product mix and services client. The acquisition completed during the first 9 months were 9, with an enterprise value of approximately EUR 38 million, and contributed to annual sales of around EUR 13 million on a pro rata basis.

The most important acquisition is in the new subsidiary in the Liguria region named (inaudible), which is consolidated since March. Finally, we have a significant growth in Coinservice Division of around 18%, both in the main metal coin business, which represents 75% of the business unit space, and which grew by around 7%, and in the new digital money business carry out by the subsidiary, Venpay, which grew by more than 50%. In the past year, this new activity generated losses and operating levels. Now it is giving a small, but positive contribution.

Now I start to comment on margin, where IFRS 16 changes has an impact. Including IFRS 16, adjusted EBITDA was equal to EUR 79.1 million. It was EUR 55 million in June, so there is an increase of EUR 24 million. Net of IFRS changes, adjusted EBITDA is EUR 70.7 million. It was just slightly below EUR 50 million in June, with an increase in the third quarter of EUR 21 million. In percentage increase with respect to the previous year is at 0.9%. The reported net profit is equal to EUR 15.7 million, including the IFRS 16 effects and EUR 16.6 million, excluding.

The decrease expected to the previous year is 15.8%. The adjusted net profit with the IFRS 16 effect was to EUR 17.7 million and EUR 18.5 million, excluding IFRS 16, with a decrease of 11.4% compared to the previous year. With reference to net financial position, including IFRS 16 effects, it is equal to EUR 385 million or EUR 325 million, excluding. It increased, compared to the first of January 2019, by around EUR 37 million.

In front of this increase, we had in the first 9 months, more than EUR 70 million of investments, EUR 39 million are related CapEx, including OpEx made of the new acquisition and the EUR 31 million are related to acquisitions, including both the price paid and the debts of the company, while without such level of investment, net debt will be significantly reduced.

So we continue to have a strong cash flow generation from the operating business. It is true that more or less, we invest in M&A and CapEx, a total amount, which is about equal to EBITDA of the period. But these investments are the factor on which our growth and our capacity to increase services and prices are based on the long term. In the third quarter, we had also different, and in some way, part use of cash due to the increase in working capital.

In part, [per] is due to the recovery of payment of around EUR 10 million to trade creditors that should have been made at the end of the second quarter, but it ended on Sunday, and so they were paid in the third quarter.

And again, other payments related to the acquired companies of EUR 4 million and an increase of other credits and inventories for EUR 5 million, which include the VAT credit increase in the total quarter of EUR 2 million. By the way, the total amount of VAT credit is now EUR 20 million, with an increase of over EUR 6 million from the end of 2018.

Other extra cash out. Other extra cash outs, which are specific for the third quarter, although not related to working capital, are income taxes of around EUR 4 million and the extra amount of salary paid in August of EUR 5 million. And of course, in July, we paid more than 11 million of dividend. The working capital growth of the third quarter and its underlying dynamics are expected to normalize by the year-end.

Finally, in the last quarter, we already know that we have the cost for the financing a new issue of the bond, there will be a cost of EUR 5 million, which is in part and on cash for the expenses provision on the old bond that has been redeemed. And in part, this cash has it — the premium fee for the early redemptions. And we will have the payment of all the transaction costs and fees of the new issue, which are, however, split in the P&L along the 7-year duration of new loans.

In the context of the financing of the bond, we have also renegotiated and extended the availability of the undrawn bank loan facilities, the acquisition tranche, which is part of the EUR 150 million loan signed the last year with [cabilla dance] headed by BNP Paribas. The whole scheme cost, including the commitment fees, is pretty good and lower than the cost of the bond. On this, we have a negative market-to-market, which is included in the IFRS 16 net debt.

Now we are available for your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Matteo Bonizzoni of Kepler Cheuvreux.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division – Equity Research Analyst [2]

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I have several questions. The first one is related to the net debt trend. So we have seen this quite significant increase of the debt in Q3, we understand that part, at least part of it should reverse in the fourth quarter. The increase was clearly driven mostly by these decline of the payables. So can you provide at the end, a reasonable range for net debt, including IFRS 16, at the end of the year.

Second question is on the cash out for the M&A, that we need to calculate the equity free cash flow also, no. So if I look at Slide 20, I see an enterprise value of EUR 37 million. You mentioned EUR 31 million, and then if I go to the slide of the free cash flow that is 25, I see acquisition, net of cash of EUR 19 million. So my question is, what was the impact on the net financial position coming from the acquisition in the 9 months.

