Greek Organisation of Football Prognostics SA

ATHEX:OPAP

Earnings Call Analysis

Strong Q2 Growth, Increasing Online Revenue

OPAP delivered strong Q2 2024 results, with a 25% sports betting GGR boost due to Euro 2024, and online revenue reaching a new high of 30% of group revenues. The company's digital strategy is paying off, and they’re pleased with the revamp of their draw-based games, particularly EuroJackpot. Interim dividend of EUR 0.60 per share will be paid in November. OPAP remains optimistic about their 2024 outlook, despite challenges like declining disposable income. Marketing expenses will normalize in the second half of the year after a significant expenditure in H1 due to EuroJackpot's launch.

Strong Online Growth and Retail Resilience

This earnings call highlighted the solid performance of OPAP S.A. in the second quarter of 2024. The company successfully delivered a strong top-line performance with significant contributions from both online and retail segments. The online segment grew by 33% in the second half, marking a new milestone by contributing almost 30% to the group’s revenues. This robust online growth can be attributed to the effective execution of their digital strategy, particularly benefiting from the Euro 2024 event.

Lottery and EuroJackpot Success

OPAP's lottery segment, especially the EuroJackpot, has shown impressive performance. The revamped draw-based games portfolio, led by EuroJackpot, helped drive the segment's revenue growth. EuroJackpot alone generated low teens of millions in GGR (Gross Gaming Revenue) for Q2. This strong performance underscores the successful implementation of new functionalities and positioning strategies for games like Tzoker and Lotto, resulting in a 40% increase in revenues.

Profitability and Shareholder Returns

OPAP reported solid profitability and margins, giving the company confidence in meeting its 2024 outlook. An interim dividend of EUR 0.60 per share has been announced, to be paid in November. The company maintained its commitment to distribute the bulk of its net income as cash dividends, reinforcing its shareholder-friendly approach.

Impact of Disposable Income and Strategic Adjustments

The company's executives acknowledged the correlation between disposable income and gaming spending. Inflationary pressures have led to slight declines in the entertainment wallet of households. Despite this challenge, OPAP has managed to slightly increase its share in the entertainment wallet, highlighting the resilience of its business model and the appeal of its gaming offerings.

Marketing Strategy and Future Outlook

Marketing expenses are expected to normalize in the second half of the year after being front-loaded in the first half to support the launches of EuroJackpot and other games. This normalization reflects a strategic adjustment to balance promotional efforts and financial outcomes. The company remains optimistic about its growth prospects and continues to explore opportunities for further expansions, including ongoing discussions about the renewal of the Hellenic Lotteries license, which is set to expire in April 2026.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. I am Gelli, 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 2024 financial results. Please note, a video presentation has been distributed and is also available on the OPAP Investor Relations website. [Operator Instructions] And the conference is being recorded.

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

[Jan Karas, executive]

Thank you very much. Good evening or good morning to everyone, and welcome to our regular Q2 2024 Results Conference Call. I'm very pleased with the set of results we have announced, delivering solid upwards top line performance with online recording strong growth and retail showcasing resilience, while both were benefited by Euro 2024. [ The elevated ] gaming demand had contributed almost 25% to sports betting GGR. Online continues its strong upward momentum, contributing in Q2 almost 30% of group's revenues, which is a new record, reflecting the successful execution of our digital strategy.

Moreover, we are excited about the progress being made on our draw-based games portfolio revamp led by EuroJackpot. In addition, penetration levels of iLottery proposition continue increasing, uplifted by our loyalty program and the upgraded portfolio of free-to-play games.

Finally, solid profitability and margins allow us to be confident on the delivery of our 2024 outlook. At the same time, we are happy to announce an interim dividend of EUR 0.60 per share to be paid in November, continuing our general shareholder remuneration, which is supplemented by our ongoing share buyback program. Hopefully, you have reviewed and enjoyed the results recorded video we shared with you earlier today. So we will jump directly to our Q&A session.

Gelli, over to you.

[Operator]

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

[Stamatios Draziotis, analyst]

A couple from my side, please. First one would be on online. You mentioned in the release, and we actually did see some really strong growth in the second half, 33%. I'm just wondering, I was checking the figures for the market in the 2-month period, and revenues were up just by 3% in 2 months, so April and May. I suspect June was much stronger for the whole market given the Euro activation. But just wondering, according to your data, have you actually been gaining market share?

