Greek Organistn Football

Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your course call operator. Welcome and thank you for joining the OPAP SA conference call and live webcast to discuss the third 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 listening on remote and the conference is being recorded. 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, Konstantine. Good evening or good morning to everyone and welcome in our regular Q3 2023 results conference call. This quarter demonstrated the resilience of our business model despite moderately lower performance mainly due to customers friendly results in sports betting evident across industry and jokers unfavorable jackpot rollovers. Overall though in the first nine months we delivered solid growth in retail and strong online performance indicating that the online business is well on track to evolving as a key growth driver in the coming years. We are also happy for the recent interim distribution of €1 per share, contributing to a total of €2.15, which ranks among the highest ever remunerations to our shareholders. Ahead of macroeconomic and industry-wide challenges, we set our recurring EBITDA target for 2023 to range between €720 and €740 million. video we shared with you earlier today, so we will jump directly to our Q&A session. Konstantin, over to 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 1 on their telephone. If you wish to remove yourself from the question queue, then you may press star and 2. Please use your handset when asking your question for better quality. Anyone who has a question, remember to star in one at this time. One moment for the first question, please. The first question is from the line of Dragiotis Tamatis with Eurobank Equities. Please go ahead.

Yeah, hello there and thank you very much for taking my questions. My first one is on the sportsbook margin and just wondering about the extent to which there has been normalization as the football season has been developing in recent weeks. And secondly, on the Betano earnout, Just wondering, you received the 120 million in Q3 2023. And if I remember correctly, the total consideration recognized as receivable in FY22 was 130. So I'm just wondering whether this is still the case, i.e., if you could tell us the extent to which there are further receipts that you expect related to the agreed or not scheme, please. Thank you.

So, I will take your first question regarding the Sportsbook margin. As you have heard from me in the presentation shared with you earlier today, we certainly consider the Sportsbook results volatility and inherent and well managed part of our business. So in terms of expectations, we certainly expect for a significant normalization of the volatile trend till the end of the year. And the early weeks of November gave us good and encouraging results in that direction. So we will see how the year ends and we will certainly have updates on this front for you in our next quarterly call. I will hand over to Pavel for the second part of the question.

Good afternoon from me. What you referred to, the figures you referred to were correct. So indeed, we already received vast majority of the earn out. We also distributed it as part of our recent interim dividend. just a couple of weeks ago and so the remaining to be seen is relatively small. The vast majority of the earnout has been received.

Okay, great. And just if I could follow up on this, please. So there hasn't really been any change in the estimated amount of the earn out based on the performance of the business. Is that correct?

No, that's correct. We made a very conscious decision when we were estimating the performance and recording the end out and so it holds as it is.

That's great. Thank you so much.

As a reminder, if you would like to ask a question, please press star one on your telephone. Once again, to register for a question, please press star one on your telephone. The next question is a follow-up question from the line of Ragiotis Tamatis with Eurobond Equities. Please go ahead.

Hi again. Could you just maybe elaborate a bit on your own online business, which seems to have been A bit down year on year. I suspect this is primarily because of the sportsbook margins. But if you could share with us what you've been doing to ramp up this segment in the last few months, please. Thank you.

Thank you. Very good question. If we look across the three main verticals, lottery, casino and sports betting, starting on the lottery side, as you know from our previous updates and presentations, that is a new kid on the block that we are continuously evolving and developing and a lot has changed, a lot has evolved in this proposition throughout this year, which has been reflected also in the result where we are seeing double digit growth year over year, but we still believe that this is a journey and we have a lot in our kitchen coming for next year. where we want to expand further the entertainment destination notion of the whole online proposition. So you will see more from us on that front and we are optimistic on being able to further engage customers and bring more people to our proposition. So it's certainly a category where a further growth is expected to continue. In casino, similarly, we have had significant growth year over year and we have no lesser ambitions going forward. So we want to continue to grow and we are excited about the competitiveness of our proposition, but it can always get better. So our product and proposition development plans are certainly rich in this area as well. Sports betting as such is at this moment slightly behind our expectations. We are working a lot this year on improving the sports betting proposition across many fronts. There is honestly no short answer because if you are a bit involved in sports betting you know that Success in sports betting is conditioned by multidisciplinary success. There is a lot of boxes that you need to tick to make the customers happy, ranging from customer proposition, customer journeys, odds, the digital experiences, loyalty. So it's a very complex exercise and we are trying to improve across all the fronts. and we are also seeing encouraging results there, yet this vertical for now is behind our expectations, and we believe that next year we should be able to ramp up the performance and make it another successful vertical for us following the product and proposition development that we are working on.

