Greek Organistn Football

Ladies and gentlemen, thank you for standing by. I am Jota Yokoro's call operator. Welcome and thank you for joining the OPAP SA conference call and live webcast to present and discuss the first quarter 2021 financial results. All participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Jan Karas, CEO of Opap SA. Mr. Karas, you may now proceed.

Thank you very much, operator, and good afternoon and good morning to everybody. Welcome to Opap's Q1 2021 Financial Results Conference Call. Having behind us a year full of turbulence, uncertainty, and severe restrictions on most economic activities, We feel both proud and safe by saying that OPAP was beyond any doubt able to face unprecedented challenges in the best possible way. Profitability was obviously affected by the fact that the bulk of our land-based network was closed for almost all the quarter, but our focus on online as part of our established dual strategy led to record high numbers and solid profits on that front. Going forward, we are cautiously optimistic as online remains strong and our back-to-the-game commercial plan, together with the substantial commitment of our partners, has led to a successful op-up stores reopening and encouraging initial footfall and GGR indications. Our CFO, Pavel Mucha, will now provide you with a more detailed review of our quarterly performance, while I will then inform you on the progress we have demonstrated on the operational front. We will then answer any questions you might have. Pavel, over to you.

Thank you, Jan, and good afternoon to everybody. It is true indeed that although the lockdown has led Q1 numbers towards lower levels year on year, we believe that Q1 performance comes with a clearly positive tone. Several individual KPIs improved materially, and we trust that those will shape the longer-term trend. Before getting there, though, and starting as always with macro-developments, I wouldn't say that much has changed since our last update when it comes to the hard data. That said, the fact that leading indicators such as consumer confidence and economic sentiment have now been growing is reflecting a positive tone, which we hope will be eventually echoed on GDP and private consumption. Broker estimates still come with a wide range, however it is fair to say that most of the projections hover around 3-4% for the year. All in all, the fact that the economy has gradually reopened together with the vaccination progress and the fiscal support, which is one of the highest in Europe, makes us optimistic for the future. Jumping to OPAPS figures and slide 5, Our total GGR came in at 174 million euro, which is lower by 47% year-on-year, but this number is rather skewed on the back of the retail lockdown. In more detail, the land-based segment recorded revenues that dropped by 84% year-on-year, as most of our Greek stores operation was suspended for almost all of the quarter, with only about 40% of the network opening only within February. As such, I don't believe that it would make much sense to refer to our retail performance in the few days that only a small part of our network was open, other than the drop was within our expected range. On the contrary, when it comes to online, a more detailed reference is definitely needed, as GGR reached €122 million versus €5 million one year ago, with €103 million coming from Stichemann as a result of the company's full consolidation as of December last year. Stichemann continues to be the country's market leader, with good growth coming in for both sports betting and casino. At the same time, OPAP's online brand also reached new highs with revenue quadrupling on a year-on-year basis, reaching €19 million up from €5 million in Q1 2020. This performance is a result of our decision last year to prioritize online launches, which effectively enabled us to quickly offer a full spectrum of online games, including betting, casino and lottery. On the expense line, Let me firstly note that our gross profit has again once more been hit by our prudent decision to record Hellenic Lottery's increased GGR contribution according to the annual contractual threshold of 50 million euro. As you know, we have already filed an arbitration request, but until this is decided, we have chosen to book the full amount in our numbers so as to stay as conservative as possible. Other than that, OPEX figures on a reported basis increased to 76 million, but these are obviously not like for like due to Stichemann full consolidation. When adjusting for Stichemann impact as well as one-offs items, OPEX dropped by 15% due to cost efficiencies that we pursued immediately after the initial lockdown. In a nutshell, payroll decreased by 8%, while like-for-like marketing came in lower by 15% after adjusting for Stichemann's impact. Going forward, it is obvious that marketing will move higher as the gradual restart of our land-based activities will require a marketing boost so as to enhance our customer reach. With those in mind, and turning to slide 8, EBITDA came in lower by 29%, At 61.3 million, comparing to Q1 2020 when it was 86.4 million, or this is minus 44% like for like after excluding one of income in Q1 2021, while further down the profitability line, earnings after taxes and minorities in Q1 2021 reached 10.3 million or minus 2 million like for like versus 36 million in Q1 2020, as a result of lower operating profitability due to lockdown. Cash flow-wise and slide 10, despite our positive operating profitability, operating cash flow was negative for the quarter due to adverse working capital movement. This took place on the back of our network closure, which in turn led to receivables related to our past prepayment of GGR contribution. This effect is obviously not going to continue as our op-up stores are now open. Overall, our cash position remained at an exceptional 486 million euro, shaping a comfortable net debt to EBITDA ratio of 2.4 times. With that in mind, and given the shop's reopening, we are increasing the proposed dividend per share to 55 euro cents versus 45 euro cents announced before. Given the circumstances, we believe that this constitutes a much rewarding return to our shareholders. Finally, we have also prepared a few slides pertaining to our post-reopening performance. Starting with slide 11, it becomes evident that OPAP's brand online penetration is picking up pace, with Joker now reaching 20% and Pame Stichema standing at 8% versus low single-digit percentages in the pre-COVID period. In addition, when turning to slide 12, our retail business has also been recovering at an encouraging pace. In comparison to the same weeks in 2019, performance following the reopening has been steadily picking up pace with the last week generating numbers very close to the numbers generated in 2019. Comparison is also favorable versus post-lockdown reopening in 2020, But so as to be fair, we must stress that the sports betting offering is now full of events versus quite a limited offering last year. With that, I am passing you back to Jan.

