Greek Organisation of Football Prognostics SA

ATHEX:OPAP

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Toby, your Chorus Call operator. Welcome and thank you for joining the OPAP S.A. Conference Call and Live Webcast Question-And-Answer Session to discuss the First Quarter 2023 Financial Results. Please note that a video presentation has been distributed and is also available on the OPAP Investor Relation website. [Operator Instructions] And the conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jan Karas, CFO of OPAP S.A. Mr. Karas, you may now proceed.

[Jan Karas, Chief Executive Officer]

Thank you very much. Good evening or good morning, everyone and welcome in our regular Q1 2023 results conference call. I'm pleased to share with you another set of solid results for OPAP, positively affected by our sound commercial plan and leading to increased retail activity and strong online contribution. We continue to build on the faster strategy pillars and we just launched OPAPONLINE.gr, our new umbrella brand for our iLottery proposition; this make us confident and we are well on track to deliver our 2023 outlook. Hopefully, you had a chance to review the results recorded video that we shared with you earlier today.

So we will jump directly to our Q&A session. Toby, over to you.

[Operator]

[Operator Instructions] The first question comes from the line of Draziotis Stamatios with Eurobank Equities.

[Stamatios Draziotis, Eurobank Equities]

I have a couple, if I may, please. Firstly, on VLTs. We seem to have returned to levels of daily net win near €40 which is a level seen prior to 2019, i.e. before full deployment of the machines. I'm just wondering, has this been driven by footfall or spending? And what in your view would be the driver of higher machine performance in the future be? Would it be more players or higher player activity or maybe machine optimization? That was the first question. And secondly, on online. I'm just wondering, I mean, I know this is a transition period for you. But your own digital platform seems to remain rather subdued in terms of performance. If I'm doing the math correctly, revenues were a little changed versus the same quarter last year. Which is the segments struggling the most? I presume it must be sports. And could you tell us what the experience has been with the migration to the new hub, encompassing all the full product offering and, of course, the launch -- the experience from the launch of online keynote these past 7 or 8 weeks?

[Jan Karas, Chief Executive Officer]

Thank you very much for your questions. I will take them one by one. So starting with the VLTs. Your expectation is correct. Going forward, we certainly have ambitions to further grow the activity of players, meaning increasing the active players' base as well as increasing their activity. And that is, again, driven by commercial plans and actions. The VLT replacement is an important part of it. So we have, at this moment, something around 7,000 machines replaced and that's what our customers can enjoy. But as you know, our total estate is 25,000. So there is still many to go. So that's going to be helping. But we are also planning further evolution of things like loyalty schemes, the customer journeys, the simplicity of topping up the accounts and machines digital communication, et cetera. So there is quite a lot on our plan and I don't think I can highlight any specific element of that being the predominant driver of the success. It's a combination of multiple elements and those that you have mentioned are certainly part of it. I don't think that Q1 results in any way indicate any mid- to long-term trends. Our ambition are certainly continuous growth and it stays that way.

Regarding the online which was your second question, we have -- I would like to remind ourselves that we have launched the new sports betting platform in the first week in March. And the new iLottery platform that you could see the screen shots in the presentation in the first week in April, 1 month later. So, certainly Q1 performance had nothing to do with the introduction of new proposition and it was only very partially affected by the repositioning of the -- sorry, relaunch of the sports betting or replacement of the platform or migration to the new platform. So those moves are something that we now settle and onboard customers and make sure that everything works perfectly. But obviously, there is -- we need to wait a couple of months and with sports betting, certainly wait for the new sports betting season to kick in, in end of August, the beginning of September to start making judgments and year-over-year comparison as to how the new environments for the customers and new experiences have impacted our performance which we certainly expect to have a significant impact going forward.

As to migration of customers that you have asked about, that is certainly something we can consider a success. Both migration to the -- from the old sports betting platform to the new sports betting platform went absolutely smooth. We kept all the players on board. And the same went for iLottery platform but just to remind ourselves that it was not a change of platform. The technical solution is still the same. It was expansion of the game portfolio and introduction of new interfaces. But also this change went really smooth. Thank you for your questions.

[Stamatios Draziotis, Eurobank Equities]

Just a follow-up on -- regarding your experience since the launch of online KINO. Has the game been performing in sync with your expectations? Or is it too early to say?

