Greek Organistn Football

Ladies and gentlemen, thank you for standing by. I am Gail, your course call operator. Welcome and thank you for joining the OPAP SA conference call and live webcast question and answer session to discuss the third quarter 2022 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 the conference over to Mr. Jan Karas, CEO of Opapese. Mr. Karas, you may now proceed.

Thank you, Gali. Good evening or good morning to everyone and welcome in our regular Q3 2022 results conference call. I'm pleased with the set of strong results announced, demonstrating elevated top line and profitability in both retail and online channel. During summer period we saw again our occasional players gradually returning to our stores, along with the further engagement of our regular ones, while online continues to deliver solid contribution. So ahead of an expected strong finish for the year and despite macro challenges, we have upgraded our EBITDA target to around 720 millions, now in line with our original outlook. 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. Kelly, over back to you.

Thank you. 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. The first question is from the line of Boynton Russell with Edison Group. Please go ahead.

Good afternoon, all. I have three questions, if that's okay. The first question, you highlight that revenue growth is due to a combination of in-store mobility and new product initiatives. Would it be possible to get some breakdown of how much you think each of those contributed, perhaps more interested in the new product initiative? My second question is on VLTs. Although they improve sequentially, the year-on-year performance is slightly down. So could you give a feel for Why that is, and perhaps versus your previous expectations, is that full dwell time or spend per visit? Or was the comparative from last year so exceptionally high, perhaps reflecting the reopenings post the lockdown? My third question is, could you just give a feel for how responsive you think revenue and subscriber growth is to the increase in marketing? And perhaps give some updates on your relative market share in online, please. Thank you.

Thank you for your questions. I will start from the end. I have some clarification question on the first part. So starting from the end, how responsive are online businesses to marketing activities. It's not a simple question to answer. There is obviously a lot of different marketing activities we have and we may go into the definition of what we consider marketing activity. Generally, for the support of online, you do a lot of CRM actions, then you do digital media and performance media and you do actions in ATL, speaking about where we spend money to attract and engage our players. And all of them have obviously a positive return on investment, otherwise we would not be doing them. And those that don't work, we simply stop. Go back to the drawing board and design new ones, especially referring now to the CRM promotions and different bonusing, etc. So it's really difficult to give you one size fits all answer that anything that we do drives accordingly the growth. Overall, we are very experienced and also with our media agencies and creative agencies, I like to believe that we know what we are doing and we have a good success rate on driving customer interest through our general communication and we are getting more and more experience with CRM and performance media management as this is pretty essential for any online success. But I'm not sure if that's what you were asking for. So maybe if you want to amend your question regarding the third part.

No, that's fine. And do you have a feel for how your market share changed in response to that marketing spend?

Well, that starts with understanding the market to have a proper definition of a market share. So referring to AGC data, we are increasing our market share for both OPAP and Sticheman. Yet I would suggest to abstain from commenting on specific numbers now and let's look at this when we will be, let's come back to this, when we will be commenting our annual result, because that's a better base than any kind of year-to-date data that are not necessarily exactly accurate in terms of the resources. So we will come back to that. At the same time, market share strengthening is obviously our ultimate ambition, yet it's not only a function of marketing spend, but very importantly, the development of the customer proposition. which is something we are putting a lot of emphasis on as well. To your second question, you were asking about VLTs, referring to year-to-date data?

Q3 versus this year versus last year. Actually, it was slightly down. Is that because that's down versus your expectations for the year or was there something so exceptionally high in the previous year, perhaps after the re-openings post-lockdown?

We had an exceptionally strong 2021 but it's not the only thing we should be looking at. Looking at trends of this year, you may remember when I was sharing with you in previous quarters that we certainly had a challenge on activity of our players and that's something that we see normalising now and that's certainly a positive trend that we are happy to observe. Thank you. So sequential improvement in 2022. Now to the first part of your question, you were referring to a breakdown between, can you repeat please that question?

Do you have a feel for, within the revenue growth of 6% year on year, do you have a feel for how much of that is just, there's more mobility around, I get that, but how much is, the new product initiatives contributing to that revenue growth. Do you have a feel for that number?

So that is, I'm afraid, a little bit philosophical question because we are, like I said many times, we are building the new reality. There is nothing like coming back. We are forward looking and we are trying to accommodate as much as possible the new customer expectations. And we are largely designing the new reality. experience of the future that people will have with OPAP that keeps in mind everything that has changed over the course of last two years through that major disruption of COVID in customers' expectations. So whatever evolution of products and functionalities is largely driven by evolution of customer expectations or our aim to attract new customer groups that we possibly did not even target three years back. So I'm sorry but I'm not able to say how much is from product initiatives because generally evolution of the customer proposition is a key driver of increasing interest of customers. So, it's a bit of a chicken and egg. Customers would not come more often and would not spend more money with us if we would not be innovating and the other way around.

Okay. Thank you very much.

You're welcome.

The next question is from the line of Draziotis Sammatis with Europe Bank Equities. Please go ahead.