Thank you, Pavel. Now, following up on the financial part, I would like to start right away with something that I hope will no longer be needed as a reference from now on. As per our current operating status, OPAP shops in Greece have reopened since April 12, while VLT's activity is expecting to restart on May 24. As for the Cypriot network, following 15 days of closure, stores are again open under social distancing measures. On our part, as seen on slide 14, we have taken in time all the appropriate measures so as to make sure that our network would be ready to restart the operations And that's exactly what happened. All of our stores opened right from the first week after the lift of restrictions, while 75 new stores opened, all of which were constructed during the lockdown period. At the same time, we have expanded to 1,500 the number of agencies equipped with the enhanced video broadcasting capabilities of the CMS systems controlled by the agencies. while our plans for the future call for an even higher degree of digitalization in our agents and customer experience alike. Product-wise and slide 15, our actions so as to be ready with exciting and new content at the time of the retail reopening were successful. We edit new sports in our live sports channel, we introduce new betting options and features such as bet wishes, which allow players to request tailor-made events and odds from our trading team, thus adding a personalization touch in the player's betting experience. We also introduced new over-under options in our exciting powerspin game that were well perceived by the players, while we are also enhancing our scratch tickets portfolio with the small retail gaining ground in the mix due to an increased number of distribution points. We started offering a new exciting Scratch game that allows the winners to enjoy a fixed annuity of payments for a time span of 30 years. Finally, we launched a new brand campaign for our Lyco game to strengthen its relevancy across all customer segments and to support the game's jackpot streak. We are happy to see very positive early reactions and we plan to further couple the campaign with special summer-edit promos. At the same time, as you will see on slide 16, our aim to provide new digital customer journeys inside our stores and strengthening the in-store digital entertainment continues at full speed. We have introduced completely new loyalty offering by enhancing a very simple and straightforward way our long-standing and successful op-up application with the new rewards feature. We reward our players in several ways. including Wheel of Fortune, monthly draws, and weekly offers. As customers will participate by scanning their placelets, we will also benefit from new data sources that will enable us to provide an even better solutions for our customer needs and expectations. We believe that loyalty will be relevant across our customer segments, fully exploiting the mobile experience within the store. On the online front, in slides 17 and 18, Pavel already indicated that this was yet another record quarter. Through our dual strategy, we hold an 84.5% stake at the domestic market leader business Stichman, while at the same our full autonomous OPA brand has managed to get a key place in the market as per official 2020 data. Who would say not long ago that OPAP, a 99% retail-oriented group at the time, would manage to generate a considerable EBITDA profitability with its retail network being closed for the vast part of the quarter? A lot has changed since then, and this is exactly what we are trying to depict here. 70% of our overall GGR came from online in Q1, indicating that OPAP Group is now well-braced to face any online, retail, or omnichannel challenges. Overall, our online product mix follows international trends, with betting accounting for the most part of the revenues, casino following with 38.7%, and lottery being a small but still substantial part. Going forward, retail reopening should naturally affect quarter-on-quarter trends, and as such online penetration figures will be naturally lower, but nonetheless, we believe that online numbers as a whole will remain solid within the second quarter as well. On our part, having rolled out quite a few new products within the last couple of months, we are constantly enhancing our OPAP brand online offering. We continue our efforts to fully utilize our Salesforce platform, enabling a 360 customer account view, upon which all of our CRM activities now rely. Our latest and focused actions are coming on campaigns automation by targeting specific segments and players, so as to offer personalized rewards using both our Salesforce as well as our robotic process automations. We also launch a brand new live chatbot service for our online players, thus enhancing our customer support. Going to Kaizen Gaming, it's clear that facts speak for themselves. Taking advantage of the COVID-related developments, both number of active customers and GGR have reached quite impressive figures. driven by a complete and exciting offering, as well as constant focus on technology. We have every reason to believe that the company will continue to be national leader in both Greek and Cypriot markets, although someone should take into account both the retail reopening, which is probably here to stay, as well as the new online law, which will soon lead to increased competition. Finally, just before passing the ball back to operator, let me walk you over the CSR-related actions. On the children's hospital front, renovating is progressing well with an aim to deliver those by May end. Our OPAP Forward initiative also progressed well with weekly webinars, online workshops and advisory meetings with international speakers and high-profile companies. Our Sports Academy's online platform reported increased visibility rates through the Ask Your Favorite Athlete videos and frequent content updates. Last but obviously not least, in collaboration with our local retail network, we supported hundreds of families in central Greece affected by the earthquake with food and detergents packages. With that, I'm concluding my opening statement. I also share Pavel's cautious optimism and further believe that OPA will soon be in the position to reap the merits of our people's considerable efforts. Thank you for your patience and attention and I'm opening the floor for any questions you might have.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. Once again, to register for a question, please press star and one on your telephone. The first question comes from the line of with European equities. Please go ahead.