Then another question is on the organic growth of revenues, there was a clear deterioration, okay, in Q3 because you were at plus 0.9% in the first half and like, actually, that Q3 alone was, in terms of revenues, like-for-like at constant working day minus 2.4%.

I would like to ask about France because putting the figure in the model, work strikes, okay, Spain deteriorated a couple of percentage points in like-for-like terms at constant working days from minus 4% to some minus 6%, but that France went from plus 1.8% in the first half to minus 3.8% in the third quarter. I don’t know if the calculation is correct. And so why is that?

And then on Moneynet, just if you can remind us your plan and target as regards the recovery of the profitability. And the last question is on the tax rate because last year, the tax rate, if I’m right, was 23.8%. In the first half of this year — sorry, in the 9 months of this year, it was higher because it was 25.2%. What is the indication for a tax rate this year and, if possible, also in 2020?

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Alessandro Moro, IVS Group S.A. – CFO [3]

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This is Alessandro. About the net financial position, as I said, the effects of working capital growth that we have seen in the third quarter are expected to normalize by the year-end. And probably we are speaking about EUR 10 million or around this number of positive effect of working capital reaction.

And so I think that at the end of the year, the net financial position will be stable with the figures of the third quarter because you have to consider the cash out connected to the bond refinancing, like [co] price and the payment of the transaction costs of the new bond.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division – Equity Research Analyst [4]

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Then impact on the net financial position that in the 9 months came from the acquisition because I found several figures in the presentation and your statement that is EUR 31 million, so…

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [5]

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Probably there is a misunderstanding because the EUR 37 million of acquisition, the enterprise value, is what we have negotiated and closed in the period, but there is a different figure from what we have paid that is related to the past acquisition and part of the payments of the acquisition that we have completed in the period.

There are 2 different parameters of reference. M&A, the enterprise value, is the acquisition that we have done. And the other, which is lower, is what we have really paid, including both price and the debt of staff, basically. Yes, there were some financial debt included in the subsidiary acquired that we are paying now.

And so included in the net financial position of the third quarter, there is around EUR 11 million financial debt arising from the new subsidiaries paid at the end of the quarter for around EUR 2 million, and so the impact is this.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division – Equity Research Analyst [6]

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So it’s EUR 31 million. The figure at the end of the day, is EUR 31 million that you mentioned, no? The impact on the net financial position is right? Correct?

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [7]

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And total payments and debt is yes, EUR 31 million.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division – Equity Research Analyst [8]

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Okay. So just a follow-up on the net financial position, because if I add EUR 31 million of cash out [at least] from the M&A, EUR 11.3 million for the dividends and EUR 60 million of IFRS 16 to the net debt of the end of 2018, that was EUR 285 million, I get to EUR 387 million, okay?

So assuming that you don’t generate any cash equity free cash flow, you should get, according to this calculation, a EUR 387 million. So you’re telling me that at the end of the year, that would be around that. So basically, 0 equity free cash flow.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [9]

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If we will be able to manage the net working capital should be less — it depends from the strategy in terms of opportunity concerning the purchase of goods at the end of the year. You materially have to consider also that our suppliers are suffering a big diminution in value because they — and the volumes — because they are into the crisis from all the channels to that they sell.

So they are pushing around and pressing us to try to assume extra cash discount and other opportunity within the next of the year. However, as you can imagine, we are focused also on cash and M&A generate cash and net financial position with a particular attention.

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Alessandro Moro, IVS Group S.A. – CFO [10]

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And sorry, I add that you have to consider also that before the end of the year, probably, we will have made some advanced payments for the CapEx of the Paris Metro tender and so, and if — the payments and the CapEx will be effective in 2020, some advanced payments will occur by the end of the year.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [11]

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Of course, we are beginning to buy the hardware for Metro Paris, so we will be — this is the beginning of this terminal machines at Metro Paris has to do now at 16 of January. So all the hardware will be delivered during the month of December to our premises in Paris and we have to create something at the delivering of the good. However, we will manage CapEx and working capital in proper way to try to avoid increasing net financial position, trying to diminution that position.

Concerning the volumes, however, we have to make general discussions, after I will go through the frac for your question. In general discussion, the volumes are affected by 2 factors, crisis. As I told during the last meetings in the conference, we see a lot of company, especially in the North and center of Italy, using cash integration and Holiday permissions and all the tools they have to reduce the impact and presence of workforce inside the factories.

