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 question and answer session to discuss the first quarter 2024 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. Carras, you may now proceed.

Thank you very much, Konstantin. Good evening or good morning to everyone and welcome to our regular Q1 2024 results conference call. I'm pleased with the first quarter's performance, which is broadly in line with our expectations. In more detail, online continued growing and maintained significant GGR contribution, while retail solidified its position further. We are excited with the progress being made on our draw-based games portfolio event, as initial results are evidencing a solid increase in GGR attributed mostly to Eurojackpot launch, while new Lotto and new Joker have been welcomed by the players likewise. So these developments, together with the elevated gaming appetite resulting from the upcoming major sporting events in summer, make us confident on the delivery of our 2024 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. Konstantin, over to you.

Ladies and gentlemen, at this time we'll 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 comes from the line of Raziotis Tamatis with Eurobank Equities. Please go ahead.

Hello there and thank you very much for taking my questions. Just a couple of questions if I may please. Firstly, on expenses, you do mention in your press release that there has been a front-loading of marketing spending owing to product launches and games revamped. Could you maybe help us gauge the phasing of marketing for the remainder of the year and where you think full-year marketing expenses are likely to land year on year, please? And related to that, I guess, is the other cost categories. If you could tell us what sort of... inflation you've been facing or expect to face and maybe if you've identified any opportunities to offset these inflationary pressures so that's the first question and expenses and secondly second question is actually on online I'm just wondering because you seem to have grown digital revenues quite significantly this quarter, 15%, which compares with about 9% for the online market, at least based on the data of the Gambling Commission. And on its turn, this would indicate share gains. I'm just wondering... based on your data, do you really see that this is indeed the case? And could you maybe just comment a bit on the competitive landscape in the broad online space, please? Thank you.

Good afternoon. I will take first two questions. So regarding expenses, yeah, as you rightly say, there was a bit of front-loading of marketing expenses in Q1. due to the revamp of Lotto and Joker and launch of Eurojackpot. In Q2 you will see even increase in the marketing of expenses compared to Q1, because we have very important event in terms of Euro, which is one of the highlights of the year, always bringing a lot of new players, both in retail and online, so for sure We want to capture on that and we will be increasing our spend both in retail and online. In Q3, Q4 there will be somehow lower compared to Q1, Q2 on the marketing expenses front. Overall year on year also it's partly related to the second question. Not only due to inflation and media due to very high demand also by competition going up constantly. overall there will be some increase in marketing expenses year on year in 24 full year compared to 23 full year. Now your second question regarding inflation, of course there has been big inflationary pressures especially 22-23. Now the inflation is somehow easing but we had very tough negotiations across our vendors, across many important contracts And although we managed to push back on many of the requests of vendors, there is some impact on inflation on our cost base. But I wouldn't say it's something dramatic. It's not the key driver of the operating expenses increase. So I wouldn't say the inflationary pressure is something dramatic in terms of the OPAP cost base. I think with the third question I will hand over to Jan.

Thank you Pavel. So when it comes to online, indeed the performance is encouraging and we have not only in Q1 but also in Q2 we keep a good momentum across both non-exclusive as well as non-exclusive. The market data from AGC you referred to are obviously referring to the non-exclusive market. We see the market evolving along the numbers you indicated, 9-10% growth, while OPAP Group is growing around 25%. So in that sense, we do outperform the market indeed. When it comes to iLottery, that is an equally important online vertical for us. where we are offering our services exclusively and we are quite pleased with the evolution on this front likewise. Just a disclaimer to be transparent and clear, here the year-over-year comparison is not like for likes because in April last year we have been launching Kino in online, so in the last 12 months we have significantly strengthened and expanded the whole proposition, yet when we look at the Ilote Vertical as such, it's certainly a correct growth to capture, and we certainly don't stop there. Our ambitions continue in the further growth of this category.

Great. Thank you very much.

Thank you very much.

As a reminder, if you would like to ask a question, please press star 1 on your telephone. The next question comes from the land of Memisoglos, man with Ambrosia capital. Please go ahead.

Thank you for your time and the presentation. Just following up on the cost front, the increase in personnel expenses in percentage terms, is that something we should expect going forward? Any more color there would be helpful. And regarding the share buyback, apologies if this was announced earlier, are you planning to cancel the shares? Thank you.

