Letter from the Chairman

Transcription

1 Annual Report 2016

2 This year, according to plan, investments have increased with the aim of restoring growth and recovering our competitive capacity Letter from the Chairman Dear shareholders: Although we can already confirm that Codere has executed all required steps and formalities pursuant to the Group s financial restructuring process, the 2016 accounts continue to include non-recurring expenditure items as a consequence of such process. Additionally, this year, two currency depreciations have had a significant impact on our accounts. Both Argentina and Mexico have seen their currencies depreciate at an annual rate of 59% and 17%, respectively. If we compare, in nominal terms, the operating data following such depreciations, our total revenue in euros has decreased by 8.6%, to 1,499.1 million euros. Along the same lines, the adjusted EBITDA (without non-recurring items) has also decreased by 14.4%, to million euros. In order to isolate the impact of said depreciations on the progress of our operational activities, we need to either, analyze the results at a 2015 constant exchange rate, or, alternatively, compare it with the 2015 results that record Argentinian figures at the Blue exchange rate which already anticipated the discount on the value of the currency which was ultimately confirmed by the depreciation. In the first scenario, 2016 revenues would have reached 1,875 million euros (+14.4%) and an EBITDA of (+16.7%) with respect to In the second scenario, revenues in 2015 would be 1,412 million euros, therefore implying that growth in 2016 would be +6%. In this case, 2015 EBITDA would amount to 243 million euros, which means that EBITDA for 2016 would be 4% higher. If we focus on the net income attributable to the parent company, it is important to point out the impact of the debt-to-equity swap over such item. At the stock market price of the shares on the date of the swap, it has generated a capital loss of 1,054.2 million euros, included in the 1,125.8 million euro loss figure reflected in our 2016 accounts as opposed to million euros in After deducting such item, net income for 2016 would have reflected losses amounting to 71.6 million euros, implying lower losses than in Furthermore, following the refinancing of the corporate debt executed immediately after the culmination of the restructuring process, the Company has once again reduced its gross debt to 880 million euros, leaving the net debt at 738 million euros and the debt ratio at 2.7 times EBITDA. This allowed for the group s interest burden to be reduced in over 20 million euros per year, implying a finance cost of all gross borrowings of approximately 7%. With these new financial costs, net income for the last quarter was already positive, reaching 7.6 million euros. This year, according to plan, investments have increased with the aim of restoring growth and recovering our competitive capacity. Compared with a 65.9 million euros figure in 2015, in 2016 we have reached million euros, which represents an 82.4% increase. The greatest group investment effort has been made in Uruguay, where debts have been capitalized in Carrasco Nobile, therefore now we own 100% of the company s share capital, and Hípica Rioplatense, where we have acquired the remaining 50% for 31 million euros. In this process, the Hotel Casino Carrasco fee has been renegotiated, which should allow us to overcome the negative results that it has been dragging along until now. During the month of November we have signed a sponsorship agreement with Real Madrid Club de Fútbol for three whole seasons, which seeks to play a key role in sports betting and online gaming development plans under the Codere brand in the following years. Finally, we already know that in 2017 we will be, once again, facing the challenge of making our project development plans compatible with the increase in tax burden initiatives in some of our key markets. We are confident that we will succeed. Yours faithfully, José Antonio Martínez Sampedro Codere Group s Chairman & CEO 1 2

3 Contents 5 The Company 1.2 A long track record (p. 08) 1.1 The Codere Group (p. 07) 1.3 Strategy (p. 10) 1 2 Managment Report 2.1 Executive analysis (p. 33) Corporate Governance 5.1 Corporate Governance (p. 75) 1.4 Codere in the world (p. 12) Human Capital Our Organization (p. 27) 1.5 Principal milestones in Codere history (p. 19) 3 Group Innovation 2.1 Innovation (p. 39) 6.1 Human Capital (p. 87) 4 7 Areas of activity 4.1 Areas of activity (p. 43) 4.2 Gaming machines (p. 44) 4.3 Gaming halls (p. 50) 4.4 Betting Shops (p. 60) 4.5 Racetracks (p. 66) Auditor s Report Auditor s Report (p. 97) Dependent Societies (p. 99) 4.6 Online gaming (p. 71)

4 1. The Company

5 1.1 The Codere Group Codere is a leading Spanish multinational company within the private gaming industry holding more than 35 years of business expertise. 1.2 A long track record Codere started up its activity in 1980 in the Autonomous Community of Madrid (Spain), as a gaming machine operator, and has diversified its activity in the industry, becoming a Company of reference in the various markets in which it operates. The Company The Codere Group has around 14,000 employees and successfully carries out its regulated activity in several business areas, operating gaming machines, gaming halls, betting shops, racetracks and online activity. The Company -with a global perspective- operates in eight countries: two in Europe (Spain and Italy) and six in Latin America (Argentina, Mexico, Colombia, Panama, Uruguay and Brazil). Codere is the first and only Spanish gaming company listed on the Madrid Stock Exchange, going public on October 19th, 2007, and carrying out its activity in this complex industry with complete Transparency, Professionalism and Responsibility. Codere heads gaming hall operations in the province of Buenos Aires (Argentina), Mexico and Uruguay, is one of the principal AWP machine operators in Spain and of bingos in Italy, and is a leading casino operator in Panama and Colombia. In addition, it is present in the on-premise sports betting business in Spain and Mexico. Throughout these years, the Company has known how to adapt to the market circumstances at any given time, adapting its activity to the various environments and reinvesting its profits in new growth opportunities with a customer-oriented vision. In 2016, in the wake of the Group financial restructuring, the Company started up an ambitious strategic growth plan, and was able to refinance its corporate debt structure, allowing it to take on new projects. The Group closed the year with sales of over 1,500 million euros, 67% of which came from its business in Latin America, with an adjusted EBITDA of 262 million euros. At the end of 2016, the Company operated 55,060 gaming machines, 144 gaming halls, 3,984 betting shops and 4 racetracks, in addition to carrying out online activity in Spain, Mexico and Brazil. 7 8

6 The Company Mission People want to enjoy themselves playing and betting on games in which chance and skill play a role. There is a growing demand for this activity in today s society. Codere sees it as a mission to be able to attend to this demand in a professional, transparent, and responsible manner in order to be able to generate economic growth sustainably. Vision To be a reference in professional, transparent and responsible management in gambling for regulators and customers alike in the markets in which we have a presence. Values Professionalism The Codere Group s vision is based on the values of: Professionalism, Transparency, and Responsibility, which represent firm commitments of the Company. These commitments, far from being a mere declaration of principles, are extended to our daily practice and are fully integrated into the daily management of the Group in all areas of activity. The Company considers that professional performance under the values described is the best guarantee of the Company s commitment to Transparency Responsibility creating value for shareholders and main stakeholders. Professionalism We understand that doing things right requires: Qualified teams having continual training and development. Customer-oriented, creating appreciable competitive advantages. Innovation which takes advantage of the evolution of technology. Respect for and adaptation to the diverse cultures and sensibilities of our markets.. Transparency Our activity requires that we handle a large quantity of outside resources, such as player prizes and special taxes. This characteristic calls for and warrants great administrative intervention. Transparency is the only way to attain the trust and credibility from regulators and customers. We have been the leading Spanish gaming company to trade on the Securities Market. Responsibility Excessive gambling is not harmless, and gives rise to socially worrisome effects on the most vulnerable groups. To help Regulators and Public Administrations reduce this possible social impact to a minimum is to help us all. 1.3 Codere Strategy In April 2016, Codere definitively completed its financial restructuring, starting a new stage with a stronger balance sheet and able to once again sustain growth projects. After a number of years in which the Company was basically focused on cost efficiency, a period was started to drive growth from the perspective of income. The resolution of the uncertainties associated with this process has allowed the Company to focus on a Strategic Plan ( ) which establishes a long-term vision of the business project, defining the competitive positioning of Codere by markets, as well as its management priorities. Investors showed their confidence in the progress made and in the action plans, given that this past November the Group successfully refinanced its corporate debt. This entailed a significant reduction in interest expense, by about 23 million euros annually. The strategic plan entails a transformation of the organization to respond to the new challenges of the sector: customer management and business digitization. Codere has gone from being a logistics operator to becoming a customer-oriented manager. This entails the need to incorporate technological and analytical capacities into the organization, in order to attain so- 9 10

7 phisticated customer database management and to be able to offer customers better service in highly competitive environments. The Company is aware that the new technologies, which have arisen together with the gradual regulation of online gaming-, has shaped new consumer habits. This makes it necessary not only to guarantee a legal gambling online offering for customers that provides users with the maximum assurances, but also to introduce digital elements with traditional customers, and consequently improve their relationship with the Company. All of these efforts are reflected in the signing, this past November, of the sponsorship agreement with the Real Madrid, a global agreement, which makes the Company the Official Bookmaker of this Madrid football club until This alliance makes it possible to capitalize the worldwide recognition of this football club in Codere brand notoriety in Latin America, Spain and Italy, a decisive factor in promoting both the online as well as on-premise offering. 1.4 Codere in the world At year-end, the Company operates 55,060 gaming machines; 144 gaming halls, 3,984 betting shops and 4 racetracks. The Company also operates online gaming in Spain, Mexico and Brazil. Italy Gaming Machines 9,032 Gaming Halls Gaming machines network concessions 11 The Company Likewise, Codere considers inorganic growth to be key in the coming years, given that it wants to lead the consolidation of the markets in which it operates. In this regard, this past November the remaining 50% of HRU was purchased, with Codere becoming the sole owner of the Uruguayan business, which in conjunction with the fiscal improvements rendering the Hotel Casino Carrasco Nobile of Montevideo more viable set the stage for the consolidation of the operations in the country. The growth projects in the rest of Latin America Mexico, Argentina, Panama and Colombia will be focused on the opening of new gaming halls, selective purchases of operators, and the development of a sports betting channel. In Europe Spain and Italy, the projects will materialize by means of associations, acquisitions and the promotion of sports betting. Spain Gaming Machines Gaming Halls Betting Shops ,157 1 Online 3,858

8 Mexico Gaming Machines Gaming Halls Betting Shops Racetracks Online Panama Gaming Machines Gaming Halls Betting Shops Racetracks Colombia Gaming Machines 19, , ,403 Brazil Betting Shops Online Uruguay Gaming Machines Gaming Halls Betting Shops Racetracks Argentina Gaming Machines Gaming Halls 5 2, , Argentina Promotion of actions with customers Argentina is the principal market of the Codere Group. It is the largest bingo hall operator in the Province of Buenos Aires, with 14 halls and nearly 7,000 gaming machines, managing 29.8% of the gaming machines in the Province of Buenos Aires. In 2016, the Company focused on customers, incorporating the Smokers Club into nine of its gaming halls, where these exclusive areas are Startup_ 1991 Figures 2016_ Income: * Adjusted EBITDA: 131 * 2016 milestones_ Promotion of actions with CLUB customers, and implementation of its SPACE (CRM) platform in five gaming halls to achieve integral customer management. * Millions of euros equipped with the latest generation gaming machines, and food and beverage services. In addition, it promotes EL CLUB, with new services such as the Call Center and the self-management service. In August, Codere Argentina implemented the SPACE (Customer Relationship Management) System in five halls, contributing to the integral management of its members in an aim to drive its results. Gaming Halls 10 The Company Note: PANAMA: Betting shops do not include the 41 horseracing betting associated agencies. COLOMBIA: Data include only gaming halls holding more than 50 gaming machines. URUGUAY: Data reflect Carrasco Nobile and HRU operating income. Spain: Betting shops in Spain reflect SSTs number, in other markets betting shops units are reflected. 13 Argentina is the principal market of the Codere Group. It is the largest bingo hall operator in the Province of Buenos Aires 14

