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Edited Transcript of CDR.MC earnings conference call or presentation 14-Nov-19 3:00pm GMT

Q3 2019 Codere SA Earnings Call

Madrid Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Codere SA earnings conference call or presentation Thursday, November 14, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angel Corzo Uceda

Codere, S.A. - CFO

* Vicente Gabriel Di Loreto

Codere, S.A. - CEO

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Conference Call Participants

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* Javier Orduna Eugui;Azvalor Asset Management;Analyst

* Mehmet Dere

UniCredit Research - Credit Analyst

* Nick MacDonald

BofA Merrill Lynch, Research Division - VP and Senior Analyst

* Ronan Bernard Clarke

Deutsche Bank AG, Research Division - Research Analyst

* Victoria Elaine Pease

Edison Investment Research Limited - Analyst

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Presentation

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Operator [1]

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

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

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Good afternoon, everyone, and thank you for joining us today for our Q3 2019 financial results presentation. As usual, our CEO, Vicente Di Loreto, will cover the most relevant events of the quarter. After his remarks, I will cover the financial highlights of the period, and then we will both take your questions. Vicente?

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

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Okay. Thanks, Angel. Good afternoon, everyone, and thank you for joining us today. In this conference call, we have many topics and events to cover so I will try to focus on just the most relevant ones. First, let me start by thanking you for your patience over the last few weeks since we announced the accounting inconsistencies on October 7. As CEO of the company, I want to apologize for this unfortunate event and assure you that we are working doubly hard to recover the confidence of the investment community, in the team and in the company.

We have been working at full steam on several fronts. First, we made sure that we can deliver accurate information, supported by both our internal departments and independent forensic analysts about the performance of the company as of today. Second, we are taking proper disciplinary measures, and we are reinforcing the organization and improving our control systems and precautions to prevent these type of incidents from happening again.

At the same time, we are revisiting the operations in the 3 affected markets, an effort in which I am heavily involved, to reinforce our competitive edge and turn around profitability trends as we did when we came on board at the beginning of last year. The accounting issue has been taken very seriously at all levels of the company, starting by our Board of Directors. Under their leadership, the company appointed 2 independent firms: Alvarez & Marsal and Kroy to perform a completely independent investigation of the events that took place. The results of this analysis have confirmed our initial findings and figures with a total adjusted EBITDA overestimation of EUR 16.5 million in the first half of the year. The issue affected 1.5% of our consolidated revenues and 1.1% of our expenses and was isolated to mainly Mexico, and to a lesser extent, Colombia and Panama.

As you probably remember, these 3 markets share a common retail manager and controller in recent years. It is also worth mentioning that in those subsidiaries, we are facing higher competition, recessionary economic trends and/or contracting gaming markets. To ensure that the accounting inconsistencies have been isolated to those markets until 2019, our financial and internal audit teams, in coordination with our external auditors, have also analyzed reported results in other markets and periods, including 2018, giving us sufficient comfort that no other geography or time period was affected.

Finally and again, to regenerate the utmost certainty on our numbers, EY is also performing a limited review on our year-to-date through Q3 numbers, which will be concluded in approximately 3 weeks. With the support of the investigation, we have confirmed the causes and the means, which is helping us take decisive action. Rest assured, we have taken all measures to get to the bottom of this situation and to solve it.

I can now announce that we have given the responsibility of our retail operations to 2 professionals that have been working mostly with me for 15 years in the industry, for whom I have the greatest respect and confidence. First, (inaudible), in charge of the LatAm operations, is already fully involved in reigniting our operations in the 3 affected markets and working on a plan to enhance performance, involving many valuable members of our team in Codere. Second, [Alejandro Reno] is focused on continuing the implementation of the action plan we have [this fine] for the Spanish operations, which is already producing the positive trend we are seeing in that market.

I will be spending much of my time supporting them and helping them redefine the approach market-by-market. In addition, this week, we appointed a new CFO for Panama and Colombia, and the financial team in Mexico is being led by the corporate finance team while we look for a suitable candidate for the CFO position in Mexico.

But our decisions are not limited to critical managerial positions. We are also fine-tuning our organizational structure, strengthening our country managers' role who will now have direct oversight responsibilities and control functions, especially the financial one. And we are accelerating the centralization of key financials in finance and interaction of shared services centers to strengthen centralized controls while gaining efficiencies.

We are also defining, with the help of our CTO, a plan to reinforce not only automatic controls and alerts but also reduce human intervention on operational, accounting and administrative procedures. Finally, we are investing in our legal and compliance departments and reinforcing our internal communication and formation plans regarding our [EBITDA] Commitments.

Lastly on this point, it certainly takes years to change the culture of a company like Codere, and sometimes, unfortunate events are part of the profound processes of transformation like the one we have undertaken since I took over. This has definitely been a disruption in our plans, but I think it has been a bump in the road, and that we will resume our transformation goals on growth path.

Now I will move to the headlines on the business evolution of the group and our plans for the near future. Starting with Mexico, where the underlying performance is worse than we expected for this year. Revenue started the year at par with 2018 to take a significant hit in May and June and then started to slowly close the gap in recent months. This unsatisfactory revenue evolution has been a result of the country technically entering into recession, meaning 2 consecutive quarters of slightly negative growth, has also had to do with the increasing security issues at the same time, that the change of the government last year opened the door to many whole -- new whole openings, that have increased the impact of competition on our venues.

Unfortunately, as I explained before, at the time of the last -- of our last conference with investors, we felt really excited that we were doing so well in such a complex environment, but then we learned that there were -- that we were not seeing the real picture. We are now finding that -- are finding out that some responses from the prior retail management were not adequate for such a big business environment. I am working closely with Alberto to regard this situation, and we have found avenues of improvement that will start to generate positive impact in the next month. As Angel will explain later, the market has been through similar phases in the past, and we are confident our figures will rebound and that there will be additional opportunities to grow profitably in the market.

We continue to be market leaders with a sizable operation and significant competitive advantage. Also, we have a strong balance sheet with very limited financial debt and a healthy cash generation profile for the country. Some analysts are already forecasting an economic recovery, and as the market capacity stabilizes, given the commitment of the [Obrador] government to contain the gaming offer, we do expect our figures to rebound in 2020. And as we have said in the past, we still expect that some of the new holes opened by our competitors will struggle to reach profitability, and there will be opportunities for us to continue consolidating the market.