And second question would be on VLTs. It seems that net growth has settled near 36, 37 units per machine per day. Is this the level of productivity that we should anticipate in the future given the limitations arising from disposable income here in Greece, population dynamics, et cetera? Or do you feel that you have levers to pull going forward, especially as far as content and vendor selection is concerned?

[Jan Karas, executive]

Thank you very much for the question. So first, on the online, as you probably guessed, obviously, Euro has significantly influenced our performance in June. July and actually also in August because we have seen many of the actives that came during that period staying with us and also playing across other verticals, especially casino. So overall, across both of our brands, we were -- we have observed strong performance with good payout and good margins for us, exceeding the expectations. So it was a good period.

When it comes to market share, we will need to wait and see the AGC official numbers when they come up, but this is something that we are looking at over longer periods of time than just 1 or 2 months to make any judgments.

When it comes to VLTs, you correctly indicated that there are certainly further opportunities for growth that we would we would -- that we certainly intend to explore, especially when it comes to further renewal of the estate, which you could have noticed in specific numbers in our presentation. And this is something that will continue with thousands of machines to be renewed going forward.

And likewise, the overall experience in -- especially in play stores but also in OPAP stores is something that we want to keep evolving, all that to continue strengthening our USP of real-world socializing, entertaining experience, which is also a key differentiator to online.

Online, and especially Online Casino, is certainly an indirect competitor that we don't want to underestimate. It is an experience that is very different from what we offer in play stores. That's why I'm saying indirect competition, but it's for us, at the same time, something where we want to make sure it's something that is implying the challenge -- the key challenge we have, and that is stay around for the existing customer audiences and be more relevant for the future ones. And that is where our innovation programs and modernization of the estate kicks in.

To sum it up, we certainly continue to consider VLT as a growing vertical of our business with further opportunities to be explored.

[Stamatios Draziotis, analyst]

And may I just follow up on VLTs? Could you tell us what the difference in productivity is between the VLT gaming halls and the machines that operate in the betting outlets? So how different is the productivity?

[Jan Karas, executive]

Just to be clear, you're referring to GGR per machine, how the machine operates?

[Stamatios Draziotis, analyst]

Correct.

[Jan Karas, executive]

This is -- yes, this is a bit tricky question because we are obviously not comparing apples and apples because one thing is the performance of an individual machine, but the other thing is what is the overall experience that you are offering. Play stores are not necessarily about optimizing the number of machines for the given footfall of customers so that you maximize the revenue per machine. It's about the overall experience, and finally, the whole P&L of that not only vertical but also retail channels.

But to not leave your question unanswered, overall, there is more -- the customers spend more per machine in play stores as this is a dedicated and exclusive venue in comparison to OPAP stores. Also, don't forget that we have different opening hours there. And the, let's say, night business is something that we are not observing in the OPAP stores, where the positioning of VLTs is rather an integral part of the entertaining casual experience.

[Operator]

The next question is from the line of Weingrod, Estelle with JPMorgan.

[Estelle Weingrod, analyst]

Also had one on VLTs, just to come back on this one. I mean, what sort of normalized growth should we look at going forward? So is it more like somewhere between 0% and 1% or just closer to maybe mid-single digits? And also on inflationary pressures affecting disposable income, is that not impacting other segments at all? So that is for -- that's it for VLTs. Also have a question on the Lottery segment, please. Could you quantify the performance of EuroJackpot in H1, please?

[Jan Karas, executive]

Just a second, I'm not delaying answers. I'm making questions -- notes on your questions. So performance, EuroJackpot being the last one. Over to Pavel to answer the first part of your question.

[Pavel Mucha, executive]

Okay. Good afternoon from me. I think to give you some flavor, mid-single digits would be a relatively high expectation. So our expectations more -- would be more 1% to 2% increase on VLTs going forward to be a success. Obviously, it all depends on a number of circumstances and also regulatory framework, but that's something what we would consider as a success on the VLT growth.