We see a lot of big companies that are making this type of policy on Monday and Friday of each week. However, the phenomena seems to be stable. What is now entering is the impact of immediate effect of the plastic. For example, in the area of Milano, where the plastic phenomenon affected in the larger part of the north of Italy, we have no impact on France. We have no impact in Spain, because in these 2 countries, the plastic it is — was managed during the past year, and they are not so crazy, like in Italy is occurring now.

In — what is occurring, it’s occurring that the immediate effect cause diminishing of using or processing of the backlog water. If you compare the diminishing due to the crisis of the mix, it is almost around 4%. The diminishing of your backlog water and other PAT packaging beverage, it is slightly less 10%.

So it means that you have 6% of diminishes on volumes of beverage contained in plastic and PAT packaging, closer to the — on the pressure of plastic-free and immediate pressure. That is some crazy because PAT and plastic, it is the best solution to manage that type of beverage.

Even because when we would be required from the client to change the plastic bottle with some other campaigns of other tools that referred to the normal supply water provided by the city on [source fee] — in water analysis, we find that the 27% of that, in that case, where the deep water, it is not drinkable.

So it is important to fix this, and there is no other solution. As cabotage likes using aluminum or glass to change PAT, it is crazy, because they have a more environment footprint impact in terms of pollution. PAT is a fuel in second block.

It means that we believe that in the medium period, this phenomenon will be reassorted. We are also see some big companies that started from plastic-free since the beginning of the campaign launched by Sky, the television. Now they are running back on their footprint because they understand that our other solution is obviously more effective and it makes no sense.

Even because using the — the use of private plastics, like the racks or other tools include an increasing, a dramatic increase in terms of water consumption. However, when you see an adverse turn on volumes, a part of that is related from this phenomena that is affecting in the northern part of Italy.

In the South of Italy, there is not a cost about plastic-free because the water is, in general, not drinkable. So the only solution they have is to use the plastic bottles and nobody ask us anything about the — to remove bottle — plastic bottle from vending machines.

Going to the France, the point is that we — during the last same period over the last year, we acquired some big clients that simply change the equity room between volumes and average sales price spread out South Trier and other public installation of [Ilvorna] and other public installation.

So the changes that you see is the effect of consolidation of the change of mix of type of clients in during the period should be normalized in the current or last quarter of 2019. At the end, the tax rate, Alessandro?

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Alessandro Moro, IVS Group S.A. – CFO [12]

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Probably, we think that the tax rate trend in 2020 is stable in the facility — the diminution. Yes…

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [13]

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Diminution, you say is related also to [iperammortamento]. [super iperammortamento] from Italian subsidiary.

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Alessandro Moro, IVS Group S.A. – CFO [14]

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Probably around 25% of tax rate we expected.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [15]

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Because I think that you — of course, more and more, we invest, and more and more, there is an effectiveness as the [iperammortamento] tax holidays, even if these holidays amount to the 2017, it is more effectiveness for us, and we will receive a tax relief. But you should expect a 25%, 25.4%.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division – Equity Research Analyst [16]

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Okay. There is the last question left on Moneynet regards breakeven and profitability expected next year in France.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [17]

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As we wrote, we receive the Moneynet with positive cash. You see, I think, that you picked the amount because you see diminishing in terms of amount paid from EUR 22 million, so EUR 19 million in the reports for acquisitions, and that it is not that we connected net cash-back from some sale of branches, but it is related to money that we find more cash than the price could be inside the company than compared to the price we pay.

So it means that we have the finance ambition to cover the next 3 years of losses on Moneynet because Moneynet, during next managing period, because of losing money, more or less EUR 1 million per year. I think we can reduce this loss quickly, slightly more than double to in 2020.

And I also to be in breakeven and positive within 2021. However, this is our expectation at this when we follow the acquisition, we are working to improve this the expected performance.

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Operator [18]

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The next question is from Alessandro Cecchini of Equita.

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Alessandro Cecchini, Equita SIM S.p.A., Research Division – Analyst [19]

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The first one is about your best guess for CapEx for this year? What are your expectations? Cash CapEx for this year? And if you confirm your target of flat EBITDA, flattish EBITDA for this year, excluding IFRS 16. And then my second question is about your new clients, your new contracts.

So if you can provide us more color on the new contracts that you are acquiring, just to better understand what is your positioning versus other competitors in order to better understand the acquisition rate. And when we are talking about churn rate, we would like — I would like to better understand what are the main reasons why you probably lose or not clients.

And finally, if I am not wrong in the third quarter, excluding, of course IFRS 16 impact, positioning fees increased by 8% versus double-digit in the first half, so I would like to better understand your view on the positioning fee and so on.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [20]

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The 8% did you calculate is an overall amount, not on like-for-like basis, correct?