9 Mexico Intense activity in gaming halls and startup of its online activity In 2016, Codere Mexico carried of machines reaching 19,123. One out intensive promotional and leisure activity in its gaming halls, of the year was the start of online of the most noteworthy milestones carrying out over 1,300 events, activity in October of 2016 under especially anniversary celebrations, and some 980 promotional dition, among its services Codere the Codere Apuestas brand. In ad- campaigns. In addition, during the started its customer self-management App (adapted for IOS and An- year the Company increased its average installed gaming machine droid), with numerous advantages capacity by 7.8%, with the number for players. Startup_ figures_ Income: * Adjusted EBITDA: 88.5 * 2016 milestones_ Promotion of actions with CLUB customers, and implementation of its SPACE (CRM) platform in five gaming halls to achieve integral customer management. * Millions of euros Spain Leader in sports betting At year-end, Codere maintained its leadership in sports betting, with a 30% share of the on-premise market. Throughout the year, the Company incorporated new regions into its expansion plan, such as Santander (Cantabria), Melilla and Asturias, in addition to extending its capacity in the regions in which it is already present, increasing the number of points of sale by 16%. Currently, it is the only licensed sports betting company operating in all of the regulated autonomous communities in Spain. These good results go hand in hand with the positive performance of the gaming machine business (which increased average daily revenues by 10.4%) and of bingo, driven by an improved product as well as investment in customer loyalty actions. In 2016, the gaming App Codere.es was also renovated for mobile phone and PC and incorporates online casino games into its entertainment offering. Startup_ figures_ Income: * Adjusted EBITDA: 29.5 * 2016 milestones_ Codere maintained its leadership in Spain in on-premise sports betting, with a 30% market share, and developed it gaming platform. * Millions of euros Italy Responsible growth Italy is seen as one of the strategic countries of the Group in its growth project. In 2016, the total number of AWP gaming machines grew (by 7.4%) and VLTs (6.1%), as did the number of units connected to the Codere Network, and there was likewise improvement in the average daily revenues in the AWPs (19.2%). Throughout the year, the Company was highly focused on its commitment to Responsible Gaming and promoted important initiatives such as the Codere Training program, a training tool for the recognition and management of critical points related to pathological gaming, managed by the legal gaming operators connected to its Network and operating in their own gaming halls or those managed by third parties. In Bologna, the Company also started up the second edition of the event In the name of legality 2.0, an initiative supported by regulatory agencies, institutions and local authorities. Startup_ figures_ Income: * Adjusted EBITDA: 26.4 * 2016 milestones_ The Company is committed to Responsible Gaming, and launched the Codere Training program to train operators to identify pathological gaming behaviors. It also started the event In the Name of Legality 2.0 which promotes a culture of Responsible Gaming in the industry. * Millions of euros Panama Business deployment In Panama Codere manages a wide range of business: gaming machines, casinos, betting shops and a racetrack. The Company, the leader in casino management of the country, has incorporated improvements in its installations, and invests in new products in an aim to improve the customer experience. In 2016, it renovated 19% of its total gaming machines, introducing new table games in its halls. This last year it celebrated the 60th anniversary of the Hipódromo Presidente Remón racetrack, the only racetrack in Central America, and in May the venue also celebrated the Clásico Presidente de La República, the awards ceremony of which was attended by President Juan Carlos Varela. At year-end, the racetrack also hosted the 7th promotion of the Laffit Pincay Jr. Technical Jockey Academy, the cradle of the best jockeys in the world. Startup_ figures_ Income: 98.1 * Adjusted EBITDA: 16.6 * Hitos 2016_ The Company celebrated the 60th anniversary of the Hipódromo Presidente Remón racetrack, the only one in Central America. * Millions of euros The Company 15 16

10 The Company Colombia Commitment to lead new markets Codere, one of the most outstanding gaming machines and gaming hall operators in the country, made great strides in the context of its improvement plan, in renovating its total number of machines and equipment, and in migrating to the TITO (ticket in-.ticket out) system of its machines. Throughout the year, the focus was also placed on adapting its equipment to the interconnection requirements of the Brazil Promotion of international betting In recent years, Codere Brazil has taken on numerous initiatives to drive international betting and turf. In the first months of 2016 it started up online activity alongside the Jockey Club do Rio Grande do Sul (JCRGS), through the page suaposta.com.br, regulator Coljuegos. In its gaming halls, the Company started improvement actions for the Loyalty CLUB, for the benefit of its customers, and migrated from the CRM system in order to improve hall management efficiency. In addition, in 2016, owing to the forthcoming regulatory changes, the Company prepared to adopt new gaming modalities: sports betting and online gaming, to be launched in converting Codere Brazil into the leading legal online gaming operator in the country, and started on a brand growth and expansion process through mobile phone terminals in JCRGS betting sites in several cities of the state of Rio Grande do Sul. Startup_ figures_ Income: 24.7 * Adjusted EBITDA: 4.8 * 2016 milestones_ The Company prepared to develop new sports betting gaming modalities and online activity in the country. * Millions of euros After several years of adjustments, the Company was able to regain competitiveness and attain the bulk of its strategic objectives Startup_ figures_ Income: 1.6 * Adjusted EBITDA: (-4.6) * Hitos 2016_ The Company started up Suaposta.com.br, which aspires to become the leading meeting point for turf betters. * Millions of euros 17 Uruguay Unification of the business Codere concentrates its operations in Montevideo and its outskirts, managing the Hipódromo Nacional de Maroñas and Hipódromo Las Piedras racetracks, as well as the ancillary activities: horse race betting system, and entertainment halls with gaming machines and betting shops, through simulcasting (a simultaneous betting system by satellite TV allowing the exchange of races between Europe, North America and Latin America). In 2016, Hipódromo Nacional de Maroñas made the greatest investment since its reopening, constructing its new grass track and Villa Hípica, in addition to investing in significant technological improvements which will enable it to transmit its signal in HD. Likewise, the venue veterinary service was certified under the ISO 9000 standard, and the racetrack received the principal world turf authorities at the ICRAV (21st International Conference of Racing Analysts and Veterinarians). At year-end, Codere acquired the remaining 50% of HRU (Hípica Rioplatense de Uruguay), integrating complete management of its activities. In the country, the Company also manages the Sofitel Montevideo Casino Carrasco & Spa (operated by Accor, under the umbrella of the Sofitel brand), this being one of the most emblematic entertainment buildings. Activity in recent years has been focused on driving entertainment, and starting up new gaming areas, VIP zones or special rooms for smokers. At year-end the Company changed its tax structure with the regulator (Intendencia de Montevideo) and rethought its VIP table business. Note: The Uruguay results are presented disaggregated, given that the integration of the businesses did not take effect until December of Startup_ 2002/ 2013 (Carrasco) 2016 figures_ HRU (Hípica Rioplatense de Uruguay) Income: 27.7 * Adjusted EBITDA: 8.9 * CARRASCO NOBILE Income: 14.2 * Adjusted EBITDA: (-10.3) * 2016 milestones_ Codere integrated its business in the country with the purchase of the remaining 50% of HRU, its subsidiary in Uruguay. In the Maroñas venue, it made significant investments in installations and the Villa Hípica. In addition, Sofitel Montevideo Casino Carrasco & Spa refocused its business in the local market.. * Millions of euros 18

11 1.5 Principal milestones in Codere history The Codere Group has grown and developed for over more than 35 years, running a long-distance race marked by a series of milestones: Expansion in Chile Obtains a syndicated loan for 72 million euros. Purchase of the CANOE Bingo Hall, in Madrid Codere starts up its activities in Madrid. Enters the markets of Catalonia and the Autonomous Community of Valencia. Acquires Operibérica and adds 3,500 new gaming machines to its business in Spain. Codere begins its international expansion in Colombia. Begins managing bingo halls in Argentina Codere starts up its activities in Italy through a contract in 16 bingo halls. Monitor Clipper Partners invests 40 million euros in Codere Starts operations in Mexico with Caliente and CIE group. The Company 1999 Syndicated loan for 45 million euros. Authorized to install gaming machines in the bingo halls of Argentina, driving business profitability Codere takes out a mezzanine loan for 135 million euros. Attains the management of Hipódromo Maroñas de Montevideo (Uruguay) racetrack, and reopens it

12 2004 Begins managing gaming terminals in Italy. Begins managing TEB in Mexico Codere goes public. Acquires 49% of ICELA in Mexico. Purchases Maxibingo in Italy. Renewal of certain bingo licenses in Argentina. Purchase of the Royal group in Argentina. Bond issue for 335 million euros. Codere and its shareholders obtain a sports betting license in the Basque Country (Spain) Acquires Operbingo in Italy. Begins operating in Brazil. Bond issue for 160 and 165 million euros Cashless (TITO) systems start to be introduced in Argentina. Codere obtains the license to operate sports betting in the Autonomous Community of Madrid, and opens the first sports betting shop in Spain. Purchases Bingo Palace and Codere Network in Italy. Opening of a new casino in Panama. Acquires MAE in Mallorca (Spain). Starts its sports betting operations in the Basque Country (Spain). Acquisition of Promojuegos in Mexico. The Martínez Sampedro family purchases the stake of the Franco brothers and the ICG and MCP funds. Renewal of the license of the La Plata (Argentina) Bingo Hall. Asset swap between Chile and Panama Codere is awarded the tender for the reconstruction and management of the Hotel Casino Carrasco en Montevideo (Uruguay). The Company Codere inaugurates the Casino Crown Palatino in Bogotá (Colombia)

13 2010 Codere consolidates its position in Mexico and announces an agreement with the Caliente Group. Acquires six casinos in Panama Codere places a bond issue for 300 million US$. Acquires 60% of the operator Dalla Pria Service S.R.L. in Italy. Starts its sports betting operations in Navarra (Spain). The first online bingo operation starts in Italy through and VLTs are installed in its gaming halls. The Company obtains the license for the possession, use and exploitation of the Hipódromo de las Piedras racetrack in Uruguay for 30 years, and continues with the Hotel Casino Carrasco renovations. Inaugurates the CrowN Casino Zona T hall in Bogotá, Colombia The Codere Group signs a purchase option for an additional 35.8% stake in ICELA (Mexico). Codere Italy closes the purchase of the gaming machine operators FG Slot Services, Gap Games and Gaming Re throughout Codere becomes the exclusive distributor of international simulcasting through its agreement with Jockey Club do Paraná (Brazil). The Codere Group Ethics and Conduct Code is approved Renewal until 2028 and 2029 of five of the licenses which Codere operates in gaming halls in the province of Buenos Aires (Argentina). Re-inauguration of the Casino Carrasco and reopening of the Hipódromo de las Piedras racetrack, both in Uruguay. Celebration of the 70th anniversary of the Hipódromo de las Américas racetrack in Mexico. Start of the renovation works on the Hotel Casino Carrasco. Renewal of the licenses granted to five gaming halls in Argentina. The Company 23 24

14 2014 Codere reaches an agreement with the essential terms for the restructuring of Group capital and debt. Agreement for simulcasting between the Maroñas and Las Piedras racetracks in Uruguay and the Hipódromo de Cristal racetrack in Porto Alegre, Brazil. Codere leads on-premise betting in Spain and launches the sports betting web App: Codere.es Growth of Codere Italy through the purchase of local operators. Codere Spain begins operating sports betting under a national license and incorporates casino games into its online activity. Codere Brazil launches a pilot drive of its online activity Codere completes the Company balance sheet restructuring process. Definition of the Strategic Plan Corporate debt refinancing allows for lower interest expense. Codere acquires the additional 50% of HRU, its subsidiary in Uruguay. The Company becomes the Official Bookmaker of Real Madrid Football Club. The Company Codere starts its online activity in Mexico under the Codere Apuestas brand

15 1.6 Our Organization Codere Group is structured by geographic regions and several business units, operating its activity in in Europe and Latin America. Legal Advisory Chairman & CEO José Antonio Martínez Sampedro Compliance Serafín Gómez David Jiménez Human Resources Codere Europe includes business activities in Spain - gaming machines, gaming halls, sports betting and online gaming - and business activities in Italy - gaming machines and gaming halls-. The control of the operations of each of the business areas in Codere America is also organized by country. Since 2016, the Company integrated Mexico, Panama and Colombia s operations, under the same management team located in Mexico. The Company headquarters and central services are located in Madrid, and are responsible for the global strategy and corporate policies, institutional relations, the management of common activities and the coordination of the activity of the geographical business units. The Codere Foundation is also located in Spain. CIO Felipe Ludeña Business Development Fernando Ors Rafael López-Enríquez CFO Ángel Corzo Audit & Control Note: As per April, 2017 Adolfo Carpena America Europe President Javier Martínez Sampedro The Company Argentina Country Manager Bernardo Chena Uruguay Country Manager Carrasco Nobile - General Manager Hípica Rioplatense Gabriel Gurméndez Brazil Country manager André Gelfi Colombia Country manager Diego F. Navarro Panama Country manager Lucas Alemán Mexico Country manager Rodrigo González Spain Italy Country manager Alejandro Pascual 27 28

16 Codere s Group principal magnitudes graphics Rate Rate 732 * 880 * 1,050 * 968 * 1,127 * 1,346 * 1,533 * 1,327 * 1,241 * 1,439 * 1,527 * 176 * 200 * 229 * 220 * 260 * 283 * 286 * 199 * 199 * 252 * 262 * * Millions of euros Restructuring process * Millions of euros Restructuring process The Company CAGR 7.6% CAGR: Compound Annual Growth Rate % CAGR IFRS

17 Gaming machines Betting shops 2. Managment Report Argentina - 6,952 Mexico - 85 Mexico - 19,184 Italy - 9,032 Spain - 9,157 55,060 Spain - 3,858 Panama - 8 Uruguay ,984 Panama - 3,069 Brazil - 5 Colombia - 5,403 Uruguay - 2,263 Gaming halls Racetracks Argentina - 14 Mexico - 90 Italy - 11 Spain Mexico - 1 Panama - 1 Uruguay Panama - 12 Colombia - 10 Uruguay - 6 Online gaming The Company Note: PANAMA: Betting shops do not include the 41 horseracing betting associated agencies. COLOMBIA: Data include only gaming halls holding more than 50 gaming machines. URUGUAY: Data reflect Carrasco Nobile and HRU operating income. Spain: Betting shops in Spain reflect SSTs number, in other markets betting shops units are reflected. Mexico - Spain - Brazil