Moving on to Argentina. The elections held a couple of weeks ago confirmed the results from the primaries in August. Alberto Fernández is the elected President of Argentina, and Mr. Axel Kicillof is the new governor of the province of Buenos Aires, where we operate. Still, the margin of their victory was not as strong as expected, and the Peronist party will not have the majority in the parliament, which means that they may need to gather opposition support for their policies, which we expect will bring a more moderate and pragmatic approach to our management of economy.

Meanwhile, following the elections, the Central Bank imposed a new run of capital control for individuals, part of restricting the prior USD 10,000 limit on dollar purchases per person a month to just USD 200 and limiting credit card transactions. But these new measures only affect individuals, not cooperations, so it doesn't affect us. In fact, we have repatriated cash in the last couple of months.

On the positive side, the 3% cash-out tax on players effective since February this year was deemed illegal by a court and has been temporarily suspended, so we will have a positive impact on the EBITDA of around EUR 1.5 million in the fourth quarter of this year. In addition to this, revenue recovering continuous -- recovery continues to gain ground, and the growth in financial to inflation has been cut by more than half. We maintained a stable market share in the industry. All in all, I think that given all the described events, we are being able to sustain a reasonable performance and cash generation in Argentina.

Very briefly on the other markets. I will -- beginning with Spain, which continues to perform strongly and adjusted EBITDA year-to-date is nearly EUR 29 million, 23% higher than in the first 9 months of 2018. This has been achieved, thanks to the maturity of the investments of previous years, the optimization of our capacity deployment and our revised organizational model, along with a comprehensive plan of improvement initiatives.

In Italy, while performance is relatively resilient considering the tough comparable last year, if we take into account the increased taxes for 2019, there are already indications from the government that the potential new round of prior increases might come next year. In Uruguay, the ongoing arbitration in Carrasco with our former partner came to an end and in October, with a ruling against us. The tribunal considered that some clauses in the shareholders' agreement were breached when the company diluted our local partner to avoid technical insolvency in Carrasco Nobile. As such, we will be responsible for the legal cost, so a nonrecurring expense of EUR 0.7 million was booked in the third quarter. This does not affect the operational performance of Carrasco, which is still steadily improving, or HRU, which continues to perform positively this year, nor any of the ongoing strategic alternatives we are analyzing for the market.

Last but not least, our online efforts continue on track, navigating above breakeven, reaching our growth and spending adequate amounts to continue fostering growth, mainly in Mexico. With all of these developments, we expect to end the year around the EUR 250 million to EUR 255 million mark of adjusted EBITDA. This is a number that does not make us happy though we have it -- to bear in mind all the headwinds we have confronted in the last years. Only the Argentina situation, and in this case, I'm referring to the macroeconomic evolution and the new taxes in that country, they will have cost us around EUR 65 million in EBITDA by the end of the year or almost 1/4 of our consolidated EBITDA back in 2017.

And still, we will have sufficient muscle and opportunities to grow again from early 2020 as some of our market conditions become more stable. The management team is currently working hard on some of -- on some interesting projects and on an ambitious action plan and budget for next year, which we'll be commenting in detail in our investors call of February.

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

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

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Thanks, Vicente. Before I go through the presentation, let me add also a couple of notes. First, as Vicente said, we deeply regret what has happened. Since the moment of our internal controls here in Madrid detected the issue, we have been fully dedicated to making sure we gave all for the stakeholders the right understanding of the numbers and what happened. We have also provided full support to the different deals, internal and external, investigating the issues of how they occurred. At the same time, we intervened the affected functions to gain full control of accounting, purchasing and treasury in the regions affected.

While the report from Kroy and Alvarez & Marsal has been completed, we are helping EY perform the limited review for the third quarter, which as the annual accounts audit that will be performed on the 2019 financials, we'll have a specific mandatory test and checks to ensure data integrity and completeness. Finally, we are already on enhancing control mechanisms while finalizing a comprehensive plan to improve and automate controls, accelerate our plan to centralized accounting, which is already in progress, and reinforce data integrity throughout the group.

Now as usual, I will be following the presentation that we served with investors earlier this morning. Unless otherwise noted, we will be referring to figures in euros and excluding nonrecurring items above EBITDA. We will also be excluding inflation adjustments due to the application of IAS 29 on Argentina's reported figure and continue to analyze the figures pre-application of IFRS 16.

Though the results applied in the new accounting standards are provided in the earnings release, please also remember that in 2019, we have created a new online business unit that pulls together revenue on costs from the online business in all markets where it operates: Spain, Mexico, Colombia and Panama, as explained in prior calls. Finally, reported figures for Q1 and Q2 2019, both quarter and LTM, will vary from prior presentations as they have been amended to correct the inconsistencies described on the next slide, for Mexico, Colombia and Panama. Cash flow metrics have been also adjusted accordingly, mainly impacting working capital as you will notice on Slide 30 later on.

So we're starting on Page 5. I would like to provide further detail on the accounting inconsistencies. They were primarily the result of revenues being overstated in Mexico through the modification of the data transfers from the casino operational systems to SAP to increase revenue, and then use the output provisions to reconcile cash. In Colombia, it was achieved by inflating the provisions for the uncollected machines in the route business for the last days of the month.

From the cost side, the procedure was to underestimate monthly accrual provisions for cost that are incurred over a period of time. The individual symbol delayed full recognition of expenses by accruing inappropriately certain increase over a number of months, so the impact in the P&L diminished in the actuals and moved forward to future periods. The issue, as you can see on the table, affects only the specified geographies more in the second quarter than in the first one.

In terms of cash flow, as there is no inappropriate cash appropriation, the EBITDA overstatement in first half 2019 was compensated by a larger working capital outflow, so the net effect on cash generation was low. Based on these findings, and as I said before, with the help from Alvarez & Marsal and other advisers, we are enhancing our internal controls on local and corporate levels, having additional automation [levers] to our operational accounting systems and to our internal controls reporting. Finally, we are accelerating the process to migrate certain accounting and financial functions to a shared service center. The objective is not only to minimize the chances of a similar issue happening in the future but to ensure that the means are in place to eventually flag them immediately.

Moving on to Page 7. I'm focusing now on the performance of the company. Q3 revenues dropped by 4% to EUR 343 million, driven by the significant decline in Argentina because of the devaluation of the peso. Now Argentina represents 23% of our revenue. Mexico also declined 6% versus 2018, contributing to the decrease, even if it's (inaudible) and our mix continues to grow. On an LTM basis, Argentina decreased its share in our revenues by 7 percentage points to 23%. As we stated in earlier calls, the quarter-on-quarter decrease continues to soften but we adjust to get back to growth.