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Alessandro Cecchini, Equita SIM S.p.A., Research Division – Analyst [21]

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Yes, I have the — it’s the reported number that excluded the IFRS 16?

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [22]

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Yes, okay, of course. But it is including the SDA 2000 and the other branches we acquired that have some clients with high positioning fees. So the trend should be normalized also for, Alessandro. Needless to say that if you see slide on Page 19, you will find the amount coming from the acquired branches.

However, as I told you, I have no changes in terms of pressure. So I don’t see changes in terms of pressures from positioning fees. Even as — that [jane sales] seems to be quite in this period, fortunately. So the point is that we increased the price and so to offset the positioning fees.

We have planned to lose some clients in Rome area, and we need not lose them and so we have increasing the positioning fees. But, of course, also in terms of sales and volumes. Concerning the CapEx, I will expect to have a normal — element in terms of CapEx, it means that I will never — having not EUR 14 million as the last quarter of 2018, but a normal level of EUR 12 million in this capital and EUR 12 million enough.

Of course, this amount will not include the Metro Paris installation and when we will acquire 1,500 machines and more related some other minor investment related to the containing factors of some of the machines.

However, in the next conference call or when we start to install the machines, we will give you to the market a sharper disclosure of the expected investments, also because this is related to the video that we will be able to install — a modem that we will be able to install inside the premises that we are negotiating with rapid pay during this period.

Other questions. Yes, what about the flat EBITDA. To be — in this quarter, we have not considering money. We have one way or more. So I hope that the EBITDA will come flat. We will increase, it will be increasing. The slight increase, but increase.

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Alessandro Cecchini, Equita SIM S.p.A., Research Division – Analyst [23]

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So far — sorry, if I understood it correct, so you are still targeting a slight increase in EBITDA for the year?

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [24]

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Yes.

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Alessandro Cecchini, Equita SIM S.p.A., Research Division – Analyst [25]

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Okay. And basically, about CapEx, basically, if my calculation are right, basically, you are targeting to achieve EUR 50 million of CapEx for this year, if I am not wrong.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [26]

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More or less.

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Alessandro Cecchini, Equita SIM S.p.A., Research Division – Analyst [27]

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Okay.

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Alessandro Moro, IVS Group S.A. – CFO [28]

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Alessandro taking into account that in the last quarter of 2019, in Italy, we registered one working day less than last year, so taking into account also this factor.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [29]

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Concerning the evolution of clients, why we lose clients, why we acquire clients? We have acquired quite a large part of our clients from commercial guys as investing in clients and knocking doors. 1/3 is limited to the tenders. But 2/3 is a private company and private office, we think continues to buy our commercial guys.

Mind that IVS is the only company that has is so much from hunters on the field in Italy and France and now the same project is beginning to be effective in Spain. We have 15 people who are knocking door to door, region to region, because we have the opportunity to [distribute] our machines that I remember to you that we have an exclusive and so the features of the machines allow these guys to gain contracts. We lose contracts because we lose a lot — we didn’t lose larger pipeline related to tender, where we choose to not win at all cost of that tender.

And the other part, unfortunately, is related to the point, especially in last year, that when the client close, simply small a small office, simply disappear from the market. That are the main phenomena that justify the losing of clients.

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Alessandro Cecchini, Equita SIM S.p.A., Research Division – Analyst [30]

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Okay. And back to positioning fee, can you provide me the like-for-like trend of the positioning fees for the 9 months. So excluding, of course, new clients. So excluding IFRS 16. So just to have a clean number.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [31]

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I have to calculate — I have not — also because it is stable because the 99% of the contract in terms of positioning fee is flat, is an amount per machine or amount per contract. So there is no evolution upon — is expected upon a stable base of contracts.

The evolution today is only related to the 3 or 4 contracts that we have in terms of variable, like NPD or other efforts, but the thing is not so significant to justify the increasing that you see. The other one is related to because we gained tender and the new amounts has really been our profit or loss. However, if you think that this is a significant information, we will give you the disclosure.

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Operator [32]

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Our next question is from Georgio Martorelli of Amber Capital.

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Georgio Martorelli, Amber Capital Italy SGR – Portfolio Manager [33]

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I have a couple of questions. The first one, once again, on the cash flow generation for the quarter. If I understood correctly, you’re guiding for a flat net financial position relative to the — what we recorded in 9 months. But at the same time, you are guiding for EUR 10 million of net working capital release in the last 3 months.

