Greek Organisation of Football Prognostics SA

ATHEX:OPAP

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. I am Gaili, 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 Second Quarter 2023 Financial Results. Please note a video presentation has been distributed and is also available on the OPAP Investor Relations website. All participants will be in listen-only mode and the conference is being recorded.

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

[Jan Karas, CEO]

Thank you, Gaili. Good evening or good morning to everyone and welcome to regular Q2 2023 results conference call. I'm very pleased with the set of results that we have announced delivering strong upwards top-line performance across all channels and verticals. We continue also to record solid operating profitability, allowing us to be confident on the delivery of our communicated outlook for the year.

On the operational front, we are very glad with the tangible progress. We are showing, upgrading further our customer experience and rejuvenating our recreational mix. The first steps of our OPAPonline.gr entertainment hub, the upgrade of our Retail SPORTSBOOK performed and the continuous evolvement of the OPAP Store App supported also by our new FreeWin game was amongst the few successes that we presented to you earlier in the presentation that we have shared with you.

We are also happy to announce a record interim dividend of EUR1 per share to be paid in November, continuing our general shareholder remuneration, while at the same time, we are looking to further complement our shareholders remuneration by expanding it with the share buyback program funded by any additional surplus cash after maximum dividend has been paid. For the remainder of the year, we are having a very busy and solid commercial plan towards delivering sustainable value to all our shareholders.

Hopefully, you have reviewed and enjoyed the results, recorded video we shared with you earlier today. So we'll jump directly to our Q&A session. Gaili, over to you.

[Operator]

Thank you, Mr. Karas. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from the line of Draziotis Stamatis with Eurobank Equities. Please go ahead.

[Stamatis Draziotis]

Hello, there. Thank you very much for taking my questions. Here I -- just a couple, if I may please. Could you -- could we start with the shareholder remuneration? If you could describe us your thought process regarding the interim dividend distribution? I guess, the obvious question is, what this means for our total shareholder returns out of 2023 numbers profits? Or I guess, what I'm wondering is, whether it's reasonable to assume that you will top up the interim dividend with the profits that you will generate in the second half of the year. So that's the first question.

And secondly, yeah, just on online, I mean this posted quite healthy growth rates in the second quarter. I'm just wondering what has the experience been from the launch of online KINO? Have you seen any meaningful migration so far to the online channel? And you had given some time -- some targets, I think they were a couple of years ago about online, are they -- the same because you have proceeded with the revamp of your product offering? Since then, so I'm just wondering, what you expect in terms of online penetration in the coming years. Thank you so much.

[Pavel Mucha, CFO]

Good afternoon from Pavel Mucha, I will take the first question about interim dividend. So to answer you, definitely, you can expect the remaining dividend to be eight (ph) next year. Basically, we've announced in the past and you were used to pay -- you were used to us paying twice a year interim in the autumn and remaining dividend in the summer following year. So it is very reasonable to assume that we will distribute the second half year profits as the remaining dividend for the 2023.

[Jan Karas, CEO]

Thank you. On the online side, what is the experience of online KINO so far? So on your question regarding KINO, we are referring here for the rest of the audience through the OPAPonline.gr, our entertainment hub that we have launched a few months back. The KINO is one of the games that we are offering as part of our online lottery portfolio now, obviously one that is getting a lot of customer interest.

We are in the first stage, all of the online products that we had before, they certainly appreciate and explore the new growth portfolio, and we are excited about the engagement with the other games and the development of their time spent on the website, as well as the spend and amount of games they play. So that's so far going in a positive way, but we obviously don't stop here.

As you may have noticed, we have started in -- back in July, communication. So ATL campaign for our OPAPonline.gr platform. And as such, we're expecting in the periods to come, especially now with the back-to-school period kicking-in, more and more audiences and new customers joining this new proposition and exploring its merit.

So that's where we are today and we hope we have only the most positive expectations going forward because obviously online and online gaming is a trend and we don't want to stay behind, and that's why we enriched this portfolio and we will continue to do so. So there is much more coming in the world of OPAPonline.gr. And alongside of those evolutions, we expect also accordingly, the online share on the total lottery gaming to grow towards double-digit numbers.

[Stamatis Draziotis]

Got it. And I guess what this means for the online channel as a whole within your mix? Are you still targeting something similar to what you had referred to a couple of years ago regarding your own digital offering or has anything changed?