Hello there, and thank you very much for taking my questions. May I start with one on shareholder return policy? in the past you've indicated that you would be comfortable with a net debt to EBITDA ratio in the region sort of one and a half to two times. Just wondering, given there's been a rebasement of your EBITDA since last October due to the prepayment of the gaming duty through to 2030, could you tell us how this affects this sort of ratio or Comfortable zone, let's say in terms of leverage. So that's the first question. And two questions on the business, if I may. Firstly, on the OPEC side, given that the government has yet to fully unwind the support measures taken in the aftermath of the lockdown, for example, rent subsidies, employee subsidies, etc. Could you tell us the extent to which you expect to benefit from this in the second quarter. And lastly, on the top left, could you just tell us what you've been seeing since the opening for Keynote, which is a frequent draw game and, you know, just wondering how customers have adapted to the restrictions, you know, regarding indoor seating or the lack of it. Thank you.

Thank you for the questions. In terms of our leverage, yes, indeed. The new tax regime on legacy games will certainly significantly enhance our profitability going forward. At the moment, we really don't have any plans to significantly change and we have yet to see really how this develops going forward. On the second question, government support, really it's not so much relevant for OPAP directly. We are always helping our agents to get all the support. Like in Q2, they were still open at the beginning of April. But in the Q2, we don't expect any government support directly for OPAP. If that was the question, that was happening more in Q1, but not in Q2. For the third question, I will pass you to Jan.

Thank you. So regarding the question about CINO customers' behavior, We have seen our customers accommodating to the situation just for the sake of clarity. When we opened it was not allowed to sit anywhere but now with the recent relief of the measures customers can sit outside of the stores where obviously such a seating is available. So what we see is customers playing much more of the repetitive bets of higher values. And generally, we see the regular customers coming and adopting to the situation where the segments where we are lacking and we are looking forward to welcome the customers back in the future is the more occasional customers segments. Thank you for the question.

That's very clear. Thank you so much.

The next question comes from the line of Johan Virendra with AlphaValue. Please go ahead.

Hello. Three questions from me. Thanks for taking them, first of all. The first question is on the overlap between the OPAP and the human customer base. Could you give us an indication of how much of an overlap lies between that and which, of course, also indicates the some amount of what's the cross-selling opportunity between those two customer cohorts, if I can put them that way. So that would be the first one. The next question is about the cost structure of your online operations now versus the offline one. So I assume that there will be no revenue-related costs with the online operations. and these typically range about 28 to 29% of the offline costs. So given that we have range at that level historically for your retail revenue, would 22 to 23% be an appropriate, would 22 to 23% of sales be an appropriate level from a long-term perspective for your gaming revenue-related expense as a proportion of sales? And in continuation of this, why does the cost, that gaming revenue-related cost in Q1, it just seems to be significantly high at about $30 million odd for retail revenues of $32 million. So any particular reason why that's come higher than what we would have seen in a normal quarter for the retail operations. And just one more, if I can squeeze it in. Could you clarify on the operating income add-back due to the addendum? Is that expected to be recurring at a similar level, I mean, all through the next decade because, say, 10 years, it applies to the next 10 years? So this will be from my side. Thank you. In case you need me to repeat any of them, I'll be happy to do that. Thank you.

I will try to answer the first question regarding the OPAP and Sticheman customer bases overlap. As I'm sure you are aware, our retail customer base is anonymous. We know that quite a few of our sports betting customers do play not only in retail, but also in online. That's why we are also so optimistic about our dual strategy, supporting and offering to our players experiences in both worlds. But that overlap, because of the anonymity on the retail side, we obviously cannot calculate, but can at best estimate. In terms of the online databases, we are not exchanging any data about the customer basis, so such an indication is not possible either. Thank you. Pavel, we will follow up on the financial questions.