And if your guidance is correct, this will mean that not only we will burn everything we are generating in terms of operating cash flow during the last quarter, assuming EUR 23 million of EBITDA is rough operating cash flow, but also we will burn the impact — positive impact of working capital release.

So I want to know if you can help us to understand why such a large cash absorption, if we start from a gross cash flow generation, including working capital release, we really should be north of EUR 30 million. I understand the cost of debt refinancing. I understand the CapEx. But as far as I know, the last quarter 2019 shouldn’t have any fiscal outflows in terms of taxes, and you are guiding for EUR 12 million of CapEx. So if this guidance is conservative, and we could assume some cash flow positive generation in the quarter or not?

Second question is on the additional EBITDA contribution from acquired business and new contracts in 2020. We are in a difficult market in terms of organic growth, but I wanted to know what’s your expectation in terms of new contracts — and synergies from the acquired business in 2019 and 2018.

And finally, M&A. You announced EUR 2 million of new M&A coming in at the end of the year, if anything else is coming. And linked to this point, if you see, given the very weak operating environment, if you are seeing acceleration in the coming months of M&A or there are talks, you can share with us a feeling about possible interesting opportunities in external growth in Italy, which regions and what could be the size of this deal, if we’re talking still about small deals or more relevantly, it could come to the market.

And finally, second, on the Antitrust, if there is any update regarding Antitrust and possible cash incoming from renegotiation with the Antitrust authority.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [34]

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Okay. I’ll start from the last question. We have a meeting with Antitrust guys on 22 of this month. They’re beginning to further press us to review the fees because the second level quarter — second degree quarter effect — so was appeal.

And so, they have to recalculate to the fine. I expect a reduction of this fine in the fork between EUR 3 million and EUR 8 million. It depends from how they will accept to reverse the sentence of the second degree administrative cost. Alex? Concerning…

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Alessandro Moro, IVS Group S.A. – CFO [35]

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So about the question of the contribution of M&A on the next year, as you’ve seen in Slide 21 of M&A, the contribution of the acquisition of the 2019 on the third quarter is around EUR 30 million and generating approximately EUR 3 million of EBITDA.

And so probably the next year, the impact will be major because the contribution of the M&A this year is pro rata 10%. So the contribution is proportionally of this acquisition of this year, excluding the M&A — potential M&A of the fourth quarter of this year.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [36]

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Concerning the talking with some sellers, as you know, we are always in a lot of discussion opening. We’re aware, we expect to finalize one within the medium — in the south of Italy in the end of this year, hopefully.

And we are adjusting also Spain and France in terms of medium. I do not expect to have one big in the short term, but it is possible that some medium league company in Italy and France and also Spain, or in Italy, relating to the prices and the impact of plastic tax, tax-free and other phenomenon, can press them to convince them to sell. In France, we observed a consolidation of the market and also in Spain. So we will take the opportunity to participate in some tender that are expectedly in the last part of the next year. More of the other questions?

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Georgio Martorelli, Amber Capital Italy SGR – Portfolio Manager [37]

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The question was on the cash flow generated in the fourth quarter.

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Alessandro Moro, IVS Group S.A. – CFO [38]

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About the cash generating, as I said before, I think that the net financial position at the end of the year will be stable with the figures of the third quarter and so around EUR 380 million.

I think due to also the cash generation of the fourth quarter, obviously, around EUR 22 million, I think, and so with the other cash out, mentioned before, related to the full price and the other transaction costs and also the payment of the tax at the end of the November, around EUR 4 million. I think that the estimate of the net financial position is a stable trend.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [39]

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Stable or something lesser. They are probably — it depends from an CCN.

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Georgio Martorelli, Amber Capital Italy SGR – Portfolio Manager [40]

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Sorry, I didn’t understand.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [41]

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Could you repeat, Georgio, because we didn’t know.

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Georgio Martorelli, Amber Capital Italy SGR – Portfolio Manager [42]

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No. I didn’t understand the last point you were saying, Antonio, so you are expecting the…

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [43]

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If we will be able to improve CCN, it will be less than EUR 380 million.

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Operator [44]

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(Operator Instructions) Mr. Tartaro, there are no more questions registered at this time.

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Antonio Tartaro, IVS Group S.A. – Co-CEO & Executive Director [45]

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Okay. Thank you to everybody. I will be happy to hear you again during the next conference call for the presentation of the full year’s report. Thank you. Have a nice weekend.

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Operator [46]

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Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.