In terms of adjusted EBITDA on Page 8. It decreased 11% to EUR 63 million, similarly affected by Argentina and Mexico but also by Italy, following the gaming tax increases this year. Growth in Spain and online, together with lower corporate costs, helped to partially compensate this decline. Our business mix continues to be more diversified, with our 3 main markets representing 75% of our LTM EBITDA versus 80% last year. Argentina is now around 1/4 of the adjusted EBITDA of the company.

Skipping Page 9, which provides financial in dollars for reference purposes. On Slide 10, we wanted to illustrate the evolution of our consolidated EBITDA against the many headwinds we have faced over the last 3 years. Comparing against our position prior to the 2015 (inaudible). We have bridged the performance, dividing it into several steps. First, the impact of real effects. This is devaluation or appreciation versus inflation, mainly in Argentina and Mexico. Second, we recognize the gaming market contraction in Argentina. As a result, the economic environment in the country and the limits to capacity deployment by the exiting provincial government, i.e., the industry has been consistently growing below inflation in the period.

The next step covers the substantial impact from gaming tax increases over the period, mainly but not exclusive to Argentina and Italy. These negative effects have been compensated when more than EUR 80 million of EBITDA contribution through operational efficiencies and revenue growth. Even if when comparing both periods, we are fairly flat at adjusted EBITDA level, the set of EBITDA, which we see it, has improved remarkably as nonrecurring items are much lower in 2019 than in prior years.

I believe it is also worth mentioning that our EBITDA generation is more robust today as it is less dependent on Argentina. We have turned around or discontinued loss-making operations, and we have increased some attributable EBITDA by acquiring 100% of which are due and of our joint venture with Caliente in Mexico.

On Page 11, we provide further color on the evolution of revenues and adjusted EBITDA outside of Argentina, which have grown consistently since 2013, reducing the [sale] of Argentina and/or mix. This year, the trend is slowing down because of the weakness in Mexico, but we wanted to make sure we confirm the validity of the analysis with amended figures.

In terms of country-level results and starting with Mexico on Page 12. Revenues and adjusted EBITDA dropped by 6.5% and 20%, respectively, to EUR 76 million and EUR 20 million. As a result, margin retracts by 4.5 percentile points to 26%. Given the Mexican peso strength, these declines were lower in euro terms than in local currency, as you can see on Page 13. Revenue declines were driven by gross [move] reductions across all verticals, including slots, tables and sports betting, affected by the macro and security issues and by increasing competition as Vicente discussed earlier.

In terms of number of falls and despite the recent openings and acquisitions, we are still losing set of halls and have declined from 28% to 25% of halls in the country in recent years. To give a long-term context, on Page 14, you can see the evolution since 2004 of Codere halls compared to the wider market, both with halls in operations and available licenses. It is relevant to highlight how we have reached and maintained a leadership position in the market with a relatively stable number of halls despite the market multiplying by 3 over the period. It is also important to notice how this recent hall proliferation of permits and halls follows a similar pattern as what happened in 2016 and 2002 election cycles, with an initial increase in the number of halls opened, followed by a more stringent period until the next election cycle. Aligned with this, local authorities become more business-friendly in elections years than in other periods.

On the bottom chart, our revenue and EBITDA performance over the period saw steady growth, affected at times by industry events like tax increases, smoking bans or Monterrey. After each of these events, the company has been able to recover and continue growing EBITDA. We believe this chart reflects the resilience of the business and the capacity to rebound again in the future. As Vicente discussed earlier, we are putting all of our management energy in that effort and are already identifying avenues to achieve it.

On Page 15, turning in for a second on the evolution by quarter in 2018 and 2019. There are around 15 new halls in operation with respect to the beginning of last year. In the same period, we have 5 new halls, 2 acquisitions, 1 greenfield and 2 openings. In recent remarks by government officials, there is no intention to issue new licenses at the opening of halls, with existing permits is already slowing down as local permits and federal authorizations are becoming increasingly difficult. This could support our view, the competitive environment should normalize over the next couple of years with very limited hall opened, some possibly, some closings for small operators who never become profitable.

Moving on to Argentina on Page 16. Revenues dropped by 13% to EUR 81 million on the back of a 50% devaluation of the peso, which was not offset by local currency growth. It is the first quarter, however, since Q1 2017, where we have increased revenues on a sequential basis, which is remarkable, given the devaluation that happened in this quarter following the partial elections. In terms of adjusted EBITDA, it dropped 4% to EUR 20 million, due to the new tax and to revenues growing below inflation rates, but again, showing a sequential improvement for the second quarter in a row.

In local currency on Page 17, revenue grew by 33% on adjusted EBITDA by 31%. Revenue growth was entirely driven by increased unit yields as capacity remained constant. More importantly, on the bottom right chart, you can see how gross win growth started to close the gap with respect to inflation although it is still lagging around 20 percentile points.

On Page 18, some further color on FX and inflation evolution since last year. As you are aware, capital controls were implemented again in September following the presidential elections, when the government also started to restructure sovereign debt. Controls for individuals tightened further in October after the presidential election to prevent a further dollar set off. As in the past, a parallel FX market is developing in the country. Codere is still repatriating cash from the country, albeit supporting additional friction costs to assimilate the gap in the exchange rates.

In the bottom graph, we illustrate how bold the gaming industry and ourselves have been growing below inflation, resulting in a contraction of the sector in real terms. We are, however, maintaining market share and growing a bit above the industry in recent months.

Very quickly on Page 19. Over 95% of the planned cash distributions for Argentina this year are already in Madrid, up from 70% in the month of August. Looking at the long-term picture. We are now in a similar situation as in 2014 in terms of EBITDA generation and cash repatriation. Though it is difficult to ensure, we believe we are close to the low point in Argentina and that the change of trend can happen in 2020. Still, we all need the new government to take office before the end of the year and understand how the messages they are conveying today are going to translate into specific macroeconomic policies.

Before we move on to Spain, we had some positive developments in Argentina in late September, as the 3% cash-out tax on players that became effective in February was temporarily suspended by the provisional government, following a successful court injunction obtained by local individuals. We expect to benefit from this development, generating around MXN 30 million more of EBITDA per month or approximately EUR 1.5 million in Q4 this year.