[Jan Karas, CEO]

I'm not sure what exactly you referred to in several years ago target, but our ambition like I said, it's a double-digit share of lottery. If you're asking what exactly is that number...

[Pavel Mucha, CFO]

I think it was close to EUR200 million, if I remember correctly, something like that EUR180 million, EUR190 million.

[Jan Karas, CEO]

I would like to abstain now from specific numerical commitments as to where our online will be. But the important thing is that, we explore this opportunity to the max. And like I said and if you also look around Europe the double-digit share or lower double-digit share is the trend, and we expect that we will go down the growth ourselves as well.

Keep in mind also part of your question was how it's influencing retail. The important opportunity of online that we want to explore is an incremental business, those are incremental opportunities for current customers to play on occasions that they couldn't play in retail, especially given its space and time limitations.

And very important also attracting customers, who for any reason don't want to engage with retail and other customers and they want to enjoy the game on their own. This is a new opportunity for them as well. So there are both current customers being developed from retail customers to the hybrid customers is one important group, but likewise it's adapting the completely new customers to our games.

[Stamatis Draziotis]

Got it. Thank you very much.

[Jan Karas, CEO]

Thank you very much for your questions.

[Operator]

The next question is from the line of Pointon Russell with Edison Group. Please go ahead.

[Russell Pointon, Edison Group]

Good afternoon, everyone. Thank you for taking the questions. I've got three or four if that's okay. My first one, could you talk in terms of how perhaps the fires in Greece might have tempered your expectations from earlier in the year? And has there been any change -- notable change in customers' behavior?

My second question is, in terms of FreeWin, could you just talk about the economics of that to you, and the potential financial benefits, because it's obviously easy to see that cost in terms of the payout that you give to customers. But what are the financial positives, I think in your presentation you talk about [Technical Difficulty] for the app.

My third question is, in terms of VLTs, there was a slight step back in the run -- the quarterly run rate of the revenue there, so could you just talk about that? And my final question is, in terms -- with respect to the share buyback, could you just talk about why you're going for share buyback rather than further the reinvestment plan that you had previously? Thanks.

[Jan Karas, CEO]

Thank you very much. I gathered, second, third, and fourth question, could you please repeat again the first one?

[Russell Pointon, Edison Group]

Yeah. It's really just about the tragic fires that have been happening in Greece over the last few months. Has that -- is that temperature outlook [Multiple Speakers]

[Jan Karas, CEO]

So you are referring to fires?

[Russell Pointon, Edison Group]

Yeah.

[Jan Karas, CEO]

All right. Yes. Now I understand. Yes. Thank you. So starting with that, obviously the very unfortunate events of extreme heat that unfortunately there into extreme fires, and according to many of those who were probably worst fires in last at least 15 years, with a lot of negative implications. For us, it was -- obviously also for our business, it was obviously a disruption as well.

As many areas have been affected, several stores have been closed for several days, and very important is, its certain influence, the psychology of customers in the affected areas. So yes, it had an influence, we’ve obviously are not able to exactly size as the volume influence that was, but it was certainly not a usual summer, unfortunately. By the way, speaking on that front, we as OPAP have also provided a lot of help to the affected communities, as in many other states throughout this extraordinary situation.

On your second point regarding the FreeWin logic, it's relatively simple, we want to attract customers to our stores. We want to attract those who come – generates for customers to come more often, I give them a reason to come more often. So it's one thing. And the other thing is, further promote important element of our business and that is affordable entertainment. With us no matter how much money you are prepared to spend from few euros to more euros, we have options for everyone.

And we decided to take it to the extreme and the ultimate definition of affordable entertainment is the ability to play for free. And that's what we want to offer to our customers, to play, play come (ph), play for free, once a day you have a chance to win EUR100,000 through an exciting and engaging game provided through the digital app of OPAP Stores. What’s in it for us? Point number one, we are acquiring customers. We're bringing them more often.

Point number two, when they are winning, we're giving them -- while we are giving them money. We are giving them also an opportunity to play and they want to play and they enjoy to play. Most of the winnings that people are collecting are single or low double-digit euros. And most people just want to maximize their chances to win, and they keep recycling and playing and enjoy what we offer them in the wider perspective of the whole portfolio. So that's the whole thing.