Hello there, and thank you very much for taking my questions. Three questions, if I may, please. Firstly, I guess we've all seen the upgrade you provided to the guidance. Just wondering what has given you this confidence? I mean, it must have been the top-line performance during Q3, which I feel has been a bit better than you had penciled in your budget, maybe. The same has been the case in Q4 so far. So I guess, you know, what I'm basically asking is what has been going better? Is it the high-frequency games, you know, VLTs? Is it sports? So that's my first question. Secondly, I found quite interesting the point you made at your communiqué regarding Pame Stihima odds. the fact that you've made these more competitive. Have you been seeing or are you hoping to see some migration back to retail from online? And to what extent does this relate to the World Cup? And lastly, if you could just give us an indication as to your intentions regarding shareholder returns. So we have a floor, namely one euro. We have one and a half, which is last year's total remuneration. You refreshed the guidance with quite a good degree of confidence. So, you know, what should shareholders be looking for, please? Thank you.

Okay, thank you. Good afternoon from me. I will take the first question. Indeed, the reason why we upgrade our guidance is very strong performance in Q3, which assured us that despite not very positive macro backdrop, we have been quite resilient in terms of our offering. And also, obviously, we don't expect any negative developments on COVID going forward. And basically where it comes from, it's a combination of our belief in terms of our top line delivery, especially online being very strong in the rest of the year, and as well as compounded by the cost consciousness and very cautious OPEX management, which we have proven here to date and we will continue to do in future. So those are the key drivers about our new outlook. You want to cover the third question? Yes, intentions regarding shareholders' returns. Certainly, as you mentioned, we made a commitment to distribute as a minimum 1 euro. We have done 30 euro cents recently, so for the final distribution we remain very confident that it will be north of 1 euro. Last year the 150 total shareholder return was including the also share premium created by the Scribd in the previous years. So that was really covering the share premium of the previous two and a half or so years. So I expect to finish somewhere between one euro and north of one euro. We are strongly committed to maximize the dividend per share and we have yet to see how we finish the rest of the year.

As for the Middle question regarding Pamestichyma new attractive odds. As you are aware we pay a lot of attention to listen to our customers and from the segment of sports betting fans we clearly understood that while in many dimensions of the customer sports betting proposition we are not only highly competitive to online but in many areas like the trust for paying My winnings, we are even leaders in the Greek market. We have been scoring really bad in the odds. So that's why we have made this poll decision to significantly improve our odds and bring them to a competitive level with our online to make sure that our customers will appreciate the retail experience of sports betting and they will not be missing anything or even worse leaving that experience only because of odds that they don't consider beneficial. On that front we are seeing certainly success with a lot of positive feedback and the expectation is obviously that accordingly it will be reflected in the performance of both existing customers playing more and recycling their winnings more but also attracting customers that are playing in online today but not in retail. On this front, however, I want to highlight that it is not about moving people from online to retail. It's a customer's choice and preference that at the times when he cannot come to an op-up store to play in online, and that's fine. What we want is... customers to also appreciate the retail experience that in many areas has a lot of benefits to the online, especially when it comes to the audiovisual experience and socializing experience that are certainly very essential to the whole mix of success. And with that, creating our ultimate ambition and that is a hybrid customer. So hybrid customers is what we want and we hope that we will see that segment significantly growing. More on that, how successful we are on achieving those ambitions, is certainly something we will share with you on the next occasion, since today it's too early for making any assessments on that front. World Cup is here, so that's going to show us how good a move we have done. Thank you.

Great. Thank you so much. Certainly great news for shareholders. Just wondering about the point regarding the odds. Since when have you made these changes really evident for the Panthers?

We started at the beginning of September, supported by the campaign in the second half of September, so it's really fresh now. Keep in mind that the odds in retail were there for years and years, and it takes a lot of effort to change people's that it's not just some short-term promo, but it's really something rather groundbreaking in the history of this game and a significant milestone of sports betting in retail. And we see an increasing demand amount of customers really getting it and appreciating it and we have a lot of customers that even consider the odds more attractive than in online so stay tuned more on that next time as a proper assessment of the early results that we are seeing these days I think the World Cup is certainly a chapter that we need to close to make any conclusions and assessment but it's on a good track

Great, thank you so much.

Hello, this is, ladies and gentlemen, the next question is from the line of Max with Citibank. Please go ahead.

Yes, good afternoon. Thank you very much for the call. My first question is on margins. So underlying margin, we exclude concession benefits, was very strong in third quarter, 28%, which is about three percentage points higher previous quarter and higher here and here. And I'm wondering, what was driving such high level of margin, and how sustainable do you think it's going to be going forward? That's the first question.

Indeed, we had a very good margin during the third quarter. There are always some deviations in the margin driven by the product mix, phasing of the spend and similar effects. Basically, our long-term development of the margin, we believe, is will continue to be in the mid-30s, so at around 35-36% mark level. That's really the long-term sustainable margin.

Okay, good. Thank you very much. My second question is more on the kind of output, right? So what is the current outlook for the next year and do you think that the macro pressures that we see in inflation may drive some pressure on the gaming market in Greece?