Looking now at Spain on Page 20. Revenue decreased 2% to EUR 46 million. The high comparable last year with half of the World Cup in July made this post-betting evolution difficult. On the other hand, adjusted EBITDA was up 20% to EUR 10 million, resulting in a 3.8 percentage point increase in margin. This was driven by a more efficient operations in terms of personnel and rental expenses, reflecting reference to improved profitability and optimized capacity deployment of both our slot route and sports betting businesses.

As we have promised to do, what the full deployment in the market was achieved and the investments of prior years began to mature. Spain continues to be an opportunity for improvements and consolidation even in a context where it seems that there will be more pressure on the industry from the political authorities. Some of the measures announced such as the moratorium of new openings in Madrid can help us consolidate market positions and improve margins in a very competitive context. We are also in favor of regulating marketing and publicity for sports betting online casino. Still, we cannot discuss other more restrictive measures to be published in the medium term, which would not necessarily affect our margin business negatively.

On Page 21, we continue to expand our AWP footprint with nearly 200 more units in Q3. Many of those are still coming on our case [for LBO] settings. On the other hand, despite the 11% increase on amounts wagered in our retail sports betting business, take dropped almost 1% due to typical cost volatility, which explains the softer revenue trend in this market. October take is 18.7%, a notch above Q3.

To finish with Spain on Slide 22, we provide some additional KPIs. On the left-hand side, you can see how both revenue and especially EBITDA per point of sale have improved materially since the beginning of 2018, crystallizing our revenue enhancement and cost optimization initiatives. In the year-to-date period on the right-hand side, we are breaking down the EBITDA growth in these 2 concepts. Finally, we are achieving all of this in a context of limited investments with maintenance CapEx as a percentage of revenue being divided by 2, since Q1 2018 from 12% to currently 6%.

Moving to Italy on Page 23. Revenues increased 4% to EUR 83 million in Q3 2019, while adjusted EBITDA dropped 17% to EUR 5 million, resulting in a 1.5 percentage point decrease in margin. This is a consequence of the PREU increase we are facing this year. As you probably remember, this is the result of the deployment of many revenue and cost reductions to mitigate an impact that was materially higher, just by applying the new tax rates as defined by the government. As we have stated many times, Italy continues to surprise for its proven resiliency in a very difficult and uncertain regulatory context.

On Page 24, capacity in AWPs and VLTs remained fairly constant, with a significant increase of 7% in AWP unit yields and a 3% increase on that of VLTs. Network-connected units dropped significantly but continue to grow on a sequential basis. Lastly on Italy, in the draft budget sent to Brussels, the government included once again a premium increase so that from January 1, we could be paying 23% on AWPs and 9% on VLTs versus current levels of 21.6% and 7.9%, respectively. It is premature to conclude on this as the whole industry is moving against this confiscatory measure.

In terms of other markets starting with Uruguay on Page 25. Revenue in HRU grew 4% in Q3 to EUR 14 million. Adjusted EBITDA reached EUR 4 million, 6% below Q3 last year. Revenues in Carrasco Nobile continued around the EUR 4 million mark and EBITDA comfortably above breakeven.

Looking now at Panama and Colombia on Page 26. Both markets continue to perform below our expectations since Q3, with revenue declines of 8% and 21%, respectively, and significant EBITDA reduction in the quarter. Both operations are affected by a structural slowdown, especially Panama, and in one case, the closing of 3 nonperforming casinos. We are revisiting our options with the new operations team that is already working on initiatives and avenues to recover our competitive position in those markets.

Finally, our online division on Page 27 continues to perform strongly, with a 36% increase in revenue in the quarter versus last year and an increases coming from Mexico. In terms of product, the slots continue to gain ground, representing now over 30% of the total revenue. Adjusted EBITDA also posted significant growth, reaching EUR 3.5 million in the quarter and EUR 7.1 million in the LTM period, albeit with a EUR 9.4 million investment in online marketing to grow the business.

On the next page, you can see active users for both casino and the sports betting in Spain and Mexico, all of which have grown significantly versus last year, especially in Mexico, where the full commercial launch took place earlier this year.

Moving on now to the credit overview section on Page 30. Free cash flow generation before growth CapEx is maintained at a level above EUR 130 million, which continues to be sufficient to cover our interest needs. Nonrecurring items and the growth CapEx and still generate positive [class] to de-leverage the company. To get into more detail in this, let me explain how the figures have worked in the year-to-date picture.

In the year-to-date, we have generated EUR 184 million of adjusted EBITDA. So starting of that figure, nonrecurring items of EUR 9 million and working capital figures of EUR 7 million, you reach EUR 168 million. Of this EUR 168 million, EUR 31 million have been used to pay corporate income taxes and EUR 4 million satisfy minority interests. Let me add that both figures will be coming down a notch further in coming quarters, thanks to reduced exposure to Argentina.

Finally, we have spent EUR 48 million in maintenance CapEx, which makes EUR 85 million of cash generated so far. After serving all interest payments of EUR 37 million, we have generated EUR 48 million of what we call discretionary cash flow that we can use either to invest in the business or to de-leverage operationally or financially. In this year-to-date figure, obviously, there was still a coupon to pay in October, but you can notice the figure already more than covers such payment.

This year, we have decided to use those EUR 48 million to invest EUR 20 million in online and growth CapEx so far, and we have repaid CapEx financing and gaming tax deferrals in Spain for EUR 22 million. These figures confirm again that we are generating cash even after growth CapEx and that this generation of cash is higher than last year, for which the same calculations give you a discretionary cash flow of EUR 34 million, EUR 14 million less than this year, 2019.

In Page 39, we take another step in comparing of situation today with the one we had just before the last company to refinancing. Even if I am looking at it from my point of view, I would like to highlight that our metrics are not that different, even more, in many cases, improved from what you saw back in 2016. We have less [up for] debt, less CapEx to be done in minorities and catch-up, less reliance on Argentine funds. And on the contrary versus a recovery in adjusted EBITDA trend back in 2016, we have a situation now where we have demonstrated significant resilience and robustness of the business, in a period of time where the company has faced very significant headwinds.

With this in mind, we still believe that we should be in a position to refinance the company when the dust settles down. We have provided full results and confirm views on 2020 and the new projects we are working on. Obviously, subject to market receptiveness, given our geographic exposure and interest profile.