That's great. Thank you so much.

You're welcome. Thank you for the question.

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

Good afternoon, Jan, Pavel. Just a couple of questions first, if that's okay. First question is, you've changed the EBITDA guidance, but there's no revenue guidance. I'd be interested in your thoughts on why that is and certainties you see out there that means you haven't given guidance. The question on the lotteries, Joker was, obviously the comparatives were probably well known, that kind of thing. So has there been any change to your expectations for the lottery? This is just something that you always knew was going to happen in Q3 and therefore would return to normal in Q4. Thank you.

Hello. Hi. So, yeah, I think we communicated the reasons for the change of guidance quite clearly. So, it was certainly the customer friendly results in Q3. on the sports betting and it also continued into October. So also in October the margin in sports betting was very low. So that was one reason. Second reason were really unfavorable jackpot rollovers. And it was complemented by tough year-on-year comparisons, because vice versa, we have extremely favorable jackpot rollovers in Q3 last year. So it was kind of double impact, which really amplified the lottery performance. So certainly our guidance change is not only driven by the sports betting as is the case across the industry, but on lotteries they also have a fair share in the guidance division. So the joker performance, and it was really record low jackpots, over the last five or six years what we experienced in Q3. So that's driven not only by sports betting and lotteries, plus really the floods and fires which we had. Now, whether you were asking on Joker whether that was something to expect and that it will normalize for sure over the long term, the sort of Jackpot series, it always normalizes. So I cannot say it will be exactly in Q4, but certainly the performance in Joker in Q3 was nothing that could be forecasted or foreseen. And in the long term, the jackpot games always normalize.

Thank you. And just may I follow up on the sports betting, please? From memory, I may be wrong, but... I think in Q4 last year you thought the betting around the cup was relatively disappointing versus perhaps initial expectations, so therefore with a more normal sports calendar this year, the sports betting should see a good fourth quarter I would assume. Is that a good assumption?

Fourth quarter didn't start particularly well related to payout. So related to payout, fourth October, which is the first month of the fourth quarter, had even lower margin than what we saw in September. On the other hand, November is pretty good margin, you know. So, again, in sports betting, typically the margin normalizes. Now, in terms of the World Cup last year versus no World Cup last year, the World Cup last year, as you know, was an unusual period at the end of the year where typically the football calendar is very rich in Q4. It was replaced by the... World Cup which had excellent footfall but again disastrous payout across the industry so didn't have such good results. So I believe generally not having World Cup in Q4, having normal calendar with normal matches typically brings better margin than the World Cup where especially at the later stages of World Cup or Euro typically the favorite wins and the margin is not great. So yes, calendar wise, the margin should be better in Q4 23 compared to Q4 22.

And finally, can I just confirm, your guidance recurring EBITDA, does that include the new £25 million fine that you've suffered in the third quarter?

No, it does not. It's a recurring EBITDA, so it is excluding the fine. It is a like-for-like business, normal business operations, 720 to 740. So it is less the 25 million fine from Hellenic Competition Commission. Right, thank you.

Would you like to repeat your question around Joker? We were not sure here we understood correctly.

Oh, it was more... Can you cover it with the answers? Yeah, I think so. I think the question was essentially within your annual thoughts on the business, you would have known about the tough comparative from the third quarter last year. So it's trying to work out whether what is genuinely new in the lotteries business. All right, I understand.

The next question is from the line of Puri Karan with JP Morgan. Please go ahead.

Hi, good afternoon everyone. Just had a quick one on your commercial growth initiatives, specifically the OPAP store app and the VLT's cabinet upgrade. Is there a way to quantify the impact it's having on your player engagement and player activity? What's the best way to think about it?