18 Managment Report 2.1 Executive analysis The year 2016 has been a turning point in the evolution of the Codere Group, marked by the finalization, on 29 April, of the financial restructuring process. After several years of adjustments, the Company was able to regain competitiveness and attain the bulk of its strategic objectives, focused on maximizing operational efficiency and growth initiatives, especially in Mexico, Italy and Spain. In 2016, the Codere priorities were focused on defining a Business Plan aimed at recovering growth, having recourse to the capital markets to refinance the corporate debt structure (November of 2016), resulting in a reduction of the average interest rate by nearly 2 points (an interest saving of over 20 MM per year) and a reduction of 100 MM in principal. 33 In addition, certain events taking place at year-end impacted the Codere results, especially in the final quarter, for instance, the announcement of new gaming taxes in Argentina for 2017, which gave rise to a series of strikes in several Group gaming halls and had a negative effect on the accounts; the US elections and their impact on the exchange rate of the Mexican currency, or the purchase operation -by Codere- of 50% of Hípica Rioplatense de Uruguay (HRU), a horse racetrack and gaming hall operator, with this, moreover, marking a change in the financial consolidation of the Group. Heavy investments by Codere Spain in marketing actions also affected income and EBITDA. In this context, Codere sales at year-end amounted to 1,527 MM (*), a 6.1% increase with respect to the previous year, and Adjusted EBITDA was at 262 MM euros, a 3.9% gain over the previous year, reaching the levels it was at prior to the financial restructuring. In 2016, the Company recorded an Adjusted EBITDA margin of 17.2%, 0.3 percentage points below the figure reached in Investments made by the Group in 2016 exceeded 120 MM, with 62.3% being allocated to maintenance (renovation of gaming halls and product, or gaming license renewal, for instance), especially in Mexico, Argentina and Europe, and 37.7% to growth (product purchase to extend the number of gaming machines or acquire new halls and businesses) in the various countries, including the aforementioned 31 MM purchase in Uruguay, and other investments, principally in Spain and Colombia. At 31 December 2016 the Company treasury amounted to 142 MM. With respect to operational data, it must be pointed out that in 2016 the number of gaming machines rose by around 1% compared to the previous year, amounting to 55,060 terminals, reflecting growth in Mexico, Panama and Italy. The total number of sports betting shops grew by nearly 15.8%, reaching a total of 3,984. In 2016 Codere activity was supplemented by 144 gaming halls (of over 50 machines), four horse racetracks (consolidating those of HRU) and online activity in three countries. Note: The figures of the text for 2015 are adjusted to the unofficial (Blue) exchange rate in Argentina. In addition, they include our 50% attributable in HRU in 2015 and up until November of 2016, as from which time we consolidate 100%. Likewise, they eliminate the estimated impact owing to the closing of the halls in Argentina for three days in the fourth quarter of 2016, due to the strikes held to protest the new gambling taxes (and increase in some existing taxes). Said negative impact is estimated at 4.4 million in income and 2.5 million in EBITDA. Excluding these three adjustments, our income and Adjusted EBITDA in 2016 would have been 1,499 and 252 million, respectively. Use of the ARS at the Blue rate: the use of the implicit Blue exchange rate between the Argentine peso and the euro in 2015 is a more accurate reflection of the contribution of the operations in Argentina to Group EBITDA, prior to the lifting of capital controls imposed by the Central Bank of Argentina on 17 December The Codere Group results at the official exchange rate are included at the end of the document in the Audit Report section, and are available both in the Spanish Securities Commission (CNMV) as well as on the corporate website: 34

19 Managment Report At year-end, 68% of Group income came from Latin American and 32% from Europe Performance of Group Principal Markets In 2016, Argentina obtained income in the amount of MM, 18.5% more than in Adjusted EBIT- DA for the year rose to MM, 29.7% higher than in These figures include a positive adjustment of 4.4 million euros in income, and 2.5 million euros in EBITDA, which reflect the estimation of the impact of the three days of strikes in the Argentine gaming halls in the fourth quarter of the year. The EBITDA margin for the year was 24.8%, 2.2 percentage points above the figure for the previous year. In Mexico, cumulative sales in 2016 amounted to MM, 7.2% less than in 2015 ( MM), owing to the depreciation of the peso against the euro (17%). In local currency, income grew by 8.9%, driven by the increase in installed capacity. Adjusted EBITDA for the year was 88.5 MM, 5.8% less than in the same period in 2015, and once again was affected by the devaluation of the peso which offset a nearly 11% growth in local currency. The Adjusted EBITDA margin improved by 0.3 percentage points, reaching 26.8%. In Italy, income rose by 13.1% in the year, reaching MM, thanks to the constant growth of the daily average per machine, to the increased number of gaming machines and to the increase in the units connected to Codere Network concessionaire. Adjusted EBITDA was 26.4 MM in 2016, a 1.1% decrease in the figure reached in The EBITDA margin decreased by 1.2 percentage points with respect to In Spain, income grew by 9.2%, reaching MM in 2016, which reflects a drive forward in all business areas. Average gaming machine revenues likewise increased in this period by 10%, as a consequence of investment in product as well as the aforementioned customer loyalty and marketing actions. Adjusted EBITDA performed positively, increasing by 16.6%, and reaching 29.5 MM. The Adjusted EBITDA margin improved by over one percentage point with respect to the previous year. 35 Other Operations In Panama, income fell by 5.1%, principally owing to the decrease in gaming machine daily averages, and as a result of the increase in taxes on players and the falling profitability of table games. Adjusted EBITDA reached 16.6 MM, 17.7% more than in the previous year. The EBITDA margin also improved by 3.3 points with respect to In Colombia, income fell by 13.9%, down to 24.7 MM, a result of the depreciation of the Colombian peso against the euro and, to a lesser extent, a consequence of fewer gaming machines installed. Adjusted EBITDA fell by two million euros with respect to 2015, owing to the depreciation of the Colombian peso and the gradual application as from Q , of the variable gambling tax, which was partially offset by efficiency measures. The EBITDA margin fell 4.3 percentage points with respect to the previous year. In Uruguay, business results in 2016 are divided into the Carrasco Nobile Unit (Casino Carrasco) and the Hípica Rioplatense de Uruguay (HRU) Unit, fully consolidated by the Codere Group since 1 December of said year (up until then the Codere Group consolidated its 50% stake in HRU by the equity method). In the case of the Carrasco Unit, income fell by 13.7 MM with respect to 2015, down to 14.2 MM, affected by volatility in the VIP table games in the first half of the year, which -subsequently were suspended. The Unit was also affected, to a lesser degree, by the depreciation of the Uruguayan peso against the euro. Likewise, Adjusted EBITDA suffered a 7.4 million euro decrease, falling to (-10.3) MM, mainly affected by a fall in income and the finalization of the 50% reduction of the fixed gambling tax since Q HRU, on its part, increased its income in 2016 by 2.6%, up to 27.7 MM. Adjusted EBITDA fell by 4.3% since 2015, down to 8.9 MM. The purchase operation to acquire 50% of HRU allowed Codere to drive synergies for the integration of the local operations, business taxes, and placement of the gaming halls of both units. The EBITDA margin decreased by 2.4 percentage points with respect to the previous year. In Brazil, the Company obtained income in the amount of 1.6 MM, a decrease of 0.8 million euros with respect to the previous year, and an Adjusted EBITDA of (-4.6) MM with a decrease of 3.2 MM, principally as the result of the closing of two of its horse race betting shops and the temporary closing of the Sala Niteroi gaming hall, owing to the renovations carried out at the start of the year. At year-end, 68% of Group income came from Latin American and 32% from Europe. 36

20 3. Group Innovation

21 Group Innovation 3.1 Innovation Codere sees innovation as the basis for market growth and differentiation. In 2016, the Company took on the challenge of Group Digital Transformation. A large part of this objective is based on the analytical capacities of its Space (CRM) platform and on the customer-oriented approach of the business. In order to start up this process and develop its platform, the Information Systems corporate management has centralized the design and solution development activities, and subsequently, the coordination of the local teams. In the past year, one of the principal milestones attained has been its global implementation in all of the business lines in the various Codere markets, especially in Argentina and Mexico, in the terminal lines, books (bets) and tables. SPACE has evolved from its origin, covering a greater number of functionalities and managing more services, and has gone from maintaining direct interaction with customers to interaction with the online systems of the gaming halls. 39 A multi-platform vision In recent years, the Company has oriented the business towards its omni-channel offering, favoring a multi-platform access to its gaming offering both on-premise as well as online, and to rewards for its CLUB customers. The SPACE application integrates for the most part- management of the Loyalty, Marketing and Call Center areas, consequently obtaining a 360º vision of customers in their various interactions, and driving profitability through managed cross-selling actions. Other areas, such as product, technical service or strategic business analysis also form part of the SPACE application management network. For instance, in 2016, the platform served as support for the management of gaming tables in Panama. With the customer Self-Management App (adapted for IOS and Android), the Company takes the Codere experience to another level, going from the physical kiosk to interaction from outside of the gaming hall. In the past year, Codere México implemented this Self-Management App as part of its services. Codere Closer to the Customer Recently, the Company has made progress in projects which analyze CLUB customer prediction models, allowing for customer segmentation and analysis, traceability of customer activity, or churn rate, and as a result favoring greater efficiency in strategic decision-making in regard to gaming hall customer management (in real time) and personalized promotions. All of this is reinforced with multiple communication channels: SMS, , and notifications via App and in the gaming hall, which is a qualitative step forward in the relationship between Codere and its customers. In the coming months, SPACE will continue to develop, and its functionalities will be increased by the integration of gaming table services (Line A and B), -in conjunction with EL CLUB rewards-, and with the unification of the Codere and EL CLUB cards. Last year, Codere México implemented this Self-Management App as part of its services 40

22 4. Areas of activity

23 4.1 Areas of activity Codere carries out its activity in five areas: gaming machines, gaming halls, sports betting, racetracks, and online games. 4.2 Gaming machines Gaming machines are the origin of Codere s activities in the sector, and constitute one of its principal business areas. In 2016, the Company operated 55,060 machines, an increase of 1.16% over the previous year, in the Mexico, Spain, Italy, Argentina, Colombia, Panama and Uruguay, markets, which are very different from one another and which are at different stages of maturity. Areas of activity In 2016, Codere managed over 55,000 gaming machines, 30,000 bingo seats, and nearly 4,000 betting terminals in Latin America, Spain and Italy through sales points, which include 144 gaming halls, 633 recreational halls, 10,000 bars, 156 betting shops and 4 racetracks, in addition to engaging in online activity in three companies of the Group. Company activity adapts itself to the regulations in each country, and manages its operations in line with the peculiarities of the eight local markets in which it operates. 43 The Codere gaming machines include AWPs, VLTs, electronic bingo terminals, and other types of machines. The annual computation excludes those operated by third parties. Each year, Group professionals analyze the tastes and preferences of consumers, as well as the needs of the establishment in order to meet consumer demands, and provide customers and users with an integral quality service through the analysis, renovation, and rotation of machine models, commercial attention, collection management, technical service, or management services, among other activities carried out. The Codere gaming machines are located in gaming halls, recreational halls (gaming establishments having between five and fifty machines operated by the Company or by third parties), bars (bars, restaurants, tobacco shops, and any other establishment except for recreational halls- having fewer than five betting machines or terminals) and racetracks, and offer prizes in accordance with user bets. The different types of gaming terminals adapt to the characteristics of each market: AWP (Amusement With Prize) Machines: machines which pay out cash prizes as the result of a percentage of total bets on a pre-determined cycle of games. In Spain, Codere operates type B machines, and in Italy, Comma 6A machines. Casino Slots: Casino or gaming machines. In exchange for a given bet, these machines give the user a game time and eventually- a prize which will always 44