On Page 32, maintenance CapEx was a bit higher in the quarter but lower on an LTM basis of EUR 75 million. We expect to remain within the EUR 70 million to EUR 75 million range or around 5% of revenues.

On Page 33, we are providing some further details on working capital evolution. Even if we recover partially after the accounting inconsistencies were amended to our working out for EUR 4.5 million as of June, we have a number of one-offs and such a seasonality impact in Q3 that increase the outflow by EUR 7.7 million to EUR 12.2 million as of September. Please remember, this figure includes further unwinding of the deferred gaming taxes in Spain that we have already cut by half since 2016. Netting out this effect, the working capital picture is now in single-digit figures, though still high due to late payments by certain authorities, tax increases in Italy and reduced payment terms for suppliers, especially those linked to litigation issues.

Looking at our credit profile on Page 34. Our gross debt for capitalization of leases increased by nearly EUR 44 million as a result of the appreciation of the U.S. dollar, which increased our high-yield bond principal by almost EUR 30 million together with the EUR 30 million going on the super senior. These increases were partially offset by a EUR 16 million reduction in OpCo debt due to the scheduled amortization of loans. This increase in debt, together with the reduction in LTM EBITDA, resulted in a 0.4x increase in our leverage to 3.1x or 3.2x post the IFRS 16. Cash and liquidity remained strong at EUR 91 million and EUR 138 million, respectively.

Finally, on full year guidance on Page 37, we are lowering our expectation for the full year to a range between EUR 250 million and EUR 255 million. Even if the accounting inconsistencies were properly identified and contained at EUR 16 million, the underlying performance of the Mexican market compares poorly against our initial expectation for the year. As such, we want to be prudent for the rest of the year while we redefine our operational and competitive strategy and implement different mitigation avenues to improve our position as we head into 2020.

Though this year, our ability to react to macro developments and tax increases may seem softer, please bear in mind that significant progress has been made in Argentina, Spain, Uruguay, Italy, headquarters and online, and that this have been offset by the evolution in Mexico mainly because we did not have an adequate view on the underlying trends of the business there.

Had we known the picture as we know it today, results would have been very different because decisive action would already have been taken. That is what is happening now as we speak and what we expect will bear fruit shortly. For us, this is not something new. We have demonstrated we can work it through. We expect this to be a short-time situation and to be in a position to communicate a solid action-based plan for 2020 sooner rather than later, which are confident -- we are confident will bring us back to a path of growth.

This is it for my prepared remarks. As always, I would like to give a very special thanks to the team here in Madrid, who has done a tremendous effort to put these numbers together. Vicente and I will now be happy to respond to any questions you may have.

Operator, please open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Ronan Clarke from Deutsche Bank.

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [2]

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First of all, just on the guidance. I guess if you break it down, I think you're saying EUR 16 million is the accounting issues. But if you take it from the original, say, call it, EUR 285 million down to EUR 250 million, EUR 255 million then, there's maybe EUR 20 million that isn't accounting-related. Is that -- are you saying that, that EUR 20 million is basically Mexico performance relative to what your expectations? Is that the right way to look at it?

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

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Well, I think that the guidance we make was to weight it to EUR 290 million. Now we, at the beginning of the year, announced EUR 250 million to EUR 255 million, so it's EUR 32 million or so. EUR 16 million, EUR 16.5 million for accounting inconsistency to another [EUR 6 million] are coming from the real business trend we are seeing not only in Mexico, but in other (inaudible) is going to be in Mexico.

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [4]

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Okay. And on that note, so -- the EUR 20 million of EBITDA in Mexico in Q3, is that now the clean run rate go forward for Mexico? Was there still some overhang of accounting issues in that number?

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

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I think you are referring to Q3?

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [6]

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Yes.

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Angel Corzo Uceda, Codere, S.A. - CFO [7]

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I would take with a bit of salt Q3. Q3 has been a very complex quarter, where we -- the accounting inconsistencies are fully constrained to the first half of the year, but the provisioning, of course, et cetera, has been complex in Q3. So I think it might overestimate the amount of the decrease in Mexico.

But that's why we are being prudent with guidance. We want to make sure that we meet the following guidance, and we have taken Q3 as a reference, even if I think there is a bit of an upside over that number. But we want to make -- to be pretty sure of what we are doing, and that's why we pulled the trigger on (inaudible).

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [8]

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And this is Vicente. Probably add to what Angel was saying, the EUR 16 million of the accounting inconsistencies were referred to the first half of the year. Therefore, I mean if we consider the same for the full year, it would be around double that amount, which is -- by the way, the [decrease] in the full year right now.

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

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I guess I was -- that's why I was a little confused, I guess, by the original announcement where you gave the range of EUR 13 million to EUR 18 million in H1, but you also said the EUR 20 million impact on guidance, so that implies that there was some spillover in the rest of the year on the inconsistencies.

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

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No, you are completely right on that one. When we discovered this, the time to making the announcement was unfortunately short. We had to do it. And we underestimated or I underestimated the impact on the business trend. The early days were -- we had a bit of confusion. I mean I thought the business trends were still stronger than what the half claim to be. Still, as I have said, Q3 has been a complex quarter accounting-wise, so I have preferred to cut any risk and move it down to make sure that we meet the guidance.

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [11]

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Okay. And then 2 other questions, [basically], one is on Mexico, the security issues that you referred to in the report, I think you mentioned as well in the presentation. Is there actually some -- I mean are all the halls open and operating? Or are you -- is there kind of issues with like...

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Angel Corzo Uceda, Codere, S.A. - CFO [12]

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Yes. All the halls are open and operating today. There have been isolated events here and there. For example, I think it has been in the world news. In mid-October, there were some shootings in Culiacan, a city in the Mexican Gulf Cast where we have -- Coast where we have 3 halls. And we had to shoot them -- close them down for 1.5 days and the following days, you can imagine that the revenues were not at full speed. So events like that, unfortunately, are happening in certain locations, but more than that, is a greater insecurity feeling in the population is limiting visit to halls in certain areas of the country.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [13]

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Yes. Actually, I may add, the main issue is the sentiment of our clients. And this type of situation create a feeling for people who prefer to stay at home when they have leisure time instead of going to -- I mean to venues to entertain, and that, of course, in fact, our industry and any other entertainment industry.

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [14]

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Okay. And then finally, onto the OpCo and CapEx, I think you said it's unchanged, the outlook for the year. But I'm just wondering, is there a time to adjust any of your cash items in line with the EBITDA [cost] for the full year?