Well, obviously, The macroeconomic, macro situation and its impact on business and any business, not just an op-up, is something that we don't want to underestimate. The situation is certainly not easy. However, at the same time, we see us really well positioned for further building of success throughout next year. And that's simply for the high relevancy of our offering. We offer entertainment. The past difficult periods has clearly proven that there is a big resilience of our business and big demand for our services or the entertainment that we offer to customers. And last but not least, we offer affordable entertainment. It is not like deciding for a 1,000, 2,000 euro holiday. It's about deciding almost a single legit amount of euro to stop by in a store or browse in an online and have some moments of fun and excitement of possible events. winnings and the entertainment connected with that. So because of those elements of our other specific offering, we believe that there is no reason not to, there is no doubt for us to succeed in next year and no reason to be pessimistic about what's ahead of us because like I said, the history has shown that we can deliver certainly in difficult situations. Like everyone else, we are obviously eager to see how the macro will evolve and how favorable it will be for us and how much it will make our hunger for success more or easier. That remains to be seen.

Thank you very much. You're welcome. It's very clear. And my final question, if possible, could you share some maybe trends, most recent trends that you saw in October and basically November so far?

Well, October And especially the period now was primarily a warm-up period for the World Cup. I was mentioning about the odds where we paid a lot of attention. Now we have a World Cup time that takes all of our resources and focus on that big bet we are having. GGR results of November or December, but very importantly for the fantastic opportunity of growing our active base and increasing the regular and occasional players of our retail stores. So it's about also engaging customers and building a base for the many months to come and for the other verticals of our business. So World Cup has a great importance for us. And equally, what now starts in parallel and will take over in the second half of December, all the Christmas activations and focus we are doing there, as you may have noticed if you are living in Greece, we have launched a very innovative proposition for Christmas scratch, where we hope we will spice up the Christmas period for many people in Greece in a new, innovative and attractive way. So having said that, there is a lot of stakes now on the table for the November-December period that depending on how well they go, and we certainly believe that we are prepared for success and they should be successful, we will be able to judge the Q3 period. So all I can say, so far so good, but the... As you said, the jury is still out on what our results will be at the end of the month, but we remain optimistic on that front as our forecast indicates.

That's very clear. Thank you.

Thank you very much.

The next question is from the line of Curtis Iacopos with Pireo Securities. Please go ahead.

Yes, good afternoon. Congratulations on the results. First question has to do for the full year capex. Where do you see it to finalize for the year? Second question has to do with Betano sale. As I remember, you've guided that they are going to complete the sale during the 4Q fourth quarter of the year. Do you have any news on this? Do you expect it to be finalized by the end of the year? And obviously there would be a benefit in your free cash flow of 50 million, if I remember correctly. Do you see any other benefits in terms of accounting the treatment of the sale? And the third question has to do with Hellenic lotteries. If I remember correctly, you have a legal case against the Greek state In terms of the minimum GGR tax payment, which stood at 50 million, if I remember correctly, do you expect this case to be finalized by the end of the year, or would you see it to be transferred for the next year? Thank you very much.

Okay, thank you for questions. Our expectation for the full-year CAPEX will be around €20 million mark for 2022. In terms of your second question, indeed we indicated the completion of the deal within Q4 and this is still the plan. We assume that the transaction will close in December. We are on track to complete all the regulatory approvals and demerge in Malta, so December should happen. With the third question I will ask Jan to comment.

Yes, thank you Pavel. Regarding the Helen Cotteries arbitration that you correctly refer to, at this moment it's a process that continues with the next hearing happening next year. So it's not something that we expect to finish this year. At this moment I have no other update than this one. So to be continued in 2023. Thank you. Thank you very much.

The next question is from the line of Memisoglos Antman with Ambrosia Capital. Please go ahead.

Hello and congrats on a record quarter. Just coming back to your guidance, you've done 533 in EBITDA in nine months. Why is EBITDA going to be lower QNQ? Is it just being a bit conservative or is it? quote-unquote investments related to World Cup or any other color would be appreciated. Thank you.

Well, we always have some phasing and mix of the products. So World Cup is definitely, certainly important event. It has many other benefits than just purely increased revenues and EBITDA. Typically, World Cup is an event which brings high GGR, lots of activity. But typically with the favorites winnings, it doesn't have necessarily a very high margin. So it's a current forecast of the mix of products, which takes us to believe for Q4 to be as we indicated.

Is there also a bit of investment with the better odds in retail betting?

Well, not really, because we've done the better odds not to drive turnover and activity, but obviously to drive incremental GGR. So better odds is not the reason that it will drive our margin or profitability down.

Okay. Thank you.

Thank you.

As a reminder, if you would like to ask a question, please press star and 1 on your telephone. Once again, to register for a question, please press star and 1 on your telephone. As a final reminder, to register for a question, please press star and 1 on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Carras for any closing comments. Thank you.

Thank you very much. Thank you very much all being with us today and thank you for all your questions. As always, very interesting and exciting to listen to you and answer. I hope it might be a bit too early, but I hope you don't mind us wishing you also and your loved ones a great and merry Christmas period. And we will be looking forward to talk to you again next year for our full year results. Thank you very much, and have a great day. Thank you, Gali, for being with us today.

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