24 Spain Italy Mexico Areas of activity depend on chance. Codere operates these types of terminals in Argentina, Panama, Colombia, Mexico and Uruguay. Electronic Bingo Terminals (EBT): machines incorporating games similar to those played with bingo cards in the authorized bingo halls. Codere operates EBTs principally in Spain. VLT (Video Lottery Terminals): machines incorporating games similar to those played with bingo cards in the authorized bingo halls. Codere operates EBTs principally in Spain. Electronic Bingo: online game based on bingo which allows several persons to play online at the same time, through a touch screen. It has a prize structure which combines traditional shared prizes with individual prizes, as the main attraction. In Spain, these terminals are found in the CANOE gaming hall. Codere activity in Spain is linked to gaming machines, and it currently holds a notable position in the sector. In 2016, Codere Spain made significant investments in product improvement, renovating nearly one-third (33%) of all of its machines and improving gradually, quarter by quarter. Average revenue collection from machines during the year improved by 10.4% with respect to the preceding year. 35% 30% 25% 20% 15% 10% 5% 0% 7% Q1 Quarterly renewal 19% Q2 4% Q3 3% 33% Q Codere operates an important gaming machines network (Codere Network) in Italy, Codere Network, as well as AWP machines and Video Lottery Terminals (VLTs). This modality joined the market thanks to regulatory changes taking place in At the end of 2016, Codere Italy had a total of 9,032 gaming machines, a 5.5% increase over the previous year (8,087 AWPs and 945 VLTs). Income from the country grew by 13.1%, owing to the larger number of machines installed (7.4% and 6.1% more machines on average, respectively), and also owing to the significant improvement in the daily average per machine which grew by 19.2% (in the case of the AWPs) and, to a lesser extent, to the increase in units connected to the Codere Network. Currently, all machines in Italy are connected thanks to the various networks of the concessionaires. Presently, there are eleven of them in the Italian market. Through the Codere Network, the Company connects its own machines and offers services to third parties. Within the Group growth policy (Strategic Plan ), the objective is to continue expanding the number of Codere Network machines and grow in the market through the purchase of AWP operators, as the Company already did in 2015 by signing an agreement with its partner, GAP Games, for the acquisition of PGO Service S.r.l., which operated machines in the regions of Veneto, Friuli, Toscana and Lazio and, subsequently, with the acquisition of 51% of the companies GARET S.r.l. and GAME OVER S.r.l., operating in Toscana and Umbria. Codere set up operations in Mexico in 1998 thanks to the business alliances with the CIE and Caliente Group. Ever since that time, Codere has been pioneer in the gaming sector with bets and lotteries. Currently, Codere is the leading gaming hall operator in Mexico, with 90 gaming halls at the close of Likewise, the Company operates 19,184 gaming machines there, located in gaming halls and in the Hipódromo de las Américas racetrack. In 2016 the number of terminals grew by 2.3%. Argentina Codere focuses the gaming machine activity in Argentina in the province of Buenos Aires, and is one of the leading companies in the sector. In this country, the Company operates 6,952 gaming terminals. Inter-annual cumulative revenues have grown by 24.8%. Codere has equipped the gaming halls with the latest generation slot machines, progressive slots, video poker slots, and electronic roulette. The slot machines use the Ticket In Ticket Out payment system for greater player comfort, and in all halls the Company has linked slots, with a common jackpot which grows as more people play. Nine of the fourteen Company gaming halls continue to offer Smokers Clubs, providing an exclusive space with the latest generation machines, a cafeteria, and 45 46

25 Areas of activity food and beverage service, and excellent personalized attention. Colombia In compliance with the gaming regulator Coljuegos, Codere, which defined the conditions and chronogram for the connectivity of the electronic slot machines, resolved that by 2 November 2016 the operator was to guarantee the connectivity of 100% of the asset inventory. By that date, Codere Colombia already had all of its machines interconnected and paying monthly operating fees. Slot machines in non-gaming establishments: on 31 March Coljuegos issued a new regulation permitting the operation of slot machines in premises the commercial activity of which could be other than gaming; however, it highlighted certain peculiarities for said operation: In municipalities of at least 25,000 inhabitants, as a general rule three gaming elements could be operated per authorized premise. In municipalities having from 25,000 50,000 inhabitants, there would be a maximum of two gaming elements. It is required that a minimum of 500 gaming elements be operated for each concession contract, indicating the following gradual scale: initial authorization could be given for a minimum of 300 gaming elements; at finalization of the first four months of execution of the concession contract, at least 400 gaming elements will be required to be authorized; and at the end of the first eight months of execution of the concession contract, at least 500 gaming elements will be required to be authorized. Coljuegos will study the applications for authorization for concession contracts or addition of gaming elements, taking into account the total maximum limit of 18,500, that the machines must not receive or pay out cash, and that in the gaming elements no bets may be placed on virtual races or sports or gaming modalities other than the localized games. Moreover, the gaming elements must guarantee to the players a theoretical prize percentage of 82.5%, placing limitations on prize value, and certain technical specifications for the machines, among other requirements. The past year, in the gaming machine business, the Company made great efforts to renovate its machines and equipment, investing around (USD) 2,318,429: Purchase of gaming machines and equipment: 190 machines, 157 wallets, 44 TITO kits, 15 game conversion kits and one bingo equipment. Incorporation of participated machines: 7 suppliers and 408 machines. Incorporation of machines to online system: in April 1,633 machines were connected, and in November, 1,557 machines were connected, until the operation was fully completed. Likewise, the Transactional TITO System was implemented as a pilot in the Crown Casinos Unicentro gaming hall. In said hall, 78 out of a total of 94 machines would be able to use this system. At yearend, the TITO system had already been activated in 44 of the machines. Panama Gaming machines are also the main business source in Codere Panama. In 2016, the number of terminals grew by nearly 4%, reaching the number of 3,069 machines. The unification of its casinos under the CrowN brand favors its positioning as an entertainment leader in all of the casinos of the country, and at the same time allows it to improve its profitability and competiveness in the market. At year-end 2016, Codere Panama had renovated 19% of its total gaming machines, some 530 new machines. Likewise, and following a strategy of existing product optimization, there were more than fifty changes in games. Among the most noteworthy products installed in 2016 were: 88 Fortunes: progressive slot with an Asian theme from the manufacturer Bally. Taking advantage of its successful performance, 52 machines were installed, adding to the twenty already existing machines. Lightning Link: multi-level progressive slot from the manufacturer Aristocrat. This product, which had been incorporated as a trial, is today one of the Company s most outstanding products, and a candidate to continue being incorporated in Novomatic VIP: a product with successful fruit games and with a new model. In addition, throughout the year new slot machine cabinets were installed and were well received, such as Aristocrat (Helix), Bally (Wave), Ainsworth (SL) and Konami (Selexion and Concerto). In addition, the product having the greatest performance continued to be promoted, with additions being made to the number of machines from suppliers such as EGT, Alfastreet or Novomatic, which continue providing a key offering for customers. Likewise, with the commitment to increasingly improve integral product offering, the Company has driven a change in the layouts of nearly all the gaming halls, with Plaza Mirage, Radisson, Soloy and Continental being those offering the greatest returns

26 Uruguay In the wake of a long renovation process, in March of 2013 the Sofitel Montevideo Casino Carrasco & Spa was inaugurated. Carrasco Nobile is a consortium headed by the Codere Group, and in 2009 was awarded the tender for this emblematic building, an icon of entertainment and gaming in Latin America, a luxury hotel with a vanguard casino of over 3,000 square meters, distributed on two levels. The Casino del Carrasco is open to both guests as well as the general public. The gaming area has 23 tables (Roulette, Black Jack, Baccarat, Mini and Midi Baccarat, Poker, Craps, Big Sixes) and 395 slot machines of the most highly recognized brands internationally, and with progressive slots linked to different groups of slots having a number of modalities, and stand-alone progressive slots. 4.3 Gaming halls Codere is an operator of international reference managing 144 gaming halls (with over 50 gaming machines) in the countries in which it is present. In addition, it carries out its activity through 633 recreational halls (gaming establishments having between 5 and 50 gaming machines operated by Codere or third parties) and in bars (bars, restaurants, tobacco shops, and any other establishment having fewer than five betting machines or terminals). Areas of activity In recent years, the Company made a significant investment effort in this segment, becoming the leading operator in Latin America, especially in Mexico and Argentina, in the province of Buenos Aires. Spain In Spain Codere operates the CANOE Bingo Hall, the gaming hall of reference in the capital city, with over 35 years of history. The attractive offering of gaming and gastronomy, together with the novelties implemented in the hall over the past year, have made it possible to close 2016 with 12% more visitors than in In 2016 the Company invested significant resources in Spain, both in regard to product renovation as well as in gaming hall improvements and actions to promote its commercial activity. These improvements have been reflected in the re-design of the CANOE betting area, and in the renovation of a number of machines. Currently, the hall has a multi-product zone which has 49 50

27 Areas of activity gaming terminals and multi-gaming terminals, bingo terminals and electronic roulette. In addition, improvements were made to the accessways in the lower and upper floors, including a direct entrance from the parking area. Moreover, the reception area was opened up to create a more spacious zone, and the coat and bag check capacity was expanded, with improvements also being made to the hall lighting and information. In the upper floor, as a novelty, there is natural light, and a grass floor simulating the customer entrance to the playing field. Also, a large-scale digital screen and a new reception counter were installed. In 2015, CANOE started up the CANOE Grand Terrace, a space designed to meet customer needs, providing them with comfortable access to the bingo hall and with a varied gaming offering. The results of this new area have continued to improve in One of the milestones of the year in this improvement plan aimed at customer satisfaction was the launch in the third quarter- of the EL CLUB Loyalty Program which at year-end 2016 already had 9,000 registered members. The Club was launched with a special event which culminated in the drawing for a Fiat 500 among the members present in the hall. The Program offers a wide variety of advantages for members, ranging from a unique catalogue of gifts for point redemption, a welcome gift and birthday gift, in addition to exclusive offers, promotions, and drawings. Likewise, customers are able to check their points and promotions through the access counters, from the kiosks, and from the CA- NOE webpage itself, In addition to the wide range of entertainment offered by CANOE (bingo, gaming machines, roulette, sports betting, lounge bar with a cocktail and tapas menuand its renovated food and beverage offering, the attractive jackpots and promotional campaigns are a significant enticement for the gaming hall customers. In fact, last year alone CANOE gave out around forty million euros in prizes from its various games. Noteworthy among its principal campaigns carried out in 2016 is the one launched at Christmas, in addition to daily mini-drawings, the classic CANOE Rebingos, which this year handed out a highly significant volume of prizes, and digital Thursdays (month of November), among many other special drawings. The good results of these initiatives in the gaming hall are reflected in the data of the NPS (Net Promoter Score), the principal customer experience indicator, which grew by 30 points in 2016 and is the highest in the Group. This indicator reflects the perception that CA- NOE is the gaming hall which gives out the highest prizes in the market, offers more promotions than other gaming halls, and has the best installations (entranceway decoration, direct access to parking area, new seats, etc.). Italy Codere is one of the largest gaming hall operators in Italy, with 11 gaming halls and 9,032 gaming machines including VLTs (Video Lottery Terminals). Three of these gaming halls are among the five largest in the country, and one of them, Bingo Re, is one of the most important gaming halls in continental Europe. The Company completes its leisure offering with restaurant and entertainment services. The Stability Act (2015) placed the sector in a difficult situation in Italy, which, together with the restrictive gambling laws in the various regions and the extremely high taxes (PREU), made the activity practically unsustainable. Despite the difficulties, the industry has held on, and endeavors have been made to promote the survival of legal gaming. Along this line of action, Codere goes one step further with respect to legal obligations (Balduzzi Law), and undertakes from the front line to recognize and manage the problems related to pathological gambling (GAP) through various initiatives. On 13 September, Codere launched Codere Online Training, a training and information tool aimed at legal gaming operators connected to the Codere Network and operating in their own gaming halls or halls managed by third parties. The presentation took place in Rome, at the Information Palace, and was attended by Pier Paolo Baretta, the Under-Secretary of Economy, among other authorities. This online platform makes it possible, through a series of modules, to train operators to recognize and manage possible critical points related to pathological gambling. The tool has its own qualification procedure, which is issued once the learning process has been successfully completed. The training contents include three modules in legal training (History of Legal Gaming in Italy, the Complexity of the Regulatory System and Procedure, and Gaming Operator Ethics and Responsibility) and four modules on training to counter pathological gambling (definition of pathological gambling, the various types of pathological gambler, prevention in gaming halls and intervention lines). The platform contents have been submitted to the State Monopolies Despite the difficulties, the industry has held on, and endeavors have been made to promote the survival of legal gaming 51 52

28 Mexico Areas of activity Codere heads gaming hall operations in Mexico, the province of Buenos Aires (Argentina), and Uruguay Agency for approval, in accordance with the Network Concessionaires Development Plan. Codere has always maintained the promotion of legal gaming as one of its business premises, and in November of 2016 continued in Bologna with the second stage of its itinerant workshop In nome della Legalità 2.0, which since 2011 has been promoting a culture of responsible gaming with respect for the law. This project, sponsored by the State Monopolies and Customs Agency (AAMS) is backed by other institutions, and encourages the participation of local representatives, agencies, and professional associations. The initiative, from the outset, has sought a joint agreement with the various gaming sector actors at the national level, to prevent the market from falling into illegal hands, and to work together in order to palliate the phenomena associated with gaming, which in recent years has taken on worrisome dimensions in the country. Alongside these initiatives, with respect to the gaming halls, in 2016 the Company implemented a series of improvements and, on the occasion of the reopening of the Royal gaming hall, restructured its gaming machine, restaurant and leisure area. Other improvement initiatives were promoted through the motivation competition Squadra Vincente, for employees in the Operbingo hall. This project sought to motivate the operating team and employees to improve the hall ambience, driving their participation in the Group and in the corporate objectives. The program prizes had a positive repercussion on the gaming hall through team training, hall modernization, wifi access points, etc. In addition, throughout 2016 there was a high volume of theme activities, promotions or entertainment carried out in the gaming halls, for instance, the activity carried out on Valentine s Day (supporting the Telethon Foundation which, since 1990, has been promoting research into rare genetic diseases) with the campaign A heart for rare people. In addition, on Women s Day the program Innamòrati di te was carried out in Rivoli, Caserta and Rome. This involved a series of encounters 53 aimed at women, with special focus on a campaign against gender violence. Moreover, on the occasion of the 73rd edition of the Venice International Film Festival, from the Codere Facebook page promotion was made of the campaign Red Carpet: la star sei tu ( Red Carpet: the Star is You), with incredible film prizes for the winners, among other initiatives and attractive promotions. In Mexico Codere operates 90 gaming halls. In 2016, the Company made a strong investment of some 21.1 million euros to renovate the gaming machines and halls. Throughout the year, gaming machines were added to the Cuauhtémoc, Polanco, and Universidad gaming halls and to the Royal Yak Hipódromo racetrack, and the Bingo Plus scratcher was also added. Likewise, gaming hall activity throughout the year was very intense. In total, over 1,300 events took place, celebrating anniversaries, Yak Day, Mega Bonus, Theme Celebrations (Valentine s Day, Mother s Day, Father s Day, National Holidays, All Souls Day, Christmas or New Year s Day), and around 980 campaigns were started to communicate the various promotions in the hall, and the various games (tables, bingo, etc.) and services (F&B). 54