[Jan Karas, Chief Executive Officer]

So far, it's performing in sync with our expectations but it's certainly very -- too soon to make conclusions because don't forget, we didn't go yet for massive communication and certainly not [indiscernible]. So at this moment, this was more onboarding of the existing base. And there, the early numbers are quite encouraging in terms of how much the customers enjoy playing multiple games and not just Joker as in the past. So that's certainly a good one. However, it's too early to make conclusions because the opportunity is not only in upselling the ex-Joker GGR customers. The opportunity is to go, of course, much bigger than that and bring more people to online and bring also completely new customers to our active base. And that remains to be seen once the communication kicks in.

[Operator]

The next question comes from the line of Pointon, Russell with Edison.

[Russell Pointon, Edison Group]

I have 3 questions. My first one is just going back to that previous question on your -- on OPAP's own online business. You've had good growth in active users but the spend is pretty flat, so -- which implies lower spend per active. So is that a matter of reducing frequency? Or is it a matter of reducing spend per visit? My second question, I mean, broadly, you speak about better engagement with players as you've invested. But a key part of the investment is also to shift the demographics of the businesses a bit. You have more younger players, more females. So could you just give an update on what you've seen so far on the most recent launches?

And my final question is on cash flow. I appreciate that quarterly cash flow can be a bit volatile. But could you just give some detail on the working capital outflow and the cash tax, please?

[Pavel Mucha, Chief Financial Officer]

Okay. Pavel Mucha. I'll start with the last question on the cash flow. It's -- there is nothing unusual really in cash flow. There is a movement compared to the same quarter last year in the payables. And basically, it's just different phasing of payments to our vendors. There is nothing unusual. And in terms of the income taxes paid, it's again only just phasing how we pay the advanced payments during the year and final settlement. Obviously, you have to bear in mind that because of the performance during the 2021, the final corporate tax liability for '21 which was much lower than what we had for 2022 following the lockdown. And that then impacts the advance payments for corporate tax and final settlement. So it's, I would say, phasing of the payment of the income taxes.

[Jan Karas, Chief Executive Officer]

That's all from you, Pavel? I will cover the other questions regarding the activity of players and their spend. For sports betting but for our -- not but and for our iLottery platform, it was quite similar. Obviously, the early weeks were totally focused on ensuring we are not losing any customer that we had before. And we are focusing on absolutely smooth customer experience on the new platform. So that was the focus of Q1. And for the iLottery and sports betting platform, it continues to be focused also throughout April, just to make sure we offer the best customer experience possible before we go out with ATL communication and those market-focused acquisitions.

With that also, I really would like to abstain from any early judgments of the performance and impacts of any of the new platforms and/or propositions on overall performance. Don't forget that when we grow, we keep growing. You are getting into different segments of customers with different behaviors, with different spends. Our ambition is always the same: maximize the active players' base. And we have no smaller target than continuously grow across all of our online verticals the number of active players; and second, maximize the spend within the vertical and/or across the verticals. Obviously, always respecting the competitive flow limitations and the wall that we have between the lottery world and the sports betting world.

[Russell Pointon, Edison Group]

Okay. And I mean, could you provide any demographic detail in terms of whether you're managing to see your customer base younger and more female?

[Jan Karas, Chief Executive Officer]

This is younger audience -- well, slightly different answers per vertical. So if I will be speaking about sports betting, it's sports betting fan is our target group. There is more than 1.6 million players in Greece. We want to be relevant to all of them. And the age groups, when you look at the publicly available statistics, it's really going across all age groups. So there, our focus is for all of them and I think we are successfully -- I would say, with increasing success because we are certainly far from where our ambitions lie, we address those segments. When it comes to casino, that's a bit traditional segment that we were trying to make more relevant to the young audiences with the introduction of casino games vertical. It has helped us. We have increased our presence in the younger segment. So I'm referring to 21 to 35. But again, here, it's not the end of the journey. That's a continuous case and we are always working on further enhancements of the propositions. But I think really the casino games vertical is a nice example of innovation and attracting new audiences, especially among the youth.