Thank you. On payroll, there are two key drivers in the Q1. One of it is definitely we are operating with elevated headcount. So as we progress our business, there will certainly increase in headcount. And also given the inflationary pressure and competition in the labor market, we have to keep our salaries at market standards. So there is definitely this pressure. In Q1 in particular there were also some termination expenses related to horse races. So yes, payroll was a mixture of both in Q1, but certainly year on year there will be some increase in payroll expenses when we compare particular quarters of 2023. Now in terms of the share buyback, at the moment we don't have a concrete plan, but when we launched the program, ultimately, obviously, we were planning to ultimately cancel the shares. So that's our ultimate intention. So going forward, that's what you may expect.

Thank you. And maybe just following up, any rough figure on this one-off for personnel side?

It was pretty much most of what you saw as the difference between recurring and reported EBITDA. It was pretty much most of it, so close to 1 million euros.

Understood. Thank you.

The next question comes from the line of Nekrasov Maxim with Citi. Please go ahead.

Yes, hello. I have a few questions. First, can you please provide any color on trading in the second quarter so far in April, May? Second question, is there any update on the extension of licenses, particularly Scratch, which I think expires in 2026, and especially the core licenses that expire in 2030? And the last question is regarding betting, which was flat year on year and even down in online, while most of the other segments were growing. So what was happening in the betting and would you expect this trend to reverse in the second quarter in the rest of the year?

Thank you very much for your questions. So Q2 trading, I have mentioned the positive momentum we experience in our online performance, especially the iGaming verticals that is experiencing the continuously increasing popularity and iLottery, which is still for us a growing category that we keep building and evolving. So that has a good momentum. When it comes to retail, all verticals are not performing the same in retail. Some are performing well, with some concerns, typical. A continuing challenge for us is the scratch category, which has a weaker performance, suffering from the variety of options that customers have to play. And we continue to focus in this area to reinvent the product and come up with innovative propositions to bring back the customers to the scratch vertical. On the other hand, we have a lot of verticals that do perform well, like the draw-based games portfolio that I was mentioning in more detail in my presentation, where it's certainly experiencing a very positive growth as a whole, driven primarily by Eurojackpot. So, overall, we continue to head towards the guidance provided to you, and we don't expect any change on that during Q2. When it comes to extension of licenses, we are now intensively preparing internally for the discussions around the Hellenic Lotteries licenses for scratch and passives and it's something where we hope we will be able to step into conversations with the state representatives and the relevant authorities soon. Likewise, for the big licenses, as you call them, that are ahead of us in the future, we absolutely pay maximum attention to that, yet that is now too early to engage in any discussions for now on those. So there is no, at this moment, no discussions happening on that front. When it comes to betting and sports betting in detail that you asked about, that's a little bit two different stories. In retail, we were facing, but that wasn't across all providers, we were facing a challenging payout in January, so that has influenced our Q1 numbers with favorable results for customers. However, it doesn't make sense to comment anything on sports betting vertical in Q2 being ahead of the major event of Euro that we believe will have a significant positive impact on sports betting or we expect. It will certainly have a positive impact on football, bringing people to our stores, something that we have experienced two years ago with the World Cup. The particular impact on GGR is obviously dependent on the specific results of matches and how much the results will be favorable for customers or for the betting operators like OPAP. So that remains to be seen. What is, I can say, certainly expected... is that the increased footfall will have positive impacts on our other verticals as an average sports betting player is playing more than five games during their visits. Overall, like I said before, we are heading towards the guidance provided. The Q2 performance is encouraging and sports betting should be an important contributor to that end of the year results where, fingers crossed, Euro will make a significant difference. I hope I covered your questions. If not, you feel free to ask more.

Yeah, thank you very much. That's very clear.

Thank you.

The next question comes from Land of Banton Russell with Edison Group. Please go ahead.

Good afternoon, Jan and Pavel. Thanks for the call. I have three questions, if that's okay. First of all, instance and passes revenue was down about 9% in the quarter, but last The year ago, you had a very strong growth of, I think it was almost 30% growth, and you've got good revenue growth over two years. So could you just talk about the drivers of that? What drove the strong increase last year and the reduction this year? Going back to expenses, sorry, people laboring the points and expenses, you're very clear on what happened in marketing and payroll in terms of redundancies and the investment ahead of the launch of Eurojackpot. What actually happened in other operating expenses? Are there any things you'd like to point out there? And my third question is just a more general one in terms of if you look at your delivery in Q1, you reported something like 25% of the mid-range of your full-year guidance, but with the Euro is coming up plus the Euro jackpot, you know, increasingly important to the business. Are you just a lot more, a lot more comfortable with the full year guidance than you perhaps were at the start of the year? Thank you.