29 Areas of activity Two branding campaigns were also carried out for the Yak and Royal Yak brand, in various points of the city and in the gaming halls themselves, and they were very well received, making a very good impression on the customers. All of these events were communicated through specialized mass media so as to have a greater impact (advertising on radio, and advertising outside and inside the hall itself). In addition, in 2016 the Company signed sponsorship agreements to promote the presence of the Yak brand in the Box events, which has made it possible to have a greater presence in sporting and theme events, which were promoted both inside and outside of the gaming halls. Colombia During 2016 the EL CLUB Loyalty program was the principal commercial engine and daily management tool in the gaming halls, entailing a change in the information provided to customers, placing emphasis on a single rewards points table, and communicating all promotions through points. Moreover, all customers have unrestricted access by category, given that in this model of management by segments, every customer receives promotional incentives in accordance with the segment which the customer is in month by month. In accordance with these adjustments, in the customer management model a change was made from an external CRM platform to an own tool (SIEBEL). Furthermore, support tools were implemented, facilitating the display and transmission of information to customers. With respect to the gaming halls, throughout 2016 over 500 events took place, such as drawings, the CrowN brand anniversary, theme celebrations such as Mother s Day- monthly events, promotions, etc. These events were disseminated through specialized mass media (BTL, communication in the gaming hall, or SMS and RRSS) and in the gaming halls themselves. In addition, outside communication was also consolidated, promoting the Group brand and entertainment offering in a tourism ad (Hoteles Bogotá). Throughout the year, the program Actitud eres tú ( You are Attitude ) continued to be carried out in the various gaming halls. This is a service-oriented program the principal aim of which is to generate a sensation of satisfaction on the job and an excellent attitude, in an aim to convey to customers that the service which the Company offers them is unique and personalized. With respect to the Food and Beverage (F&B) area, numerous theme promotions and campaigns were carried out, aimed at the various sporting or group events. Argentina Codere Argentina is the largest bingo hall operator in the province of Buenos Aires and has 14 gaming halls currently in operation, managing 29.8% of the gaming machines. During 2016, the Company has carried out intense activity in all of its gaming halls, including a diverse number of events, such as anniversary celebrations, special events, gastronomy events, musicals with local performers, or loyalty activities, which position the Company as the greatest quality offering in amusement and entertainment. Taking as its focal point the promotion of customer relations and continual improvement, the Company periodically conducts customer satisfaction analyses (through satisfaction surveys, focus groups and mystery shopper). Moreover, the gaming halls have several communication channels which customers can use to send in their comments, such as the suggestion box, complaints book, or the customer service stand, and outside of the halls, through , the telephone contact center or the Ethics Line at the corporate level. Through EL CLUB, members are offered rewards through the accumulation of points, called crowns. EL CLUB has a rewards catalogue allowing swaps for cash and offerings from the food and beverage menu. Through the individual program card, full and accurate information on customer behavior is provided, and on the basis of the analysis made of the data obtained, different promotions and rewards are designed and offered. At year-end 2016, the program already had 430,000 registered members, and over $1,600,000,000 in net win was generated by members. EL CLUB has a member base segmented in direct relation to their playing volume. Based on these segments, different rewards are offered (birthday gifts, personalized promotions, special actions, exclusive drawings, personalized gifts at the end of the year, etc.). Likewise, promotions are personalized, which is an advantage for both members as well as for improving profitability. In the second quarter of the year, gaming hall encounters took place, a series of events carried out in the The Company, focused on providing excellent service, enhances customer care and continual improvement 55 56

30 Panamá Uruguay halls with a reduced group of members, inviting them to enjoy and participate in the various activities (wine-tasting, spa sessions, etc.), at all times maintaining care and dedication in the selection and ambience of every detail. In April, a call center was started up, with two positions, for member management and for promoting profitability (reactivation campaigns, promotions, surveys to know the impact of the actions carried out, etc.). In August five gaming halls launched the Customer SPACE System (Siebel), a CRM software tool which contributes to the integral management of the member base. Other tools were also implemented to improve gaming hall activity, such as alerts of the access of highly valued members in order to offer them personalized service- or swaps carried out through the self-management terminals (ATM) for members. In addition, and in line with quality criteria, the Company certified its claims management system, complying with IRAM Standard 90600:2010, which covers claims and complaints, and IRAM ISO 9001:2008, covering customer service and the rewards program. Both standards ratify the pathway to transparency in all of its processes, ensuring its efficiency and contributing to generating customer trust. Codere Panama manages two casinos which are integrated under the CrowN brand, a brand consolidation which has reaffirmed the position of the Company in the country with respect to betting and entertainment. With respect to product, the Sheraton, Panama, and Continental casinos, and subsequently the Casino Riande Aeropuerto gaming hall, inaugurated the new table game of Sic Bo. So far 140 employees have been trained to operate this game. This version, very well known in Las Vegas, will be one of the main attractions of the brand. It is planned to be installed later in the halls in the interior of the country, in order to position the Company as a leader in table variety and innovation in Panama. In addition, in 2016 five additional sports machines were installed and the CrowN Club LAIOs in disuse were reused, in order to have greater presence in the Casinos. In addition, the halls were equipped with wifi Wigo to provide customers with greater comfort while enabling them to access the data required to make live bets thanks to the detailed information of the sports statistics. In Uruguay Codere operates a single gaming hall in the casino Sofitel Montevideo Casino Carrasco & Spa. In 2009 Carrasco Nobile, a consortium headed by the Codere Group, was awarded the tender for this emblematic building, an icon of entertainment and gaming in Latin America which, after a restoration process, was re-inaugurated in March of This historic building dating back to 1912, a Uruguayan National Heritage Site, was designed by the architect Louis Mallet and is located in Carrasco, an exclusive neighborhood of the city situated opposite the Río de la Plata river, only five minutes away from the Carrasco International Airport, and 25 minutes from the city center. The Casino del Carrasco has 3,000 m2 distributed on two levels, and is open to guests as well as to the general public. The gaming zone has 23 tables (Roulette, Black Jack, Baccarat, Mini and Midi Baccarat, Poker, Craps, Big Sixes) and 395 slot machines of the most internationally recognized brands. Together with its gaming offering, the hotel has a varied food and beverage offering at its different locales: Restaurant 1921, offering French cuisine; and Thays Gallery and El Bar, specialized in cocktails, drinks and informal dining, located in the Casino zone. In 2016, the hall carried out its activity with an approach which varied throughout the year: in the first half of the year, its commercial focus was on developing and consolidating its strategy for attracting the VIP regional gaming market, which had been started the year before. In the second half of the year, in the context of the negotiations with the Montevideo Municipal Government regarding changes in the concession contract, it was decided to temporarily discontinue the commercial strategy carried out in 2015 and part of 2016, and focus the business on the local market, maintaining controlled attention on VIP customers. At this stage, special attention was placed on the local market, on customers having a middle/high purchasing power, and the layout was adapted to this new stage. The number of terminals and tables was maintained, adapting minimum and maximum amounts and varying the hold, as well as the name of the slots. Casino Carrasco is a key social meeting point in Montevideo Areas of activity 57 58

31 Carrasco positions itself as the social meeting point of Montevideo, promoting weekend entertainment with its wide offering of attractive games and shows, and with a quality food and beverage offering. The casino entertainment activity in 2016 was very extensive, offering a number of theme events and encounters (carnival, Meet & Greet Ricky Martin with the principal casino customers, etc.), parties (White&Gold...) and VIP poker tournaments, Big Baccarat, monthly slot machine tournaments, etc. Likewise, in July the new Gastronomy Offering of Elena Tejeira, a recognized gastronomy entrepreneur in Uruguay, took place. 4.4 Betting Shops Codere has broad experience as a sports betting operator at the international level, carrying out this activity in Spain, Mexico, Panama, Uruguay and Brazil. In 2016, the number of Group sports betting terminals rose to 3,984, a 15.7% increase over the previous year. Areas of activity 59 Betting is a gaming activity which can be carried out in a variety of establishments, whether in specific shops or associated with other gaming modalities, such as casinos, bingos, sports venues, racetracks, bars, etc. Among the types of bets operated by Codere are those made in terms of the time they are placed (before or at the time of the event) or in terms of the number and type of bets (simple, accumulator double, triple or multi- and multiple). Codere began operating in this activity on its arrival in Mexico in 1998, introduced by its local partners. The majority of these betting shops are connected with gaming halls, making it possible to offer users a wide variety of gambling entertainment options. In the Panama and Uruguay markets, betting halls are linked to the management of the Presidente Remón racetrack (Panama), and Hipódromo Nacional 60

32 Areas of activity In Spain, Codere is the first company licensed to operate sports betting in the country de Maroñas and Hipódromo Las Piedras racetracks (both in Uruguay). Since 2006, Codere has also been operating in Brazil, managing betting shops alongside the principal equestrian clubs of the country and offering its customers horse race betting at the national and international level. In Spain, Codere is the first company licensed to operate sports betting in the country, and inaugurated the first on-premise betting shop on 16 April 2008 in Madrid, in the CANOE bingo hall. At the end of 2016, Codere Spain accounted for over 97% of the total Group betting terminals. An alliance promoting Codere betting worldwide On 23 November 2016, Codere became the Official Sports Bookmaker for Real Madrid C.F., after making public a sponsorship agreement for the following four seasons. The presentation took place at the Real Madrid headquarters, and was attended by the president of the Codere Group, José Antonio Martínez Sampedro, and by Emilio Butragueño, Real Madrid C.F. Institutional Relations Chief Officer, both of whom showed their satisfaction at having reached this important agreement. In addition to their Madrilenian origin, both companies have in common the fact that they are leaders in their own playing fields and are known worldwide, and both have an innovative vision, which they project onto each one of their activities. This agreement, which has become widely known, is a milestone, which marks a turning point in betting operations, and in positioning the Codere brand all over the world. Thanks to the sponsorship contractual assets, and their suitable exploitation, the brand has attained great visibility through the media and the LED perimeter lighting, and also thanks to the exploitation of the image rights of the club and of the footballers for advertising and promotional actions and for the redesign of the layouts of the Company sports betting ecosystem and other marketing actions (hospitality, brand exploitation, etc.). 61 Spain On-premise sports betting continued to grow significantly in Spain in 2016, and, in the midst of this growth, Codere increased its betting sites by 16% with respect to the previous year. The bulk of this growth took place in its betting shops which began to dot the landscape in 2016 developing a new design of the shop experience with a more innovative and attractive look & feel as well as with new locations, in addition to continued growth through third parties. In addition, a process was started to display the image of Real Madrid in the interior of the shops. Major National Projection The Company, present in all of the regulated autonomous communities in 2016, began its sports betting operation that year in Cantabria. In June, it began its activity in the Gran Casino Melilla. In the second half of the year and in order to comply with its expansion plan- Codere presented a new corner in Zaragoza. It likewise initiated its activity in various towns in Asturias, with the support of strategic partners. In October, the Company signed an important alliance to operate betting sites in the Galician market. In its aim to continue growing in 2017, Codere is getting prepared in those communities soon to be regulated (Andalusia, Balearic Islands and Canary Islands) where a significant campaign is planned. Additionally, Codere is present in a number of important professional events, such as the franchise exposition Expofranquicia (April), bringing its attractive commercial offering to possible partners. In the past five years, Codere has offered the greatest profit margin in the market four points above the competition. At the Expojoc fair in Valencia (May), the Company announced its local expansion plan, highlighting the service quality and value added to the offering in bars, benefitting both the bar and the operator. In September, Codere took part in the Andalusian gaming congress V Expo Congreso Andaluz sobre el juego in Torremolinos (Malaga), a community which generates great expectations for development in the industry. In December, Codere also participated in the Anesar Gaming Hall Annual Congress (Madrid) where it showed its successful SST equipped with intuitive and manageable software, and its Selfie terminal,with a lighter and more attractive design, thanks to the elimination of peripherals (monetics and mobile wallets). Product innovation at the service of customers Throughout the year, the Company developed various novelties with respect to its betting product, with its licenses to offer sports information (tennis) being worthy of mention, as well as certain betting modalities which are highly attractive to its customers (cash out lottery bet or bets). Moreover, Codere has live sports images for its online channel, and for its on-premise channel (Codere TV), as well as NBA images and dog races, in addition to other novelties. In September, Codere Apuestas launched its new gaming App available for ios and Android- and its PC version. The new application improves user experience and has an unprecedented architecture making it more fluent and stable, improving net surfing by making it easier to move between the different events and markets. Its updated look & feel improves customer legi- 62