[Jan Karas, executive]

Your next question was, just to be sure I captured it right, is our observation on the disposable income evolution and its impact on lotteries? Was it -- is it correct?

[Estelle Weingrod, analyst]

So yes, this one, you -- in your release, you mentioned it impacted VLTs. I just want to know if it impacted also other segments.

[Jan Karas, executive]

There is obviously always a correlation between disposable income or the key metrics that we are looking at, and that is entertainment wallet and amount of money that people indicate they are ready to spend for entertainment. And this, so far, has been shrinking, luckily, very small declines, but still declines, so the entertainment wallet over the past couple of months. And we are rather successful in leveraging that entertainment wallet for OPAP's benefit as our share in the entertainment wallet is slightly increasing in time, indicating that OPAP entertainment, I think, primarily because of its affordability, has an increasing preference from the customers.

Yet, as you may have understood from our other communication, overall, obviously, the people's willingness to spend money and the concerns about the household expenses, et cetera, is something that has an impact on our customers. And we see that especially in the activity of occasional players, in other words, those that are not coming on a regular basis and that being a challenge across multiple gaming verticals, not only VLTs.

Something we are trying to address in the current campaign that you can see, Life in Greece, is addressing exactly that presenting various forms of entertainment to our customers in Greece and inviting them to come and play with us.

Last question was around EuroJackpot performance. So first, what I would like to highlight that overall, we are very satisfied with the draw-based game portfolio revamp of Tzoker, Lotto, new positioning of the games and new functionalities and then enhanced with EuroJackpot.

Overall, as you have noticed in the presentation, this grew revenues by 40%. This growth is primarily driven by EuroJackpot and Tzoker. So we are also equally happy that even without EuroJackpot, both Tzoker and Lotto are trading at much higher GGR than before the changes, which certainly is reassuring that we have done the right step. Your question, though, was specifically as to how much money we generated in EuroJackpot or if you can clarify?

[Estelle Weingrod, analyst]

Yes, yes, exactly. At the top line level, yes, in terms of the GGR, what's the performance of -- if you can quantify EuroJackpot.

[Jan Karas, executive]

Okay. So the number that -- what I can share with you is it was low teens of millions GGR in Q2.

[Operator]

The next question is from the line of Pointon, Russell of Edison Group.

[Russell Pointon, analyst]

I have 2 questions. The first one is on lotteries. Could you just give some insight on to -- your thoughts on the dynamics for the retail lotteries? Because if you look back over the last 12 months or so, the year-on-year growth rates have been a bit volatile, and it was negative in Q2 '24. So have you been expecting a drop-off in that retail activity given the launch of EuroJackpot, that kind of thing? And was there any negative effect from the strength elsewhere in the portfolio revamp in terms of sports betting from Euros?

Second question is on Cyprus. Congratulations on that. And you've given the key financials of the contracts. But would it be possible to give some insight into whether there's been any changes in the operational requirements, what you're allowed to do in Cyprus? And perhaps give some insight into how you anticipate the gaming offer to evolve now that the license has been awarded.

[Jan Karas, executive]

Just a second, I will clarify with colleagues the understanding of the question. Okay. I hope we understood the question right. So regarding lotteries dynamics, that is a big topic because there's a lot of elements involved in that. But overall, lotteries in retail is certainly a category, and I would call it casual gaming for our players where we have a very wide variety of games. It's certainly a category that continues to be of customer interest, and we don't have any skepticism on that front when it comes to trends.

It's clear that customers are more and more demanding. So you need to innovate and evolve, and we are doing that and several examples we have shown you in the presentation. And you need to bring innovations both for the current customers, the example of that being the Para 1 in enhancing our KINO proposition as well as you need to bring new innovative proposition for the new-generation players, nice example being the NBA live feed virtual games that I certainly, if you happen to be in Greece, suggest you to see in the store because that's really showing how far we can go in evolving the -- some of the gaming verticals in terms of innovation.

So we keep evolving, we keep doing new things. And it's a combination of attractive proposition, the experiences you offer around the loyalty that you appreciate the customers coming as well as engaging communication that is relevant for the customers speaking in the right language.