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

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I am not sure I have fully understood, Ronan. I think the maintenance and growth CapEx, I believe both will be slightly below the numbers that we have communicated before. Working capital will be a bit more positive than what we have communicated before. Corporate income taxes decreasing quarter-by-quarter, but I don't think it will be much different from what we have reported so far because it always lags behind, and the year that we will have the stronger reduction will be next year.

In other terms, I think the only difference versus what I have been saying before is that -- what I was going to say -- is that the new debt that we were getting in Mexico is lagging a couple of months behind. Obviously, all this that has happened has required a lot of conversations with banks.

I'm happy to say that they haven't been very constructive and that they have agreed to reconnect and start discussing again after this conference call was over and we are still discussing the credit contract. So we hope to still be able to close those before the end of the year or early next year. And the consequence of that is that we have to use the super senior a bit more than we expected, which will be reversed when these loans -- when -- come back in place.

The loan that we were expecting to get before the end of the year and will happen is the renegotiation of the obligations in Uruguay in HRU. That is still in plan to be closed before the end of the year.

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Ronan Bernard Clarke, Deutsche Bank AG, Research Division - Research Analyst [16]

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Okay. So how much more of the super senior RCF could you potentially have to draw by the year-end to replace those local -- any maturing of facilities?

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

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If we did not take a single euro more, no more than [EUR 10 million].

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Operator [18]

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The next question comes from Victoria Pease from Edison.

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Victoria Elaine Pease, Edison Investment Research Limited - Analyst [19]

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Just following up on the Mexico. Thanks for all the explanation. And I just wanted to make sure I understood correctly the comments that you made that you believe that the trading at the moment is stabilizing, and you're looking to return back to growth next year, but obviously from the lower base of this year. So I just wanted to make sure that's the trade -- that's what I understood correctly, it is stabilizing now versus the past few months.

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

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Okay. Let me give you a bit more color. Regarding revenue, the peak point of revenue decrease versus last year happened in April and then it rebounded again a bit in June. Since then, the trend of decrease versus last year is coming off 1 point, 2 points per month. We are still not growing revenue versus last year, but we are closing progressively the gap. That's why I believe -- that's one of the reasons, I believe, we can say that we are recovering.

But on top of that, when things like this happen, is not only that the accounting was incorrect, but it is also that the management team was not being successful in implementing measures to counteract what is happening in the market. We have changed the team and the new management, together with Vicente, are working in a number of avenues that obviously will not have immediate impact from one day to another, but seem to be very positively aligned, and Vicente can tell himself, but I think that we are -- we have a view that we can, soon enough, start to recover and gain ground again.

Not to say less, some of the halls we opened recently are starting to come into place. One open in July. We have now open another one in October. So there are things that we are doing that will help us. What I want to make sure is that you understand that Q3 is probably not the right measure to -- for which to consider Mexico.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [21]

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Yes, perfect. And actually, if you let me, I will add some color on our view for Mexico and why we are -- we feel prudently optimistic about the developments for next year. First of all, as Angel was saying, I mean some of the halls that we have opened, they are still not performing as -- or running on a full run rate basis. They are maturing. Some of them are very good and very well located, but they -- I mean big halls take time to really perform. And that's something we think will begin to happen next year.

If I may make a certain comparison to, for instance, what happened, sorry, with our investments in Spain, as we explain in many calls, they took some time to perform. And this year, they are doing it. So coming back to Mexico, that is, on that front, what we are expecting.

Also, from a market point of view, from the perspective of the market, I think that it is important to stress one of the comments Angel included in his speech regarding the decision or the vision of Mexican president to stall the increase for operators with a well-distributed footprint in a country like ours. It is -- in general terms, it's good news. I mean we have seen this many times in the past, the market will stabilize. And it will become -- our margins will tend to improve. And this, we expect that potentially can be combined.

We have also some other announcements made by the president in the sense that the current government is focused in not increasing taxes but in increasing tax collections, which means that they will be very rigorous in terms of tax collections, of enforcing tax payments. I mean it is our reality is that in some of the submarkets of Mexico, we compete with players that are not so compliant as us. And therefore, if that happens, that will be -- level the play field, and it's definitely a good competitive, if you want, environment for us to improve. So again, these are a couple of, if you want, trends we are seeing and that will -- which will definitely help us regain growth in the coming months.

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Victoria Elaine Pease, Edison Investment Research Limited - Analyst [22]

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Okay, great. And just had a couple other questions, if that's okay. Your online EBITDA margin, obviously very strong this quarter and presumably because of the exceptional marketing. I'm just wondering what sort of level of online margin you might expect without the exceptional marketing? And I guess to follow that, how many more quarters with this exceptional marketing? Is it the next sort of several months? Is it 6 -- is that trading now, again, with a very strong margin going forward? Or I'm just trying to understand the sustainability of that margin.

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

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Well, the online business is still volatile, it's still in an early phase of development. We will continue to invest in the market to improve our numbers, especially in Mexico but not only in Mexico, also in Spain. So it is true the margins this year -- this quarter are especially positive, but we would -- our focus now is more on [chasing] revenues to gain volume than in a specific margin rate itself. So that would be my comment. I think that is a high point. I wouldn't -- I wouldn't bet fully on maintaining it. But what I will bet fully is increasing revenue and increasing adjusted EBITDA in the coming quarters.

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

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Yes. If I may add that online is definitely one of the main drivers for our growth. I usually comment that -- I mean the digital challenge for many industries is a hurdle for us. It is still an opportunity. I mean we don't see in our markets which are not mature yet. In terms of online penetration, we don't see a cannibalization of our retail business, where we are strong, and we tend to see it more as an opportunity to -- for growth.

Therefore, in terms of capturing this opportunity, as Angel was saying, we are investing heavily for our company if you want. And we are totally focused on capturing market share and up to a certain extent, if you let me, to regain leadership in certain countries in which the company had lost leadership in this segment of market in the past.

Therefore, that is our clear focus. And the business is still very small for you to see what a sustainable EBITDA margin could be. Having said this, if we consider what the big -- other online players in mature markets make, it is reasonable to think that a range of 15% to 20% EBITDA margin is the reasonable goal for this business for us.

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Victoria Elaine Pease, Edison Investment Research Limited - Analyst [25]

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And just one last more question on the cash-out tax in Argentina. You said it was temporarily suspended. What do you mean by temporarily?