33 Areas of activity bility and experience. Moreover, it makes it possible to enjoy different events live through streaming, mainly football, tennis, dog races, and horse races, minute by minute, from any location. The recent PC version includes Casino games (blackjack and roulette), and likewise provides a wide offering of slot games, together with its broad market catalogue. As part of its customer services, the Company has improved its prize payment service, reaching an agreement with all of the change machine manufacturers to enable Codere Card users to collect their prizes in real time without having to go to the local operator. Sophistication in attracting and keeping users A methodology for attracting users has been developed through programmed purchases, using look-alike and retargeting models, segmentations optimized in social networks and the purchase of televisions with qualitative GRPs, thanks to attribution models, which make it possible to optimize the cost and number of slots run depending on the volume of registered users. Once the Codere user is attracted, this methodology is capable of developing predictive sales models by means of complex segmentations, building loyalty and reactivating the customer more easily, and obtaining better retention ratios than the competition analyzed. A year of intense promotional activity In addition to the agreement with the Real Madrid C.F., in 2016 Codere carried out other important sponsorship agreements such as the one with the Valencia C.F. for the season. Along parallel lines, it has been engaged in intense promotional activity, marked by its launch on TV, a milestone in promoting the brand throughout Spain, which capitalizes important actions on the social networks during major football events, such as the UEFA Champions League 2016 final on 28 May, which was awarded a Twitter Business Case Study. In April, Codere Apuestas launched its brand notoriety campaign called Cobrapuestas, which has been enthusiastically welcomed by customers and has had far-reaching effect. In June, during the Euro Cup, the Company launched a new campaign for all of its customers We reimburse you 50% of your losses on freebets during the Euro Cup. In the final quarter of the year, Codere launched the TV ad campaign Bettors Passion, consisting of various spots which recreated a soap opera -with a touch of humor- telling of the effects of the Codere Apuestas good practices, using the slogan Bet with Passion, and producing an unprecedented impact on the business. Other noteworthy actions took place, such as during the Real Madrid - Barcelona Clásico match (3 December) and taking advantage of the recently implemented sponsorship agreement- a new 360º campaign was carried out. The El Clásico Codere spot was launched for TV, with the Company presenting itself for the first time on this communication medium as the Official Sports Bookmaker for Real Madrid where the footballers can be seen in an image associated with Codere. 63 Mexico Codere operates 85 betting shops in Mexico (in the gaming halls managed by the Company) offering all types of sporting events, facilitating users with a wide variety of gambling entertainment options. Codere operates sports betting from the Hipódromo de las Américas racetrack through Sports Book and Codere Apuestas. By means of Sports Book, customers are able to bet on all types of national and international sporting events (dog races, football, American football, baseball, hockey) and on horse races in the principal US racetracks (Santa Anita, Hollywood Park, Lone Star Park, Los Alamitos, Sam Houston). The Company also operates sports betting under the Codere Apuestas brand, offering a great variety of markets and types of bets (including games with live betting, first and second half, full game, hi/lo, etc.). Parallel to its offline activity, in October of 2016 the Company launched its online sports betting operation Panama Codere operates eight betting sites in Panama (in the gaming halls managed by Codere, without including the 41 associated agencies, which are only for equestrian betting), through the brand Turff Bet & Sport Bar and Codere Apuestas. These betting sites offer a series of technological and human resources allocated to attracting and operating cross bets in equestrian events and sports competitions, as well as games permitted by law, with real-time audio and video transmission. They are equipped with wifi Wigo, offering customers greater comfort and the ability to access the data required for live betting through their mobile phones, thanks, among other data, to the detailed information provided by sports statistics. Uruguay Codere manages 28 betting sites in Uruguay offering simulcasting. In Montevideo, the betting shops are located in the 18 de Julio and Montevideo Shopping Center gaming halls and the Hipódromo Nacional de Maroñas racetrack (on racing days). In 2016, the Company continued the direct management of the Hipódromo Nacional de Maroñas racetrack and the Las Piedras racetrack, in addition to the significant support it provides to three racetracks in the interior of Uruguay (Paysandú, Colonia and Melo). All of these make up the National Integrated Turf System, or SINT (Sistema Integrado Nacional de Turf), a significant commitment by the Government to continue revitalizing the country s equestrian industry. 64

34 Brazil Codere has been operating sports betting in the country since 2006 and, at the end of 2016, had five betting sites under the brand Turff Bet & Sports Bar and Suaposta, offering customers national and international horse race bets. In 2014, the Company promoted this activity thanks to its agreement with the Jockey Club of Rio Grande do Sul (JCRGS), allowing for the provision of horse race bet processing and totaling services, and for international simulcasting. Likewise, through another agreement, this time with Hípica Rioplatense del Uruguay (HRU), the Company was able to integrate internationally all of the bet totalizers of the Hipódromos de Maroñas and Las Piedras racetracks (in Uruguay), with the Hipódromo de Cristal in Porto Alegre (Brazil), allowing for horse race bets from these racetracks. Parallel to this, Suaposta.com.br has over 600 racetracks on its betting calendar: HRU, Hípica Rioplatense de Uruguay (Maroñas and Las Piedras), Presidente Remón (Panama), GBI (United Kingdom), Sky World (Australia, New Zealand, South Africa and Argentina - Palermo), Stronach and Churchill Downs (USA), Chile (Santiago, Valparaíso), Peru (Monterrico), among others. 4.5 Racetracks In 2016 Codere operated four racetracks: Hipódromo de las Américas (Mexico), Hipódromo Presidente Remón (Panama), as well as Hipódromo Nacional de Maroñas and Hipódromo Las Piedras (both in Uruguay). Areas of activity At the end of 2015, Codere and the Jockey Club of Rio Grande do Sul started up the internet and telephone betting platform Suaposta, Currently, this platform allows customers to bet on a wide range of turf events, whether by PC, tablet, or smartphone, -21 hours a day-, starting with the Maroñas, Las Piedras and Cristal racetracks, and able to include the principal horse racetracks of the world, such as the Royal Ascot, Kentucky Derby, Dubai World Cup, and Melbourne Cup, among others. On 22 March 2016, the first Suaposta agency was inaugurated in Niterói (Rio de Janeiro), and is considered to be the most modern one of its kind in Brazil. 65 The horse racing business has evolved over time. Currently, together with horse racing and betting, the Company also operates under the racino model, which allows for the installation of gaming terminals at racetracks or in facilities associated with the racetrack, in an aim to contribute to financing this activity. Thanks to its experience in the sector, and to excellent management procedures, the Company provides successful formulas to revitalize this activity which, at the end of the nineties, was in recession in Latin America. The Hipódromo de las Américas (Mexico), Hipódromo Presidente Remón (Panama) and Hipódromo Nacional de Maroñas (Uruguay) racetracks form part of the International Federation of Horse Racing Authorities (IFHA), a prestigious international organization in charge of promoting good regulation and best practices internationally in horse racing matters. 66

35 Areas of activity The jockeys training academy - Academia Técnica de Formación de Jinetes Laffit Pincay Jr. - forges the best jockeys in the world México In March of 1943, President Manuel Ávila Camacho inaugurated the Hipódromo de las Américas racetrack, north of Mexico City, in an area of nearly 60 hectares of federal land. In 1997, the CIE Group was awarded the concession to operate the property, and after a 3-year renovation, it reopened its doors to offer horse racing. In 1943, it was planned to organize a major race each year, the great Handicap de Las Américas, the most important horse racing event of the year, with the participation of horses from all over the continent, despite numerous difficulties such as transportation distances, and the time required for the horses to become acclimated to the altitude of Mexico City (2,240 meters above sea level). This event came to be the great race of Mexico, the race which everyone, owners, jockeys, trainers, wants to win at least once in their life. In addition to horse racing events, in 2016 the venue hosted numerous cultural events: On 19 January the book La bajada al infierno, by the author David Pastor Vico, was presented at the Jockey Club of Hipódromo de las Américas. In the same room, on 17 November, Carlos Pineda presented the book Poesía visual mexicana siglo XXI. At the venue of Granja Las Américas the event Watch Out for Diabetes, Your Health Comes First was held, a preventive and informative encounter organized by several diabetes associations and the Codere Foundation. Throughout the year, on the occasion of the principal turf encounters, numerous personalities from the world of communication and culture visited Hipódromo de las Américas, among them, the journalist Francisco Zea, who acted as a sponsor at the inauguration of the horse racing season on 23 January. On 16 April, the financial journalist Darío Celis participated in the awards ceremony in one of the most important races of the day. Throughout the year, the venue was also visited by the actors of the plays Verdad o Reto, Marta tiene un Marcapasos and Mentiras. Likewise, on 18 November the singer and journalist Adriana Cordero also attended. Panamá Codere Panama operates the only active racetrack in Central America, Hipódromo Presidente Remón, with the capacity to accommodate over 20,000 people. The venue houses around 1,000 horses, and has nearly 300 employees. Alongside the racetrack horse racing agencies carry out their activity through simulcasting, which makes it possible to bet on live races both in Panama and abroad, in a pleasant atmosphere offering quality service. In Panama these agencies operate commercially under the brand Turff Bet & Sports Bar. On 29 May, the 88th edition of the Clásico Presidente de La República took place, one of the most important racing circuit events, won by Queen Pearl, who took the race mounted by the jockey José Ángel Batista. The awards ceremony was hosted by Juan Carlos Varela, president of the Republic of Panama, who presented the Clasico Cup to Ricardo Lau (senior) in representation of the stud Cantón. Other personalities also took part in this event, such as the Vice President of the Republic, Isabel de Saint Malo; the Minister of Agricultural Development, Jorge Arango; the manager of Codere Panama, Lucas Alemán; the manager of Codere America Horse Racing Operations, Ramón Rionda; the manager of Hipódromo Presidente Remón, Carlos Salazar; and Gerald Castillo, on behalf of Global Brands, sponsor of the race. On 2 December the graduation ceremony took place for the fourteen new jockeys of the jockey training academy Academia Técnica de Formación de Jinetes Laffit Pincay Jr., recognized as the teaching center which forges the best jockeys in the world. These young men are trained for two years, under a method which combines academic studies and practical training sessions, preparing them to be at the front line of professional turf. Uruguay The Hipódromo Nacional de Maroñas racetrack is one of the most important turf venues of the region. In 2003 HRU was awarded the tender for its management. HRU activity in Uruguay follows the racino model, and currently focuses on the metropolitan area of the country, where, in addition to operating the Maroñas and Las Piedras racetracks, it offers a horse race betting system and manages entertainment venues. In 2016, the venue was intensely active, this being the year of greatest investment since its reopening, as significant resources were allocated to improving the racetrack infrastructure and technology, and numerous first rate turf as well as outside events were held: On 6 January the Gran Premio José Pedro Ramírez race took place, recognized locally and internationally for the participation of the most highly awarded horses and the presence of leading personalities from the world of turf, politics and entertainment. In July, and with an investment of 3.4 million dollars, construction began on a new grass track to be inau

36 gurated in March of 2018 on the occasion of the Gran Premio Latinoamericano race. In September, the first leg of the Triple Corona race in Maroñas was marked by the inauguration of the Raceway Two-Lane Road, a highly important roadway and social public work for the neighborhood, allowing not only for improved connectivity in the city, but also for the re-housing of more than two hundred families. In October the Hipódromo Nacional de Maroñas received the world turf authorities and the principal veterinarians and chemists of the sector in the framework of the International Conference of Racing Analysts and Veterinarians (ICRAV) This biannual event of the ICRAV is the principal scientific and veterinary forum in international horse racing, and it chose Uruguay for its 21st edition, the first time such an event was held in Latin America. The encounter was attended by 180 delegates from 32 countries, with the noteworthy presence of Louis Romanet, the maximum international turf authority and president of IFHA since its creation in In November one hundred box stalls were inaugurated in a new Villa Hípica with an investment of over US$ 2,500,000, increasing the number of horses housed at the track and generating new jobs in the sector. At year-end, the Company donated to the Interior Ministry a complex video-surveillance system for the zone. This project is the result of a public-private partnership agreement making it possible to cover a 40-block area which includes not only the racetrack accessways but also key points in the Ituzaingó district. This video surveillance circuit is equipped with a real-time monitoring system and police response. The donation, in the amount of US$ 200,000, was made in the context of a company community support policy, given the company s important role in the neighborhood. In addition to this action, HRU invests in and carries out activities which can improve the quality of life of the people in the neighborhood, the social development of the community and the comfort of the racetrack visitors. In 2016, Maroñas National Racetrack carried out the greatest investment since its reopening, with the enhancement of the racetrack infrastructure and technology Areas of activity As from 2016, the HRU Veterinary Service has Quality Management System certification in accordance with standard ISO 9001, 2008 version. This makes it possible to continue its commitment to maximum professionalism and transparency in the management of the venue, and allows for compliance with the most stringent international standards and recommendations. The HRU veterinary service is the first such service in the region to adopt integral quality certification in all of the processes it manages, placing this Uruguayan racetrack in the vanguard of this matter