And sorry for this generic answer, but it is a fact, unfortunately, that being successful in lotteries is a very complex exercise, consisting of many challenges that we are facing. But we believe that we are doing a good job on these fronts, and we don't have any pessimism on that.

If you ask me what is the key name of the game going forward to remain relevant and successful, then I believe it's a continuation of the successful de-anonymization of the customer base so that we can interact with the customers on a personal basis and that whole digital layer experience that makes the experience personal, which is something that so much customers want and expect from us to be treated individually.

Regarding your second question for Cyprus, under the new agreement, we are allowed to do exactly the same portfolio of games as until now. So there is no change on that front when it comes to portfolio of games and offering to the customers. But we like to believe that we are in alignment with the Cypriot authorities that there is an interest on both sides to explore new opportunities going forward. But that is something that is now in discussions and too early to comment as to what and when might be a result of that portfolio. But I would like to say that we were happy with the supportive approach of the Cypriot state in terms of providing interesting customer experiences in the store alongside of the evolution of customer expectations.

[Russell Pointon, analyst]

Can I just come back on that last answer then? So if you come up with good interesting ideas for evolving the gaming offer, you will obviously have to have discussions there. Would they potentially change the license terms as those things come in? Or would they be just a genuine new positive that is not taken into account in the terms of the license?

[Jan Karas, executive]

I'm not sure I understand the question. But if your question is if new games -- what it means to bring new games on the market is another complex legal and regulatory exercise. But this is something that will be covered within the existing license. So that option and possibility is there should both parties agree to do so. Adding any specific game is always, for us, about the commercial opportunities, but very importantly, also pursuing our commitments to responsible gaming and enhancing the portfolio in a responsible way when it comes to impact to the society.

[Operator]

The next question is from the line of Tzioukalia, Fani with Euroxx Securities.

[Fani Tzioukalia, analyst]

Two questions, please. The first one is, how would you expect marketing expenses to evolve for the remaining of the year? And the second one is you reiterated the outlook for 2024. This also include the target to distribute the bulk of the net income as well as cash dividends.

[Pavel Mucha, executive]

Yes, you can expect in the second half of the year that marketing expenses will more normalize. Just a reminder, we front-loaded a lot marketing expenses in the first half of the year, in Q1. It was related to EuroJackpot launch. And also prior to EuroJackpot launch, we were repositioning Tzoker and Lotto and communicating that. So that was a big activity in Q1. And In Q2, it was mainly Euro. So definitely, you can expect marketing expenses to normalize in Q3 and in Q4 to a normal level.

And in terms of your second question, yes, we remain -- our dividend policy remains in place. So we are committed to distribute really all our net profit. So that's what you can expect also for the remaining dividend for 2024.

[Operator]

[Operator Instructions] The next question is from the line of Kourtesis, Iakovos with Piraeus Securities.

[Iakovos Kourtesis, analyst]

I would like to ask about the renewal of the Hellenic Lotteries license. Are you in contact or are you under any negotiations with the Greek government at the moment? What are your thoughts on this?

[Jan Karas, executive]

Thank you. As you know, the Hellenic Lotteries license is set to expire in April 2026. And on our part, we are certainly ready for the [ long ] discussions around it better. So we expect to process -- the process to begin any time soon. So we will certainly keep you updated as promised. Thank you.

[Operator]

[Operator Instructions] We have a follow-up question from Ms. Tzioukalia, Fani with Euroxx Securities.

[Fani Tzioukalia, analyst]

Sorry, please excuse me if I missed this. Could we have some color on KINO performance quarter-to-date, please?

[Jan Karas, executive]

Overall, in third quarter, we see a similar evolution of performance to Q2. And so far, we remain optimistic on our end-of-the-year guidance that we have provided to you. I don't have any specific comments on KINO for the moment as the very important back-to-school period is ahead of us that is making a significant difference to the holiday period. So let's see in our next call for the Q3 commentary on KINO. Happy to come back to this by then.

[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, executive]

Thank you very much. Thank you very much for being with us today. Our IR team will be looking forward to answer any other questions you may have and dive deeper in your inquiries, as always. We will be looking forward to talk to you again in a couple of months in mid-November upon the Q3 2024 results announcement.

Thank you very much for being with us today, and have a great rest of the day. 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.