LatAm restrictions continue to weigh on Codere in Q3

Europe and Latin America-facing operator Codere saw revenue for the third quarter of 2020 decline 58.4% to €143.0m as ongoing closures in many of its Latin American markets offset signs of recovery in Europe.

As venues in Europe reopened, it made up the vast majority of Codere’s revenue. Italy was the operator’s largest market, with revenue down 21.0% to €65.3m, while in Spain revenue was down 17.0% to €38.2m.

Last month, Codere’s management said that Spain would remain an extremely important market for the operator despite a series of new advertising restrictions set to come into effect.

A complete lack of revenue from Argentina - its largest source of revenue in 2019 and in the first half of 2020 - and Panama meant Codere made only €20.9m from Latin America, down 89.5%.

The lack of activity in these markets meant Uruguay became Codere’s largest non-European source of revenue at €12.1m, even though this figure was still down 33.5% year-on-year.

A further €8.4m came from Mexico, down 88.9%, while €300,000 came from Colombia, down 94.0%.

The operator said that while closures affected all of its markets, numbers have been strong since it was permitted to reopen its venues.

“Performance upon reopening across all markets has been strong, achieving 70-90% of the 2019 revenue levels within 6-8 weeks upon reopening,” it said. The operations in Uruguay, Italy and Spain produced already positive operational cash flows in the third quarter while Mexico, Colombia and Panama are expected to do so between October and November.”

Online was the only sector where Codere’s revenue grew year-on-year, as the operator brought in €18.7m, up 19.7%.

Codere’s operating expenses, meanwhile, fell 47.5% to €138.4m.

The business paid €63.1m in gaming and other gross revenue taxes, down 48.0%. In addition, it paid personnel costs of €36.3m, down 39.7%, €5.8m in costs of goods sold, up 23.8%, and €36.5m in other costs, a 46.7% decline.

Codere paid a further €12.0m in non-recurring expenses for an earnings before interest, tax, depreciation and amortisation (EBITDA) loss of €7.6m, compared to a €65.1m profit the year prior.

After depreciation and amortisation costs of €40.4m and asset disposal costs, Codere’s operating loss came to €49.7m. In Q3 of 2019, Codere made an operating profit of €19.3m.

After adjusting for inflation of its expenses, currency fluctuations - where Codere gained €5.7m after an €18.9m loss in Q3 2019 - and €29.0m in interest costs, Codere’s pre-tax loss came to €70.1m, up 130.6% from 2019’s loss.

After tax benefits, Codere lost €62.1m, more than double its prior year loss.

Earlier in the quarter, Codere addressed mounting debts with a €250m refinancing deal that carries an interest rate of 12.75% initially, with the potential for the rate to lower to 10.75%.

The business said that despite renewed closures in Europe in the fourth quarter of the year, the business remains confident it can fulfil its financial obligations.

“In recent weeks, our business in Europe has been affected by temporary restrictions as a result of the second wave of the pandemic, affecting our recovery trend,” it said. “Still, the company continues to be confident that, after the restructuring has been completed, it has the resources and the appropriate capital structure to serve its short term obligations until the full normalization of the business.”

In the first half of 2020, Codere’s revenue was down 54.7% to €317.6m, with its net loss growing to €177.6m, after a second quarter where it took in only €39.1m, as closures in Spain and Italy had a greater impact on revenue.

Last month, Codere became took a major step towards securing an online gambling licence in the Argentinian capital city of Buenos Aires. Its initial proposal to launch online gambling in the city was the first to be approved by lottery operator and de-facto regulator the Lotería de la Ciudad de Buenos Aires (LOTBA), meaning it may now execute the strategy set out in the proposal.