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Angel Corzo Uceda, Codere, S.A. - CFO [26]

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We mean that in the sense that there has been an injunction against the government. I understand the government will pay to fight it in court. And in the meantime, they have decided to suspend.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [27]

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Yes. And let me add on this, Angel, as I am closer to the situation. The -- I mean an injunction is an injunction. And it's -- the same word implies, it is temporary. But having said that, we have to bear in mind that the government is changing in the Buenos Aires province and therefore, our regulator is changing.

As you may know, in general terms, the Peronist party has always been more positive on -- with the industry as -- but because you may recall that we have been facing, during the last 4 years, a clear -- I mean a government with a clear anti -- I mean, sentiment, which, among other things, stall completely the growth of the business, of the industry and also impose new taxes.

Therefore, in our view, the level of (inaudible) being achieved are very high, kind of, in our view again, probably kind of confiscatory. And we thought that judicial measures to stop this from continue happening could be feasible and it finally happened. So we will see what is the next government behavior in terms of this and if considering they are more reasonable, in our view again, vision of the market, if they continue with the same policy or they tend to, again, foster the reasonable development of the industry in which they are, if you want, up to a certain extent, partnering with the industry in terms of tax collections.

My view in that regard is positive. And if this -- if you want counterbalance, the general negative view that Argentina could deliver in terms of the macroeconomic situation looking forward. But in terms of our industry, I think we might see positive developments looking forward. Again, this is really premature. We need to see the new authorities to take over and we will see. But based on past years' experiences, that's where in which I base my comments.

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Operator [28]

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The next question comes from Nick MacDonald from Bank of America.

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Nick MacDonald, BofA Merrill Lynch, Research Division - VP and Senior Analyst [29]

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Just one broader one, I guess, and then just a quick clarification. I guess with the bond refi window getting smaller and smaller, just from a high-level perspective, the next 2, 3 quarters, obviously, you've still got some macro headwinds to -- that you're fighting. The situation in Mexico, at least it seems to me, that the next couple of quarters are still going to be quite tough comps given the whole situation and the competitive environment.

So I'm just wondering, could you elaborate a little bit on maybe your time line or milestones that you want to achieve to get you into a place where you could think about addressing the '21 maturity and how you're kind of thinking about that process going into next year?

And then I know in the past, there's been inorganic measures, I guess, in the press, and I think you've commented on them in the past as well. I think there was a story about a disposal in Uruguay a few months ago. Also, an equity raise has been [mute] in the past. So just anything you could comment there on inorganic measures that might help you in terms of cash for refi? And then just one -- yes, go on.

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

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Yes. I'm very sorry, but we got out of the line at the -- early in your comments. I understand that your first question is how we were planning to face the refinancing in a difficult context on the macro in Mexico, you were saying and then we got caught. I'm very sorry but if you could rewind from there, I would really appreciate.

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Nick MacDonald, BofA Merrill Lynch, Research Division - VP and Senior Analyst [31]

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Sure, sorry. So just -- I'm just interested in your time line and key milestones to get you into a place to try and address those maturities, what -- where you -- what you think you need to achieve? And then just a follow-up was on the inorganic measures. So I know in the past, disposal in Uruguay has been mentioned in the press. And also, you've commented on the potential for an equity raise. Just anything you could mention around that as well.

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Angel Corzo Uceda, Codere, S.A. - CFO [32]

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Okay. Well, you are right. I mean we are 24 months to maturity. The maturity of the bonds is October 31, 2021, so it's becoming time to think about that, as you know, we have been doing for some time now. I think my plan continues to be the same, which is to be ready for when the market is ready. Obviously, what has happened has put some difficulties on the line for us but we are getting ready to solve it.

First, we hope that we are providing the full transparency and full answers to all the questions about what has happened and full clarity in our numbers. I think that with the information that we provide, you have the ability to know perfectly where the company is. Second, it is important that the full year accounts are there, that you have the FY full audit in place to generate further comfort, if possible, in the amounts or the figures that we are relaying.

Thirdly and not less important, I think it is -- obviously, this has been a setback. And you -- it is not only that we say that we will recover. We will need to show that and that will be there, hopefully, in the fourth quarter of this year and more importantly in the first quarter of this year. Hopefully, when we are able to rebuild and so the action plan and so gain [more clarity] on our plans and our actions on how we are going to perform and get back to that path of growth, starting with the Q4 results, if not before than that, that will also contribute.

I think that what is clear is that this business has demonstrated resiliency and that we have today a more diversified portfolio than we have ever had in the past. I think that the slides that we have made on where we were in 2016 and where we are today in the quantitative terms are important. We are in better quantitative terms that we were at -- back then. Obviously, there are certain qualitative terms that you may say that hinder us in the short term. But having said that, that's what we have to do.

So numbers, convinced of resiliency in the business, demonstrate that we have a plan and deploy that plan. On top of that, and Vicente may give you a bit more color of that. We have avenues that can contribute to that significantly.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [33]

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Yes. Yes, I will complement Angel's answer. And again, I want to stress that we are focusing on what we need to focus. And today, it was a milestone, in my view, in terms of coming back to normal. So now we are -- the team is fully focused on correcting the situation in the affected countries, especially in Mexico. And as I was explaining before, I'm fully involved and devoting personal time on that and I feel optimistic that we will do it.

Having said that, I think that also Angel made a good explanation of what happened in the last refinancing of the company when I was not here. But again, I think the comparison between that moment and what we are seeing now, even after the incident we have suffered, I think the comparison is pretty reasonable.

And having said that, we are already working on interesting projects, which are, I mean, very, very, first of all, exciting from my own point of view. And of course, we will make the proper announcement. We are able to do them according to the progress in those projects. But they are projects that, in any case, will help the generation of cash for the company and will not -- would not imply -- or require the funds from the group.

And I'm referring to projects we are working on in Uruguay, as you mentioned, Mexico and also Italy. I'm trying to be a little bit more specific on the Uruguayan question you made. We are still working on that, and we feel positive about the potential outcome of that project.

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Operator [34]

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The next question comes from Javier Orduna from Azvalor Asset Management.

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Javier Orduna Eugui;Azvalor Asset Management;Analyst, [35]

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The -- first of all, thank you for the transparency in the presentation. And then I had a couple of questions for you. The first one was related with the Mexico situation. I was wondering if you could shed some light on the management incentives. The reason why is perhaps our concern that incentives may have led to the situation. I don't know if you could shed some light on that.