I will try to take it separately because these are two quite different topics. So in terms of VLT's cabinet refreshment, We are certainly very carefully following and tracking the commercial upside coming out of this because for us as a company, together with our VLT cabinet vendors, this is an investment that obviously should have a return on investment. And now, as for the specific numbers, there is also broader perspective and there is all the other changes that we are doing at the same time. In the shops, the shop look and feel, shop design, training of people, network development, replacement of agents, replacement of staff, and events, very importantly, in the shops. All that has an influence on revenue. If your question is if we are satisfied with the contribution of cabinets upgrade, the answer is yes, and that both from the GGR upside coming from the new cabinets, as well as the customer satisfaction that we are tracking about the cabinets. At the same time, we need to keep in mind that refresh of the VLT cabinets, it's absolutely necessary. So it's not that VLT cabinets refresh comes always as an incremental revenues. There is also protection of the existing ones, because if you wouldn't be doing it, the revenues and customer interest and activity would be declining. So I don't know if it covers your question or interest on the VLTs, or you want to ask something before I go to the other one?

That's really helpful. Thank you.

Thank you. And another question on Op App Store app. Op App Store app has several dimensions of benefit. Honestly, this is an essential element of digitalization in stores. So looking at it from a customer perspective first, it's providing, and I think that's the most important driver today, it's providing recognition and appreciation to our customers in the form of loyalty. So the more the people play with us, that they are with us, they are interacting with OPAP, they are playing our games, all that is tracked in the app in a form of scanning and slips. and we reward their behaviors through the loyalty schemes with various rewards. That adds not only to the feeling appreciated as a customer element, but very importantly to the essential factor of gamification. So there is always something more behind the essential asset of placing a bet and winning and losing. So we also see from the customer tracking that gamification of the whole experience, that extra wheel of fortune that the customer gets the next day, the different bonuses that he receives from us is certainly appreciated. And just to highlight the latest in this front since this summer, all these loyalty features and benefits are provided live. So the moment the customer does something, we are able in a live manner to react on that. So that's something that is a major step change compared to previous year when all these activities were happening next day. So data were assessed and the next day the actions will have been done. Now it's all live. Um, Likewise, the second dimension of a customer benefit is the ability to play on your device. So when you are in the store, you can enjoy the comfort of your chair or couch, watch the screens and place your bets on your phone. We have completely removed for those who want to the repetitive journey of coming to the counter, finding cash in your pocket and constantly standing up, sitting down, standing in the queue. And that is again appreciated by a very large part of the customers. Namely, we had, as you can see in the slide, dozens of thousands of people playing on their device in the latest period. So that's a great success because that's what the next day of retail is about. And last but not least, the third dimension from a customer point of view are the personalized experiences. If you come as an anonymous person to a store, you are just another customer like anybody else. And while the agents are obviously adding a layer of personal treatment for occasional customers, that's not something that is present. So that's where the app kicks in and we can, as OPAP, communicate with our customers directly, give them tailor-made offers, welcome them, thank them, wish them happy birthday, many different things that simply make the experience just one notch more personal. And that, cross-industry, is an extremely important element these days. Now, from the op-up side, we are obviously gathering extremely precious data. Data is king and moving from the past where we were blind in terms of what customers are playing, how exactly they are playing, how often they are playing, we didn't know anything. All we knew is total revenues and total number of slips. But now, we know for hundreds of thousands of active players every month, how they play, how their behavior evolves, what are the patterns of their playing, how our new propositions are reacted on. So tremendous amount of data that you can imagine are obviously of a great value. In terms of numbers, because you are certainly interested in numbers, when we look both in 2023 as well as looking forward to 2024, we are talking about millions of Euro GGR upsides created by leveraging the data, and I'm only referring to direct impacts. When you think about the benefit of know-how we are getting, we are probably talking about a tremendous value that will be essential for protecting our assets of retail and further evolving retail. From our point of view, strategically, OPAP store app is the future of retail and essential to those digital experiences in the store that are so important for the next generation of players. Sorry for a bit extended answer, but I hope this is interesting for all the audience to know and hear how we think about it. And this is for you to know one of the major things why we believe we continue to be so strong in retail, while many have forecasted five years ago that retail will be an inevitable and continuous decline. Thank you.

Thank you so much.

The next question is from the line of Kourtesis Iakovos with Pyrros Securities. Please go ahead.