When it comes to iLottery, it's quite a different story because while casino and sports betting have their specific audiences, the iLottery should be really the mass-market proposition. And with that, it absolutely must be relevant also to women and younger audiences. And that's why what you will see coming in the future are further enhancement towards the entertainment element, social elements. So to give you an example, chats among the people, different rewards, loyalty, connecting -- collecting points, free games, et cetera. So just think of really an entertainment hub where there should be something for everyone to have a couple of minutes today on just to break out of the day and play for some time and enjoy. That is our ambition. And with that, we will follow our commercial plans to deliver that. Hope that helps.

[Russell Pointon, Edison Group]

Yes, that's great.

[Operator]

[Operator Instructions] The next question comes from the line of Scherzer, Reuben with TimeSquare Capital Management.

[Reuben Scherzer, Times Square Capital Management]

Can you hear me?

[Jan Karas, Chief Executive Officer]

Yes. Yes.

[Reuben Scherzer, Times Square Capital Management]

Okay, great. This is Reuben Scherzer, TimeSquare Capital Management New York. Congratulations on a strong Q1 results. And on the back of that point, I'm curious, based on the initial guidance for the year, what kind of circumstances would have to occur for OPAP to raise guidance for the year 2023 given the strong start of the year.

[Jan Karas, Chief Executive Officer]

Thank you very much for your question. Yes, well, thank you for your kind words. We are indeed satisfied with our solid performance in first quarter. It was a good start of the year. And certainly, we are optimistic for the remaining of 2023 likewise. Now since we have provided the outlook for the year just 2 months ago, currently, we are sticking with this outlook. And I will -- I don't have any new updates for you on that front. That outlook stands. And we remain certainly confident that we are well on track to deliver on this target. So just to repeat for the whole audience, the EBITDA is expected to be within the range of 740 to 760. In any case, we will come back to you on that with an update. And you should expect that post summer, along with our Q2 results, I think that would be a good time to be more specific on the expectations on any results.

[Operator]

[Operator Instructions] The next question comes from the line of Memisoglu, Osman with Ambrosia Capital.

[Osman Memisoglu, Ambrosia Capital]

Just following up on the previous questions. You've given us quite a bit of detail on the product side. More on the demand side customer spending, I guess, a bit of macro sentiment from your perspective. How was Q1? And how are you seeing Q2 so far? And any color on outlook given the recent developments?

[Pavel Mucha, Chief Financial Officer]

Okay. Well, macro is moving in the right direction in Greece. On -- across all metrics, things are improving compared to the last year, namely inflation is easing. I would say the recent elections provide also some optimism. And I would say there is a good mood which we see across the whole retail industry in Greece. And so people do spend more and we see basically the entertainment wallet of the players of the customers generally increasing. From our tracking results, we've seen constant increase really since the autumn last year and it continues also beyond Q1 into April and May. So, I would say on -- in this respect and also expecting another record tourist season given the bookings and progress so far. I think on macro front and the whole retail and us being affordable entertainment venues, we see the summer and Q2 also quite optimistic.

[Operator]

[Operator Instructions] The next question comes from the line of Puri, Karan with JPMorgan.

[Karan Puri, JPMorgan]

Congratulations on strong set of results, everyone. Just had a question on the growth profile of your core products, namely lotteries and retail betting. I mean, the 10%, 11% growth was very, very strong, obviously underpinned by some help from COVID comps as well and strong retail momentum. Going forward, Q2 onwards, how would you -- is it fair to assume a deceleration in growth going forward? And when do you sort of see it getting back to the low single-digit growth that you've historically sort of guided on for that segment?

[Jan Karas, Chief Executive Officer]

I assume you are referring to year-over-year growth of the given quarter, right?

[Karan Puri, JPMorgan]

Exactly, yes, yes.

[Jan Karas, Chief Executive Officer]

Well, I don't like to forecast too much on deceleration of our success. That remains to be seen. We always aim high. And I think we are lately quite successful with engaging players because we have been during Q1, as you have seen in the deck, reaching some very high numbers in terms of activity players -- activity of players and that across all the different vertical. And we have some [indiscernible] sleeves going forward to further trigger activity of players; so I certainly don't aim for anything less than continuation. But at the same time, putting aside ambitious CEO, then we should see a single-digit growth comparison quarter-on-quarter going forward as well. How much we will succeed to go to double-digit range remains to be seen because don't forget that there are still some macroeconomic question ahead of us, like the final results of the political elections. That seem to be hopefully on a good track but it's still not closed.