The second one would be regarding the market allocation -- sorry, the market evolution and capital allocation in a couple of markets, mainly Spain and Mexico. I was wondering if you could perhaps shed some light onto the following -- the following question that I have is that capacity has been increasing in both markets, yet average revenues per machine have been decreasing. And I'm just kind of wondering what your view is on what the timing for increasing capacity in a time when revenue per machine is going down. And also how that combines with your view on what the Spanish market is going to do going forward in the next couple of years?

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [36]

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Okay. Javier, let me -- this is Vicente. Let me take the first one. The answer to your question is no. I mean we don't think the management incentive have anything to do with the situation within the accounting inconsistencies basically because our management incentives are based on annual figures, not on semi-annual figures. And therefore, actually, they did not have any impact on incentives within the company. And therefore, it probably had to do more with the difficulties the local team was living in the Mexican environment, as we mentioned before.

And I mean for -- perhaps, if I had to put it back, for [CPD,] if you want, they try to hide the situation instead of being completely transparent on what was happening. And just to emphasize what I said at the beginning, our management incentives in the company are based on -- in ratios or indicators like EBITDA, free cash flow but again, always in -- on -- based on annual figures at least at the management team perspective, okay?

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Angel Corzo Uceda, Codere, S.A. - CFO [37]

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Okay. For the second question, it is clear that the cycle of investment of the company in recent years has had a focus in Spain and a focus in Mexico. But the situation in both countries is different. In Spain, we have been investing heavily in deploying sports betting facilities up until last year. Now we are in a phase of improving profitability per point of sale and that we are getting. We are getting a significant increase of margins this year.

And in reality, what you are seeing about increased number of AWPs and declining revenue per machine reflects more the fact that we are more active in putting AWPs in our cage and LBOs that usually have a lower yield than machines in bars than anything else, is how we are deploying the market, the machines to have more marginal contribution with less CapEx investment.

So in the part of Spain, at this point, the project is capacity, the yield management, improving marginal contributions in each point of sale, and we might do growth CapEx in Spain if we see nice opportunities to buy small operators. That might happen in the future.

The case in Mexico is different. We did -- we are spending and did spend last year significant CapEx in deploying new points of sale, new halls. Those, as Vicente mentioned before, aren't yet, in some cases, to mature and will continue contributing or increase contribution in the coming quarters. That is true.

Secondly, there was a view of the prior management to increase the number of machines because we were reducing bingo areas in the halls that bingo is obviously passing out rapidly. And that's why we are increasing the number of machines. We have the space. We can have them quite cheap. And what we are looking always is at the contribution per machine, the marginal contribution, not necessarily the average revenue per machine, which is not always the best indicator to maximize profitability.

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [38]

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Yes. And Javier, I would like to add to what Angel was saying in the case of Mexico. The increase of machines, which has been fostered by the (inaudible), sorry, it has been done with lease machines, was one of the decisions the local team made in order to counterbalance, if you want, the higher competition they were facing in terms of more halls. I mean the idea was to try to keep up to a certain extent the market share in terms of gaming offer. But it is one of the decisions we are revisiting. As Angel said -- mentioned before, we will -- we are already doing an interesting job in terms of optimizing the [slow] floor so the -- we think that there might probably be an opportunity there.

And just to give you another hint of our vision in terms of the long-term potential for this market, definitely, we have said many times in terms of [million] long-term growth potential for the company, we think that both Spain and Mexico, especially Spain, probably in the coming years, considering many factors in terms of stability of the market and other things, but we think that they offer very really good opportunities in terms of consolidation of the market.

This is not -- that is not necessarily our game, if you want, as we will be focused on our -- I mean getting things in order and our refinancing. But once that it is pulled off, it will be definitely our strategic focus because the opportunity is clear, in my view, and I think that probably, in the case of Mexico, probably no other companies is better positioned than us to lead that game. And in the case of Spain, as you already know, I mean [CIRSA] is already doing it, but we can surely be part of that and it will definitely be an opportunity.

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Operator [39]

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And the last question comes from Mehmet Dere from UniCredit.

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Mehmet Dere, UniCredit Research - Credit Analyst [40]

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Most of the questions were actually answered, but just quickly on the action plan you will announce in next year, beginning of next year, will those be points which can be materialized in the short term, I mean given the maturity of the debts you have?

And then you said also that you are working on projects in Uruguay, Mexico and Italy. Is that also incorporating potential asset sales in those countries because -- especially the focus in Italy, where you expect a negative impact resulting from potential tax of [EUR 7 million], I mean, this is around 30% of the EBITDA in that country. What are your plans there?

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Vicente Gabriel Di Loreto, Codere, S.A. - CEO [41]

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Sure. Well, let me -- this is Vicente. Let me begin with the last question. The impact you are mentioning is based on the current performance of our operation there for this year. It is a special country in which the industry usually recover from each one of the tax increases and then you receive another one. But the reality is that if you consider the impact on the -- our projection for next year, the impact will be reduced significantly.

Having said that, as we mentioned in many different calls, we are open to all specific and normal alternatives in Italy. My strategic vision for the market is that the only way to have a sustainable and growing operation is to be part of a consolidation gain, which will, in my view, will certainly happen and actually is happening already. And therefore, we are open to all opportunities and we are considering them. Based on what is happening in the market probably, the situation will foster this type of consolidation activities.

Having said that, our action plan or renew action plan because it will be -- I mean we are fine-tuning many of the avenues we were working on. And as you already know, we are almost 2 years down the road in terms of our transformation plan, which is a plan for 3 years. We'll -- I think that we will continue delivering results in the short, medium and long term. We have, of course, short-term actions but also a long-term view. And the projects I was mentioning, they are very interesting.

And looking forward, as I said before, they do not imply consumption of funds for us, but in any case, give us opportunities to increase our cash flow. And I think that's pretty much what I think I have -- let me think if I have answered your question.

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Operator [42]

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There are no further questions. Dear speakers, back to you for closing remarks.

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Angel Corzo Uceda, Codere, S.A. - CFO [43]

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Okay. Thank you, everyone, for joining the call. As always, if you have any further questions, feel free to reach out to me or any other member of the team. Thank you again for your time, and we look forward to speaking to you for the Q4 results in February next year. Thank you.

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Operator [44]

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Ladies and gentlemen, this concludes the presentation. Thank you for your participation. You may now disconnect.