People come more often and play. So activity is the name of the game, and that's where the return on investment as well is. Assessment of the whole business case and how much our forecasts, which are certainly even for this FreeWin game, positive in terms of P&L implication is something that we will come back to in the next months, because we are now in the early days of the whole proposition.

Third question was around VLT activity. Indeed, we see a little bit slowdown, but at this moment nothing that would significantly concern us, because it's largely connected with activity of players and how often they come and that was affected during Q2, but not to an extent that would make us anyhow concerned. We have a counteractive base with a dedicated campaign, focus on activity of players. And we see a continuous solid performance on VLT, aligned with our expectations. So hopefully, we will not have any surprises on that front.

For the fourth question, I'll hand over to Pavel.

[Pavel Mucha, CFO]

Yes. Thank you. Well, I was thinking about scrip program and share buyback was quite simple really. Scrip dividend program, it was very successful five-year running program, which we had approved, which now has come to its end. And we were thinking how to take it forward then and reflecting our good continuing operational performance and cash flow generation. We were thinking how to further complement our shareholder remuneration and we decided to expand it with the share buyback program. However, we want to use only any additional surplus cash, after we still continue to pay the maximum dividend.

With this Scrip program, it was very popular and many of the free float shareholders were participating fully or partially. We've heard from [indiscernible] shareholders who didn't participate that they get diluted. So we decided basically to move forward with the share buyback program, where pretty much all the shareholders benefit from this, as a complementary remuneration on top of maximum dividend, which we continue to pay and intend to pay in future.

[Russell Pointon, Edison Group]

Great. Thank you.

[Pavel Mucha, CFO]

[indiscernible] cover your questions.

[Russell Pointon, Edison Group]

Yes. That's great. Thank you.

[Jan Karas, CEO]

Thank you very much.

[Operator]

[Operator Instructions] The next question is from the line of Memisoglu Osman with Ambrosia Capital. Please go ahead.

[Osman Memisoglu, Ambrosia Capital]

Hello. Many thanks for the presentation and your time. Just wanted to touch upon the cost side and the outlook, given we've seen some increase in Q2, particularly on the marketing expenses side. How shall we expect this will unfold over the next few quarters? Thank you.

[Pavel Mucha, CFO]

Okay. Obviously, we have certain phasing of the costs during the year. So what we assured you and what Jan repeated at the beginning of this call, we are definitely aiming to achieve the range outlook, which is quite narrow, which we provided. So there is nothing unusual in Q2 marketing expenses. We were doing a lot of activations within the Q2, it's all related to the new launches, which we had.

We launched OPAPonline. We had a new platform in the sports betting. So I would say, it's a normal stuff. And even with these increased Q2 expenses, there are -- they are sometimes a bit higher, sometimes a bit lower, depending on how the plants are faced during the year. And we will deliver the outlook which we provided.

[Osman Memisoglu, Ambrosia Capital]

Thank you. I guess, if I could follow up on that, you are -- given the momentum in the top line, you probably feeling comfortable about the top end of your EBITDA range would that be fair to say?

[Pavel Mucha, CFO]

We've provided quite a narrow range. So I don't want to speculate at this stage, whether it's at the top range. We are definitely comfortable that we will be within the range provided.

[Osman Memisoglu, Ambrosia Capital]

Understood. Thank you.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no -- I apologize, the next question is from the line of Puri Karan on with J.P. Morgan. Please go ahead.

[Karan Puri, JPMorgan]

Hi, everyone. Congrats on the good set of results. I was just wondering below EBITDA line items in terms of net finance expense, I mean came in much better than expected. How should we be thinking about it for the full year, just to get an idea of – forward trends there?

[Jan Karas, CEO]

Okay. If I understood well the question, where we've been constantly repaying the debt in -- during last year and even at the beginning of this year, our cost of funding remains to be very low in the region of 2.5%. So that's why we have very good development of the finance costs below EBITDA. If that answer your question?

[Karan Puri, JPMorgan]

Yeah. Thank you so much.

[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, CEO]

Thank you, Gaili. Thank you very much to all of you for being with us today. We will be looking forward to talk to you again in a couple of months, in middle of November upon the Q3 2023 results announcement. Thank you very much for your time, for your questions, and have a great day. Thank you, Gaili, as well.

[Operator]

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