Yes, good afternoon. First question has to do with your agency's network in Thessaly after the floods. Do you have your whole network operational after the floods? And if not, how many stores are closed at the moment? Second question has to do with Joker. You plan to reposition Joker to retain games dynamics as of 1st December 2023. What will be your strategy there if you could elaborate further on this in order to avoid any cannibalization by the Eurojackpot launch in the first half 2024? Third thing has to do with this one of operating expense about the litigation by the Heverian Competition Commission, the provision of 24.6 million. I was wondering if you could share with us, if you have in mind, or any info, about the potential timeframe that you will have a result with the Greek courts on this thing about your petition that you filed against this decision. Would you expect, for example, at some point next year? That will be my question. Thank you very much.

Thank you very much for your questions. Very interesting. So flood, simple and short. The damages caused by the floods were to a very large extent recovered. At this moment, we have a single digit number of stores out of operations. It's four or five, something like this. So very minor impact at this moment in terms of stores operation. Obviously, the psychological impact and financial impact in the communities affected is something that will take more time to recover. Joker, thank you very much for the question. We are very excited about the upcoming changes of Joker. The reason for changes of Joker are twofold. We certainly felt that the game deserves a refresh and upgrade. and we certainly believe at the same time now is the right time with the upcoming launch of Eurojackpot, so that as presented in the video presentation to you earlier, the overall Drawbase Games portfolio gets a completely new overhaul. So what is it that we are cooking with Joker? The essence of Joker will remain unchanged, So you still will be able to win a couple of million euros in jackpot. Newly this will start from 1 million euro, not from 600,000 like until now. So main price will always be about millions of euro. But the key new benefit and the key justification also of the price increase is that we are changing the game in a way that the second price will always be 100,000 euro fixed. So whenever you will win second prize irrespective of how many other winners are there, you will always win €100,000. That means hundreds of winners of €100,000 second prize a year. The winnability of the game will be taken to a whole new level because we know from customer research that 100,000 euro for absolute majority of our customers is considered a life-changing amount and thus the element and the essence of life-changing winnings with Joker will remain but we will be talking about hundreds of thousands of euro or millions. Eurojackpot, when it comes, is a completely different level of proposition. This is about winning hundreds of millions so think of it the whole positioning will be kind of a billionaire's life life-changing thing for those of you familiar with euro jackpot you know how is it communicated all around europe so it will be no major difference in greece and as such this is more really about buying a ticket to dream of possibly winning billions of euro While most of the customers are buying this dream being well aware that it probably is very low. Joker, on the other hand, the new Joker should be about, I believe there is pretty high chance that I'm going to win at least 100,000 euro. That's the perception we want to create and you will see amazing results. winnability campaign where we will provide clear proofs to the customers that people are winning and that several people a week are winning 100,000 of euro. So we are excited about this change. This will be a very interesting refresh of our portfolio and accordingly we have positive expectations that this should certainly help us protect the revenues of Joker when Eurojackpot will be arriving. Do you want to comment on that? Your third question was about the one-off, a powerful command.

Yes, your question was about the appeal. Indeed, we strongly disagree with the decision of the Hellenic Competition Commission and we have exercised all the options and what are the available legal means and that led us to filing a petition against it before the Athens Administrative Court of Appeal. This was filed really recently and at this stage we do not have any visibility how long this may take to resolve, so it's difficult to comment and estimate.

Okay, and just a follow-up on Joker. You refer to the change of winners. Second prize will always be 100,000 euros, which seems very attractive. Will the pricing per column remain the same? Or do you plan any changes in your pricing there?

I'm sorry. I was checking with my colleagues because I thought we spoke about it earlier. We will be increasing the column price to be able to subsidize the winnings increases, the significant winning increases that I was referring to. Okay.

Thank you very much. Thank you very much indeed. Thank you.

For any further questions, please press star and one on your telephone. As a final reminder to register for a question, please press star 1 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, Konstantin, and thank you very much, all of you, for being with us today. Our IR team, as always, will be looking forward to answer any other questions you may have now or later and deep dive in your inquiries. We are now focusing on Christmas and New Year's Eve commercial initiatives aiming for a strong year-end. Thank you very much and have a great day. And I hope it's not too early to wish you all and your loved ones a joyful Christmas period. Thank you very much. Have a great rest of the day.

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