37 4.6 Online gaming The Company has been consolidating its commitment to online activity, responding to new customer demands and driving its development in the countries in which it operates, and where this is legally permissible. In 2016, Codere carried out its online activity in three markets: Spain, Brazil and Mexico: Spain Brazil In 2016 Codere started up its digital gaming offering in Brazil with the support of the Jockey Club of Rio Grande do Sul, under the Suaposta brand, ( br), this being the first legal platform in the country to operate online horse racing bets. Areas of activity The Group digital strategy advocates omni-channel entertainment, allowing users both an on-premise and online experience, which, in the case of Spain, is a great competitive advantage, given its extensive gaming hall network. Moreover, the Company works day to day in developing new, more accessible formats, and collaborates with strategic partners, making it possible to improve customer experience with an attractive gaming offering. 71 In the wake of previous experiences which allowed the Company to consolidate its project, Codere started its activity in Spain under the auspices of Spanish Gaming Regulation Law 13/2011, of 27 May. At the end of 2014, the launch of the Codere Bets web App codere.es in Madrid was a great success, with mobile device activity being noteworthy. Subsequent to this, Codere would go on to develop its activity under national licensing. The Company works in close collaboration with several gaming solution suppliers, in an aim to develop new products and services in the Spanish market. In 2015, it incorporated online slots into its entertainment offering, and, at the end of 2016, casino games. In September of 2016, Codere launched in Spain its new mobile version (ios and Android) and PC App, with a totally new image, offering greater advantages over the previous version and improving customer experience. The platform allows customers to bet on a wide range of turf events via PC, tablet or smartphone, starting with the Maroñas, Las Piedras and Cristal racetracks, and covering the principal horse races of the world, such as the Royal Ascot, Kentucky Derby, Dubai World Cup, or Melbourne Cup, to name a few. Mexico The Company started its online operation in Mexico in October of 2016, under the brand of Codere Apuestas ( with a very complete gaming offering which covers a large number of sports (from American football to motorcycle racing) and has numerous attractive markets. Likewise, Codere completes its portfolio with online slots, online casino games and video bingo. Currently, the Company is pending the regulations in course in the Group countries to promote the legal development of this activity under the Codere brand. 72

38 5. Corporate Governance

39 5.1 Corporate Governance Codere complies with the Good Governance Standards aimed at protecting the interests of the Company and its shareholders, and monitoring the creation of value and the efficient use of its resources. The breakdown of the significant shareholdings communicated at 31 December 2016 to the CNMV is the following: Share Capital Distribution (%) Governance Bodies The General Meeting of Shareholders and the Board of Directors, with executive directors and external directors, are the maximum governance bodies of the Group. The year 2016 was an intensely active business year in Corporate Governance matters. Accordingly, three General Meetings of Shareholders were held: in June, November and December. Corporate Governance Codere Shareholder Structure By going public in October of 2007, Codere increased its shareholder structure, and was able to access greater financing. After a number of years in which the Company had been immersed in an arduous process of negotiation to restructure its debt, the Group reached certain agreements with its creditors. During 2016, the execution of said agreements finalized, giving way to a new shareholder structure. At 31 December 2016 the company had a free float of approximately 20.18%. The remaining share capital was distributed among several significant shareholders, as declared to the Spanish Securities Market Commission (CNMV). Consequently, the chairman of the Board of Directors, Mr. José Antonio Martínez Sampedro, held 14.17% of the share capital (both through direct shareholdings, as well as indirectly through the company Masampe S.L.). The deputy chairman of the Board of Directors, Mr. Luis Javier Martínez Sampedro, held 2.5% of the share capital (both through his direct holding as well as indirectly through Recreativos Metropolitano S.L. and M Global Solutions-Global Assets Brisa). Other directors held 0.01% of the share capital, and 0.01% of the share capital was held as treasury stock. 75 Major Shareholders Free Float Executive Directors Treasury shares Note: Communications conveyed to the CNMV as per 31/12/2016 With respect to the Ordinary General Meeting, held on 30 June 2016, in addition to ordinary matters related to the approval of the annual accounts, the application of income and the management of the Board of Directors, all of the above in reference to the year 2015, a series of additional matters were dealt with, such as the ratification of the Board members appointed by co-option in the month of April, the appointment, for a term of three years, of ERNST & YOUNG S.L. as the auditor of Codere and its consolidated Group, and a consultative vote on the Directors Remunerations Annual Report, likewise in reference to 2015, which was approved by 99% of the voting share capital present or represented by proxy. This General Meeting was attended by 83.84% of the share capital present or represented by proxy. The Extraordinary General Meeting of Shareholders held on 10 November 2016 resolved, among other matters, to amend the Articles of Association, so as to adapt them to the new Directors Remuneration Policy approved at said Meeting. In addition, certain resolutions were adopted which were the consequence of the agreements reached during the financial res- 76

40 Corporate Governance By going public in October 2007, Codere increased its shareholders structure, being able to access greater funding tructuring process of the Company and its Group (such as the issuance of Warrants for executive directors and senior management, or the amendment of the Regulations of the General Meeting to include new competences). This General Meeting had a higher attendance rate than did the Ordinary General Meeting, with 92.45% of the share capital being present or represented by proxy. In the wake of the debt refinancing process successfully undertaken by the Company and its Group in November of 2016, it was necessary to call one last Extraordinary General Meeting of Shareholders which was held on 15 December 2016, for the purpose of furnishing certain secured guarantees in regard to the refinancing. Attendance at this General Meeting reached 89.48% of the share capital present or represented by proxy. The Company Board of Directors was changed substantially during From January until 28 April 2016 the Board maintained its composition identical to that of 2015, with ten members: Mr. José Antonio Martínez Sampedro, Mr. Luis Javier Martínez Sampedro and Ms. Encarnación Martínez Sampedro as executive directors; the remaining seven directors were external (two independent and three nominee directors, and a further two directors who, after losing their status of independent directors with the coming into force of Law 31/2014 amending the Capital Companies Act, belong to the category of other external directors ), all of the foregoing having been appointed in accordance with their high professional qualifications. As from 28 April 2016, and as a result of the restructuring of the Company, the composition of the Board of Directors changed. That day, six Board members resigned (Mr. Encarnación Martínez Sampedro, Mr. José Ignacio Cases Méndez, Mr. José Ramón Romero Rodríguez, Mr. Juan Junquera Temprano, Mr. Eugenio Vela Sastre and Mr. Juan José Zornoza Pérez), and five new directors were appointed by co-option (Mr. David Reganato, Mr. Timothy Lavelle, Mr. Manuel Martínez-Fidalgo Vázquez, Mr. Norman Sorensen Valdez and Mr. Matthew Turner. Said appointments, by co-option, were ratified at the Ordinary General Meeting held on 30 June In addition, on 28 April the decision was made known of Masampe S.L. to change the natural person representing it on the Board, replacing Ms. Cristina Martínez Soria by Mr. Pío Cabanillas Alonso. Among its functions, the Board of Directors, notwithstanding its management and representation competence, has taken on, as its focal point, the mission to approve Company strategy and the organization required in order to implement this, and likewise to supervise and oversee Management compliance with the objectives set out and that it respect Company interests. The Board meets with the frequency called for in view of Company interests, or as mandated by law or the Articles of Association. During 2016, the Board of Directors met thirteen times, and on six additional occasions adopted resolutions in writing and without a physical meeting. In accordance with the laws in force, and, in particular, with the recommendations contained in the Listed Companies Code of Good Corporate Governance approved by the Spanish National Securities Commission (CNMV), three committees are set up within the Board of Directors, each having its specific functions: the Audit Committee, the Appointments, Remuneration and Corporate Governance Committee, and the Compliance Committee. The Audit Committee has as its essential task that of serving as support to the Board of Directors in its tasks of financial and risk supervision, and, among other duties, that of supervising the functioning of the Company Audit Department, establishing the Codere financial processes and control regulations, and reporting on the annual accounts and other financial statements of the Group. In addition, during 2016, it added to its functions that of supervising the strategy for communication and relations with shareholders and investors, including small and medium shareholders, and supervising and evaluating the processes in regard to relations with the various stakeholders. During the first months of 2016, the Audit Committee was made up of five directors (two independent directors, one nominee director and two directors in the category of other external directors ). On 5 May 2016, as a result of the new composition of the Board of Directors, new members were appointed to the Audit Committee, and since then the Committee has been made up of two independent directors (a chairman and one member) and a nominee director (member). The Appointments, Remuneration and Corporate Governance Committee,, mandatory for listed companies in accordance with the Capital Companies Act, has the nature and functions which the Capital Companies Act reserves for it. Among the competences of the Committee are: to evaluate the competence, knowledge and experience of the directors and report on their appointments and resignations, and do likewise in regard to Company senior executives; to propose and oversee the company remune- 78

41 Board of Directors (at 31 December 2016) Director Board Offices Category Curriculum Date of First and Last Directorship Appointment Corporate Governance ration policy; and to examine compliance with the Internal Regulations for Conduct with the Securities Markets, making proposals for its improvement and supervising compliance with the Corporate Governance rules applicable in said regard. During the first months of 2016, the composition of this Committee, which had five members, was that of one independent director, two nominee directors and two directors classified as other external directors. On 5 May 2016, as a result of the new composition of the Board of Directors, new appointments were made to the Appointments, Remuneration and Corporate Governance Committee (at that time called the Corporate Governance Committee). Since then, this Committee has been made up of two independent directors (a chairman and one member) and two nominee directors (members The Compliance Committee, set up by the Company in use of the freedom granted to the Board of Directors by the Capital Companies Act to create specialized committees within said body, during the first months of 2016 was comprised of five directors (two independent directors and three nominee directors). On 5 May 2016, owing to the new composition of the Board of Directors, the new members of the Compliance Committee were appointed, which, since then, has been made up of three directors, one of which is independent (the chairman) and the other two being nominee directors (members). Among the principal functions of this Committee are control of Group compliance with Spanish or foreign gaming regulations, and likewise the evaluation of the internal control systems of the company in relation to gaming and anti-money laundering obligations. The composition of the Board of Directors and the Codere Committees from the dates on which their changes took place, and at year-end 2016, is that shown in the following tables: 79 Mr. José Antonio Martínez Sampedro Mr. Luis Javier Martínez Sampedro Masampe S.L. (represented by Mr. Pío Cabanillas Alonso) Mr. Manuel Martínez- Fidalgo Vázquez (1) Chairman Executive Codere Group President and Executive Director. Deputy Chairman Executive Codere Group Executive Director. Member Member Nominee Nominee Mr. David Reganato (2) Member Nominee Mr. Timothy Lavelle (3) Member Nominee Mr. Joseph Zappala Member Independent Mr. Norman Sorensen Valdez Member Independent Mr. Matthew Turner Member Independent Nota: Corporate Image and Marketing General Manager of Acciona S.A. Spanish Government Minister Spokesman from 2000 to Managing director of Houlihan Lokey. Formerly worked at Deutsche Bank, Merrill Lynch and Cajastur. Senior Analyst at Silver Poing Capital L.P. Formerly worked at Morgan Stanley. Special Situation Investments at Silver Point Capital L.P. Formerly worked at Credit Suisse. US Ambassador in Spain from 1989 to President of Joseph Zappala Investments, a real estate, healthcare, gaming and entertainment holding company. Board Director of Insperity INC. and Encore Capital Group Inc. Formerly held key positions at Principal International, AIG and Citigroup.. Board Director of Arcapita. Formerly held key positions at Kaupthing Bank and Bank of America Merrill Lynch. Mr. Luis Argüello Álvarez, Non-Director Secretary (1) Represents or has ties with the shareholders Abrams Capital Management, LP. and Contrarian Capital Management L.L.C (2) Represents the shareholder Silver Point Luxembourg SARL. (3) Represents the shareholder Silver Point Luxembourg SARL. 7 May June May June July June June June June November June June June

42 Members of the board s committees (December, 31st, ) Corporate Governance Audit Committee Name Mr. Matthew C. Turner Mr. Norman R. Sorensen Valdez Mr. Timothy P. Lavelle Governance Name Mr. Norman R. Sorensen Valdez Mr. Matthew Turner Mr. David A. Reganato Masampe S.L. Committee Name Mr. Joseph Zappala Masampe S.L. Mr. Manuel Martínez-Fidalgo Vázquez Position Chairman Director Director Position Chairman Director Director Director Position Chairman Director Director Good Governance Standards The Standards of Good Corporate Governance are essential for the development and growth of the Group. Codere centers its Corporate Good Governance practices around three basic aspects: the Control and Procedures System, Standards of Compliance, and monitoring of the listed companies Code of Good Governance. Codere considers that the establishment of Standards of Good Corporate Governance, taken on by company governance is essential for Group development and growth. Codere focuses its Good Corporate Governance practices on three aspects: Control and Procedures System: This aims to provide the Group with a fixed organizational structure and corporate culture, applicable to all of the entities regardless of their area of influence, setting up formal action mechanisms, which, rather than bureaucratize, aim to establish guidelines for controlled delegation, and to consolidate a culture of effective management, consequently achieving the strategic cohesion of the Group. The Critical Operations Committee was the first tool developed within the System to ensure the flow of information from the peripheral centers to senior management, allowing for coordinated and cohesive decision making. The Committee is comprised of the executive directors of the corporation, who analyze and approve transactions which are considered critical, consequently establishing effective financial and legal control over the handling of Company assets. From its creation, the Committee has audited and verified over 1,600 significant transactions. The Procurement Office is the second tool introduced in an aim to provide a concrete structure for the purchasing and contracting processes, establishing an action mechanism which promotes transparency, ensures the concurrence of suppliers and results in a reduction of acquisition costs for the Company, at the same time that it promotes Good Corporate Governance. From the time it was created, in mid-2009, the Procurement Office has managed over 650 significant The Standards of Good Corporate Governance are essential for the development and growth of the Group 81 82