Yes, so in terms of the question on the cost structure online, offline and really what is the OPEX allocated to online. We have been building the online operations and online team really over several last years and I think we are always trying to enhance our infrastructure And there is always also CAPEX involved in that, as well as OPEX and operating and running costs. Obviously, a big part of the cost is the bonusing, where we have to remain as OPAP competitive with the competition. But basically, I wouldn't say that we expect somehow significant increase of the OPEX related to online just because we are growing very successfully in terms of the top line. Obviously there are a number of costs which are variable and related to the growth of the GGR, but as a fixed cost base we do not expect any significant increase. Your third question was about, can you remind me of another question, please?

Yeah, so the last one was on the levels of the operating income at back that's related to the addendum. Is that expected to be recurring at a similar level that we saw in this quarter all through the next decade, or is that variable depending on some of the factors as well?

No, that is a fair assumption that that level should continue really month by month, quarter by quarter. Yes.

Okay. Just if I could follow up on the cost question. My question was actually very specifically related not to the overall OPEX but to the gaming revenue related expense that consists of the agents commission and other NGR related commission. So I was trying to understand since online will not have this cost item associated with it. And historically this has been at about 28 to 29% of sales. So considering that probably about 25% of that should be a good ballpark for online revenue as a portion of your overall revenue. Will this expense line item be about 22, 23% in the future? Is that a good way to think about it from a longer term perspective?

Yeah, so you're interested really in the variable, really GGR-related OPEX, not like fixed-base, yes? Yeah. I think it's even a bit more, I would say. There is certainly no agent commission, that's true, but there are, as I said, bonuses play quite a big impact. And then as well, obviously the technological vendors and other vendors. So I would say it's a bit more than 30%, okay? Okay.

Thank you.

The next question comes from the line of with Edison Group. Please go ahead.

Good afternoon. Thanks for taking my question. It's further to the costs on the online business, specifically marketing. I think you said that your like-for-like marketing expense was down about 15%, which would mean new marketing expense for the digital business coming in is about $5 or $6 million. And relative to the GGR, that's about 5% or 6% of GGR. And that compares with similar numbers that you used to report for the offline businesses a few years ago. But as competition increases in online, can that percentage go much higher?

That is a very good question, but that remains to be seen. We obviously expect with several new entrants to the market that the competition will toughen up and we will need to react accordingly. What impact that will imply to our cost structure, that remains to be seen.

Okay, thanks very much.

Once again, to register for a question, please press star and one on your telephone. The next question comes from the line of Kourtesis Iakovos with Pireos Securities. Please go ahead.

Yes, good afternoon. First question has to do with the CAPEX for the year. Do you still stand in the area of 20 million or something? Do you plan additional investments related to online, taking into account the success you've enjoyed in the first quarter? And second question... It has to do with your GGR during April and May. Obviously, you've started to operate normally in OPAB stores from 12th of April. So, for April and May till now, where do you stand in terms of GGR increase versus last year and versus 2019? That will be from my side.

Okay, in terms of the CapEx, yes, our overall CapEx investment, despite the success of online and further enhancement, will finish below $20 million. We will have sort of one-off investment on top of that, and these are the two online licenses for the sportsbook and for casino, which is some extra $5 million. But the normal operating capex will be well below 20 million.

May I ask you to repeat the second question, please?

Yes, if you could comment, taking into account that your stores opened on 12th of April, for April and May till now, if you have any update for us for a GGR increase these two months till now. total GGR for the group.

Apologies, I was on mute and speaking, sorry. We see from the reopening certainly an encouraging early results, obviously with the VLT still being off, and as I mentioned earlier, some of the occasional customer segments being out. It's too early to make any conclusive judgments, but certainly the early indications are rather positive, and we believe that this way we will continue to be on the journey towards full recovery in the future. Now, as to specific GGR numbers, I would like to abstain from commenting on that for now.

Yeah, but in the presentation, and I commented on one of the slides where we are showing really performance versus 2019, so as I mentioned earlier, there is some encouraging results. It's really not comparable. Your question to compare to 2020, that's not comparable because we were now fully closed in 2020. We were in January, February, up until mid-March operational. And so that's not really comparable. But compared to 2019, we've seen really quick pickup. It's also helped by the sports calendar because unlike when we reopened on 11th May last year, There was really no sports calendar. Now there is a full sports calendar. So that's also helping. So the numbers when comparing to 2019, excluding VLTs, obviously, if we do it for like-for-like basis, they are quite good and close to pre-COVID 2019 level. And we are really satisfied with the performance.

Thank you. Okay.

As a reminder, if you would like to ask a question, please press star and one on your telephone. As a final reminder, if you wish to register for a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Karras for any closing comments. Thank you.

Thank you very much. Thank you very much for your time and patience to be with us. I hope you are all sound and safe, and it remains that way, and I hope the next day is very much optimistic for all of us across the globe. Thank you. Thank you for your question, and have a great day. Bye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.