We have a touristic season ahead of us which again seems to be on a good track but far from conclusive as to where it's going to and how it's going to end up. We have some interesting forecast on weather that possible tropical, high weathers might have an influence and impact on people going out and spending time outside of our stores. So there's quite a lot of things that can influence how the rest of the year will go, not just the default GDP or our encouraging Q1 performance. So I really would like to abstain from speculation and come back to my statement that I said before that we will hopefully give you a much better insight as to how the end will year -- how the year will end with the Q2 results.

[Operator]

[Operator Instructions] The next question comes from the line of Zouzoulas, Constantinos with Axia Ventures.

[Constantinos Zouzoulas, Axia Ventures Group]

A couple of years ago, if I'm not mistaken, we have discussed about the prospects of the online market in Greece. Forwarding -- fast forward 2 years, how do you see the market evolving? Do you believe that the trends that you were discussing or thinking were conservative or aggressive?

[Jan Karas, Chief Executive Officer]

We -- I'm sorry because I cannot refer to optimistic or conservative statement as to -- since I'm not sure to exactly what data point a couple of years back you are referring to. But in terms -- when it comes to the future, our expectation continues to be some healthy growth of online at around 10% year-over-year rate. And while certainly protecting our business on the retail side, that is also what we are seeing in the European benchmarks, so further jurisdictions that are more advanced than OPAP on the lottery online side. Having said that, similar to my statement before, there is quite a few possible interesting opportunities that we may be able to explore, like how much we will manage to attract new players to our iLottery proposition or new generation players that are possibly not with us today.

And likewise, as always, there might be some unpleasant surprises along the way in terms of constantly evolving customer preferences as to what they want and what they don't want and what they consider entertainment that they want to pay for. While generally, a very diverse array of opportunities and challenges ahead of us, coming back to my original statement, we don't expect to be anywhere else than of around at least 10% growth year-over-year for our online business.

[Operator]

[Operator Instructions] The next question comes from the line of Chauhan, Virendra with AlphaValue.

[Virendra Chauhan, AlphaValue]

Quick question on the online business, specifically, iLottery. So I'm sorry if you have addressed this during the Q&A. I had some topple getting on the call. But the iLottery business was down about 2% in Q1 and coming on the back of very strong performance towards the end of last year, if I remember correctly. So my question is, is this a reflection of the transitional period that you had and you were awaiting the launch of the new platform and hence, less marketing intensity, if I could term it that way? Or is there anything else [indiscernible] because it's moved from, I think, 20%-plus growth in Q4 to about a decline in Q1? So can you just clarify that for me?

[Jan Karas, Chief Executive Officer]

Thank you very much for your question. The answer is very simple. The explanation is very simple and that is the -- now I can say, think of the past and that is very high dependency on the jackpot. So since it was a Joker GGR only, it was all about, do we have a high jackpot or not. And that is some -- so it had nothing to do with the new platform because that has been launched at the beginning of April. But that kind of dependency is exactly one of the things we are trying to change with the introduction of the whole iLottery portfolio and everything that is coming going forward which should be much more about creating a habit of people coming on a regular basis and spending a few minutes a day, having some fun rather than playing and waiting for jackpot. So it remains to be seen how successful we will be on our ambition but I'm optimistic on that front.

[Virendra Chauhan, AlphaValue]

Okay. And so if I understand correctly, you're saying that comparable had a higher jackpot-driven business last year. And now that's the reason for this drop in business, right?

[Pavel Mucha, Chief Financial Officer]

We didn't say similar [indiscernible].

[Jan Karas, Chief Executive Officer]

I'm not sure I understood the question. But in terms of what we always do, if that is your question, we always do -- we are looking at performance in comparison to the similar jackpot in the past. And on that front, we are not seeing any decline on the contrary so -- if that's what you were asking.

[Virendra Chauhan, AlphaValue]

Okay. Yes, perfect. So I was looking for some kind of underlying growth in the business; and I think that's clear.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Karas for any closing comments. Thank you.

[Jan Karas, Chief Executive Officer]

Thank you very much, Boby. And thank you very much all for being with us today and thank you very much for your question. And it's beautiful that at this moment, I can wish you to enjoy a great summer and we will be looking forward to talking to you again in September for our Q2 2023 results, where I'm sure we will have another set of exciting news for you.

Thank you very much and have a great day and great summer. Bye, bye.

[Operator]

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.