43 Corporate Governance procurement transactions at the corporate level, with a reduction in purchasing costs of over 14% with respect to the established budgets. In 2011 its implementation was completed in the various geographical areas in which the Company operates, and an International Procurement Office is scheduled to be created for Standards of Compliance: These Standards play an essential part in showing the special commitment the Group has to good business practices, in a sector as regulated and sensitive as is the gaming industry. The Group strategy in this respect is to go beyond what is called for by regulations and specific laws, and make an impact on the true spirit of fair play and responsible gaming. Specifically, the Group is especially committed to strict compliance with all anti-money laundering and anti-terrorist financing laws, as well as the applicable gaming regulations. To supervise these aspects, the Company has a Corporate Security and Compliance Department which has among its duties, that of monitoring and controlling the application of the Codere Group Code of Ethics and Conduct, as well as managing and supervising the company and Group whistleblower channel, a mechanism created to communicate the commission of irregularities or any type of acts which violate the law or the performance standards of the Ethics Code. During 2016, the whistleblower channel registered 116 denouncements, processing and resolving a total of 108, with only eight of these still pending. The Corporate Security and Compliance Department periodically reports to the Compliance Committee of Codere S.A. the principal risks detected regarding compliance, in each one of the countries, to subsequently forward said information to the Board of Directors.. Standards of Good Governance: During the year 2016, Codere S.A. engaged in intense in-depth activity in the sphere of Corporate Good Governance. In this way, the Board approved a Corporate Social Responsibility Policy and a Director Selection Policy, with these two regulatory texts forming an addition to the Group collective Corporate Governance Standards. Moreover, the Board resolved to amend the Regulation governing its own functioning, and to redraft the Internal Regulations for Conduct in the Securities Markets, so as to bring them in line with Regulation (EU) 596/2004. In addition, the Board resolved to propose to the General Meeting of Shareholders the approval of a Directors Remuneration Policy and the amendment of the Regulations of the General Meeting of Shareholders, with both texts being approved by the General Meeting

44 6. Human Capital

45 Capital humano 6.1 Human Capital Codere drives the development of its human capital, key to creating sustainable value. The Company aspires to become the best place to work, attracting, developing and retaining the best professionals. Aware of the importance of a quality human team to obtain the best results, the Codere Group commitment to people is one of its principal assets. The guidelines defined in the Group Strategic Plan, call for an adaptation of the Human Resource area with respect to processes, projects and structures, defining an Integral People Management Model, adopted to each of the countries. As a result, the Human Resources function focuses on the creation of value for the organization stakeholders: shareholders, investors, clients, employees, suppliers, public administrations and society, supported by a technological base which integrates and supports the information, allowing the results to be measured. It is based on three central concepts: talent, efficiency and commitment, all of which make it possible to standardize, analyze and measure its impact and application, and identify new opportunities and relations such as the Big Data model. Moving towards a Human Resource Management Global System Given that people are strategic for the Group, the Company gives special attention to Human Resource practices in attracting talent, in addition to promoting their specialized training, and retaining the most valuable workers through more attractive and more suitable motivation systems. In 2016 Human Resources was established as a strategic area assisting the business, driving important transformation actions in the Company. In September the first Regional Human Resources Meeting took place in Mexico City, attended by the Human Resources managers of Mexico, Panama, Colombia and the Corporate Center, and its principal objectives were the following: Review and evaluation of the actions carried out until said time in the project for regionalization of these countries. Identification of the strong points and areas of opportunity in the training processes -carried out until said time in the Vive Codere program-. Maximization of the benefits of employee exchanges between the countries to export and share know-how with respect to the management of employees, resources, and gaming halls, and enrich the operation with the best practices of each of them. Evaluation Capacity (SEC) In an aim to attract and retain the best professional team, and to commit to internal talent, in 2016 selection techniques were implemented, based on Critical Success Factors (CSFs) which, together with the Competency Interview, have served as a basis in 2016 to re-launch the Evaluation Capacity System (SEC). In the wake of the assessment conducted in Mexico, in 2016 the assessment was launched in the corporate center and business unit in Spain, and for this purpose preliminary training sessions were organized for all employees, structured in accordance with the participant profiles (persons assessed and assessors). This process principally aims to encourage the professional development of all Company employees, measuring a series of capacities required for the adequate performance of the functions associated with their position, so as to maximize their contribution and generate a quest for continual improvement, through employee recognition, development and training. The entire assessment process was conducted through the Evaluation Capacity (SEC) Online Tool. With said tool, both the assessor as well as the person assessed have been able to access, prepare, carry out, validate and visualize the assessments in a comfortable and simple manner Informe Anual 2016

46 Capital humano Currently, both the process as well as the web application have been started up in Mexico, Spain and the Corporate Center, and will gradually be used in all of the Group business units. Thanks to these, the process will become more agile and optimal, with homogeneous information on employees being generated in order to be able to draft plans for career and professional development, inter-country mobility, etc Human Resources Reports From corporate Human Resource management, improvements continue to be made in reporting processes and systems and in the reports themselves, such as the Human Resources Report Key Performance Indicators and the Human Resources Budgets Report, which compiles Group information in key items, in order to plan organization finances, resources and objectives in the medium and long term. One aspect of the information contained in these reports is the number of Group employees and staff distribution by gender. At year-end 2016, Codere had 13,918 employees, including personnel of Hípica Rioplatense de Uruguay (HRU). Female % Workforce distribution by gender The Group Human Resources budget in 2016 exceeded 14 million euros (not including salaries and wages), an investment of over 1,000 euros per employee. Twenty percent of this amount was allocated to social welfare actions, and nearly 10% to employee training and professional development. The employees are the Group principal asset, and consequently the Human Resources area works on their training and constant development Male % Global Continual Training Program The employees are the Group principal asset, and consequently the Human Resources area works on their training and constant development through programs which contribute to attaining the Company strategic goals and objectives. One of these is the Continual Training Program, the principal objective of which is to foster and update employee capacities and know-how, allowing them to carry out their functions efficiently and effectively, favoring their professional development, with a positive impact on the company. In 2016, over 120,000 hours of training were given to employees, and over 7,000 to gaming hall partners. Moreover, from the Corporate Center and in conjunction with the local Human Resources managements, a process has been driven to standardize the control and monitoring of the training provided in all of the countries, and employee associated travel. This process will materialize in the next few years in a common training system for all of the countries, with periodical systems for measurement and evaluation homogenous both in the manner as well as in the time they are launched- and likewise through a common management process (expenses, logistics, travel). Local Training Programs Each Codere Group country adapts the training given to its employees not only to comply with the regulations in force (anti-money laundering, health and safety programs, ISO standards, etc., but also to respond to the needs of each business, to favor Codere talent, and to drive the Group corporate culture and leadership. In this regard, local training schools have been created to promote specific capacities and know-how related to the games regulated in each country, in an aim to provide the tools required to reach the stipulated goals and maintain a constant quest for excellence. Given the operational integration of Panama, Colombia and Mexico three Latin American countries of similar characteristics- during 2016 international training programs continued to be carried out in an aim to conduct cross-learning and provide feedback from the Group training experiences. One of the most noteworthy initiatives is that of the Mexico Entertainment University, fruit of an alliance between Codere and the Commercial Banking School (EBC) in the year Thanks to this project, fourteen employees of the Entertainment University third generation graduated, obtaining a degree in Entertainment Business Administration, joining the twenty graduates from previous generations. Through classroom attendance and online classes, they studied in depth subjects concerned with business operation, and obtained an officially recognized degree. In addition, Mexico has a number of specific programs for training in gaming operation and to promote the career plans of its employees (Fábrica de momentos de la verdad, Giras operativas, Trébol de oro, Líderes Informe Anual 2016

47 The Flexible Remuneration Program Flexible Services for Employees Informe Anual 2016 en desarrollo, etc.) as well as leadership promotion programs (Avanza, Semillero de talento, etc.). Moreover, the Company drives actions related to corporate processes and cultures. One of those most worthy of note is the Codere Colombia project Dealer Academy, which aims to contribute toward the professional and labor growth of external personnel, through training in different table games and their respective procedures for employment in the CrowN Casinos, in any of its programs, the ultimate aim of which is to promote quality service. An important part of the training programs is linked to the start of the business season as in the case of Hipódromo de la Américas and Granja Las Américas-, in an aim to prepare employees for the startup, fully immersing them in the activity, placing special emphasis on customer service (culture of service, rules of conduct with visitors, sales and closing skills, etc.) 81 EMPLOYEES JOINED THE PROGRAM 156, ORDERED PRODUCTS 33 EMPLOYEES JOINED THE PROGRAM 618 TRIP DAYS In 2016 Codere also carried out programs which were already consolidated, to increase employee satisfaction and contribute to improving the external and internal image of the Company: Flexible Remuneration Program, consisting of wage personalization in accordance with the tax treatment of certain products in the Personal Income Tax Act (LIRPF). Suma + Program, for travel in accordance with Regulation 7.p of the LIRPF. DSS (Direct Settlement System): in May of 2016 for the first time social security contributions in Spain and in the corporate unit were reported with the Direct Settlement System (DSS), a new contribution system which simplifies the current steps and procedures through an intensive use of online means. In this way, Social Security calculates the settlements in terms of each worker, providing a receipt for payment by online means. Capital humano MEDICAL INSURANCES RESTAURANT TICKETS PUBLIC TRANSPORT CARD 306,333 TOTAL TAX-EXEMPT AMOUNT 91 92

48 Technology at the Service of Human Resources A Door Open to Employees Initiatives to Improve the Work Environment: Informe Anual 2016 Capital humano Within the plan for improvement of the Human Resources ( People Management Integral Model ) we can include a number of projects: Application to evaluate capacity in the various business units: improvements in process unification and development (payroll, administration and flexible remuneration) and evolution of the application to register job descriptions. Worthy of note is the new functionality to generate employment contracts and the web application allowing for the management of the Personal Income Tax exemption for work carried out abroad. Cloud Application: from the Human Resources area an evaluation has been made of various technological products making it possible to standardize and decentralize the processes, optimize costs and improve productivity (Cloud, Mobility, Big Data and Social). Application in monitoring and control systems and KPIs: drafting and monitoring of global and business unit KPIs allowing for the detection of possible deviations, completing the drafting and monitoring conducted in regard to the budgets of the area as well as the labor costs of the organization. The setting up of communication channels and bridges from the organization to the human team, and the encouragement of relations between people are some of the principal tasks of the Human Resources area to favor a positive work environment. At the corporate level, the Company circulates Codere Actualidad. This corporate newsletter was started in 2013, in an aim to establish a sound horizontal line of communication for the Group Presidency to be able to convey to all collaborators the difficulties facing the Company and the solutions which were being implemented. Three years later, it has been consolidated as a strategic tool to align our teams with Company values, making them participants in the challenges, opportunities and successes attained. This publication, sent every other week to all Group employees having corporate , and to those wishing to receive it in their personal accounts, reaches over 5,000 personnel in the eight countries in which Codere operates, through its versions in Spanish and in Italian. Through its more than forty contents of its own production, and twenty editorials signed by the Group Presidency, in 2016 the publication kept the entire staff up to date on the main events and future projection of the Company. In 2016 these contents have opted for the multimedia format more than ever, with a significant increase in own video production being worthy of note. At the local level, the various countries of the Group are also committed to a policy of closeness and transpa- rency in their communications with their collaborators. Hence, CodeRed Informativa (Codere Mexico), in its new video format, provides an opportunity to become informed of the most important news and events of the business. Codere Colombia also promotes Colcomunicaciones, which circulates videos reporting the most significant news and events of the activity of the Company. Codere has started up at the local level extra-curricular activities for its personnel, encouraging personal relationships outside of the workplace, and favoring an open, healthy work environment. As an example of these activities, a Mixed Paddle Tournament was held at the corporate center in Madrid (Spain) taking place for the last three years in the facilities adjacent to the building. In the area of sports, Codere Brazil also promotes jogging by its Porto Alegre employees and those who are in the city for work purposes, under the supervision of a sports consultancy specialized in races. Codere Colombia, on its part, annually supports the solidary race in favor of the United for Colombia Foundation for the rehabilitation of victims of armed conflicts- donating the registration fees of 111 athletes in its latest edition of the Bogotá Half Marathon. Along this same line, Codere Italy supports the initiative Race for the Cure, in support of the fight against breast cancer. The Group s Human Resources department encourages communication through different channels and relationships between employees outside of the workplace favoring a healthy work environment 93 94

49 7. Auditor s Report