Thank you very much for your questions. So more color on instant than passives. Uh, we, uh, Regarding passives, I wouldn't like to make any conclusions now as to the trends and developments, honestly. A good example might be we have just launched a special edition of Leico for the first time ever, giving us a main price, an apartment worth €400,000, which brings innovation, modernity to the category, which is perceived generally as rather traditional. And it's just one of many examples how we try to innovate this category and I continue to believe that passives will continue to play an important role not only in Hellenic Lottery's portfolio but in OPAP portfolio in general. When it comes to instance, it's largely the challenge that I have mentioned, and I believe that's a good thing for the customer. There is an increasing size of the portfolio, increasing amount of options that our customers have that they can play. If you walk into an Average Op-Up store, there is really a huge variety of opportunities that you can enjoy interacting with Op-Up, the pleasure of playing, winning games, And as we focus a lot on the experiential part, it's simply very tempting with many different initiatives you can do. Think of the massive popularity of Power Spin we brought. Think of the innovation in virtual games. So while Scratch remains relatively strong, in its absolute numbers, the trends are not, we don't see the growth that we would wish for simply because there is many other options that the customers have. It's as simple as that. Now, does it mean that scratch generally is in decline? as a category that is in a decline of its life cycle, for sure we don't see it that way. We have in our plans further ideas how to develop Scratch through, to just give you hints of the line of thinking, Scratch families, innovative products within Scratch, revamped and completely repositioned communication as we had the same communication concept for last one and a half year, completely revamped presentation of the product in the point of sale that is more stimulating towards the impulse purchase. We believe that Scratch is a product vertical that has one distinctive unique element and that is that it is a real product that customer can touch and feel literally. Everything else is digital or it's a paper slip But scratch is a real product. And that will continue to play an important role in our sales strategy. And I believe that we still have opportunities to continue, nurture this category and revamp it. Yet, it's fair to say, for the reasons I explained, that it's certainly a challenging ambition.

Okay, your second question regarding other operating expenses, those are purely business driven, so as we are constantly elevating the experience both in retail and in online, all that requires ongoing investment on OPEX front, so it's purely business driven and driven by our ambition and new initiatives to really drive the top line. There is not a single driver that can be somehow highlighted. In terms of how comfortable we are in terms of delivering of our guidance, we provided the guidance for the year only two months ago with our year-end results. So we are only two months from that. We were very carefully planning all the activities and what we should deliver for 2025. So I would say to speak now, just after two months, if we are more comfortable or what is our confidence. I would say it's the same and what we announced. The start of the year has been very good. We are still quite early in the year. Important event of Euro ahead of us. So I would say we are comfortable that we will deliver the guidance as we have announced.

As a CEO, speaking about terminology, I would reiterate that we are confident to delivering upon this guidance. It's certainly not a comfortable target that is easy to do, and we are putting a lot of efforts into everything that's ahead of us. The plans are solid, the momentum is good, and that's what drives our confidence. But we are certainly not talking about easy to deliver targets Piece of cake, but I'm sure you understand that. Thank you.

Thank you.

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

Hi, I have two questions, if that's okay. First one's on the VLT performance of Q1. It was a bit weaker than expected, so how should we be thinking about it going forward? And the second one is on the sports results, what you're seeing in April and May. Just a bit on that will be really helpful. Thank you.

Thank you very much. The VLTs momentum, I believe, is solid. Not I believe, I know. It is solid and it's largely around our expectations. When it comes to sports betting, as I said before, I believe that this is a category that will have an important contribution to our year-end result. And as such, it's largely aligned with my general statement as to what our expectations are for the year. Euro, again, for the reasons I have explained in terms of the payout that cannot be foreseen, is now a big question mark, obviously with positive expectations as to how is it going to go and how much positive contribution it will bring to our numbers.

Okay, so is it fair to assume that VLTs grow something like what we saw in Q1 in terms of low single-digit growth, or is it possible because initially I think It was sort of thought of being growing about, you know, 4-ish percent or so. So what's the best sort of, you know, trajectory to think about when you think of VLTs?

I think the low single-digit growth is largely the line of expectations I would support.

Thank you.

Thank you.

Once again, to register for a question, please press Star 1 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. Karas for any closing comments. Thank you.

Thank you very much for my closing remarks. Thank you very much for being with us today. Our IR team will be looking forward, as always, to answer any other questions you might have and dive deeper in your inquiries. And we will be looking forward to talk to you again in September with hopefully an exciting update. Until then, have a great summer and enjoy the upcoming major sporting events together with us. Thank you very much and thank you for being with us today. Have a nice day. Thank you, moderator. Over to you.

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