OPAP Holding Société Anonyme (ALWN) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I am Gaily, 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 fourth quarter and full year 2023 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.

Thank you very much. Good evening or good morning to everyone, and welcome to our regular full year 2023 results conference call. I'm excited with the set of results announced, delivering in Q3 '23 -- Q4 '23, I'm sorry, record high quarterly GGR and achieving a full year GGR record surpassing the EUR 2 billion threshold for the first time. On top of that, we concluded the year with full year recurring EBITDA that exceeded our latest outlook, landing at EUR 745 million. 2023 was a year of change for OPAP, in which a broad set of enhancements and improvements in our customer propositions were implemented, while we leverage new digital technologies to upgrade the overall customer experience, both in retail and online, and proceeded the transformation of our traditional games to make them more relevant to the latest trends in gaming. New Tzoker, new Lotto, launch of OPAPonline.gr, new platform for both retail and online Pamestoixima are just some indicative examples. We're also glad to announce a general shareholders' remuneration of EUR 0.85 (sic) [ EUR 1.85 ] that comes on top of that EUR 1 already distributed as interim dividend in November 2023. We anticipate 2024 to be another year of solid financial and operational performance benefited by OPAP's unique proposition and strategy. 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. Gaily, over to you.

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

Could I start with a question, an operational one on -- regarding online and particularly regarding the performance of OPAP digital, excluding Stoiximan. I'm just wondering that momentum does not seem to be -- to have been as strong as maybe one could have anticipated this year. And certainly, it has been more tepid, if you like, relative to Stoiximan. So if you could comment on that and why this has been the case, and the areas you think could maybe drive the performance and improve the momentum in 2024, maybe online KINO, for example. So that's the first question. Secondly, on VLTs. VLTs actually, just on the cost side, I noticed that the agent commissions seem to have ticked a bit higher as a percent of the revenues. Could you tell us why this was the case? Does it have to do with the mix of machines? And lastly, on the shareholder remuneration policy, you talked about maximizing returns for shareholders. And indeed, this is what you've been doing with the EUR 1.85 return in 2023. Could you maybe tell us how we should think about cash returns in '24? You are saying that the bulk of net profit will be distributed as dividend. But given free cash flow is likely to exceed net profit, is there a scope for you to pay a dividend in excess of net profits? Yes, that's pretty much it.

Thank you very much for your questions. We will start from the first one. So in terms of OPAP online performance, it's a slightly different story vertical by vertical. We -- starting with the OPAPonline.gr, we have achieved a year-over-year growth of 40% that we certainly consider as a very healthy development and evolution. The whole OPAPonline.gr proposition, it's in its really early stage. Last year was about adding new games into the portfolio. This year, we have a lot of additional enhancements to the customer proposition in our sleeves, and we are expecting that this year, we will be focusing more on growing the penetration, the base as well as growing the ARPU of the existing customers. So I cannot share with you now what is that we will be doing, but rest assured that we are far from concluding on this exercise. On the contrary, we want to be building what we call online entertainment destination. And I think we have a pretty attractive cocktail there because a sense of our business is giving people a chance to fulfill their dreams and that's always the key reason why they will be coming and playing. But gaming in online is about so much more than that. So a lot of social networks, familiar features, gamification, loyalties, our programs, discussion forums and more entertainment is what we will be adding to the cocktail. So there is more to come here, and we expect that very healthy double-digit growth to continue. When it comes to casino, the evolution of our vertical has certainly been, at least, at market trends, if not above. So we like the casino performance. On sports betting, as we have communicated, we have changed the sports betting platform itself, which was very important for the -- one of the essential elements of sports betting, and there is stability and quality of the core. We still believe that we have a space for improvement on the proposition itself to be competitive with the top-tier players, and we certainly continue on that journey. So again, here, a lot is coming, especially now before the Euro, despite of this proposition. And hopefully, we will see a much bigger growth in both active base as well as in revenues from this vertical in the foreseeable future. So that's on the online. In terms of the VLTs, could you please repeat the question because I was not sure if you are referring to revenue shares for our VLT vendors or revenue sales for the retail network.

Yes, it's actually with regards to the network, the agents effectively. If I've done the math correctly, the commissions as a percentage of revenues have increased a bit. I think there is a different structure, right, if machines are in your betting outlets or if they are in gaming halls. If you could just shed some light as to why at the consolidated level, we've seen this uptick?

Thank you very much. That's a very good question, indeed. So when it comes to revenues or commissioning schemes, as we call it, for the retail network, the agents, those who operate the gaming venues, we haven't made any major change in the commissioning scheme there. However, commissioning scheme is not fixed percentage from the GGR. It's much more complex. That is -- there are a set of subsidies, there are different bonus schemes reflecting size of the revenues generated by the specific gaming host, et cetera. So it's a variable commissioning scheme that is reflecting the performance and several other commercial factors. As such, we always take care of the healthy P&L of the network, and we are paying a lot of attention to the sustainability of the network, which was a big topic for us throughout COVID, but obviously, it's something that we keep an eye even now. So that might be an explanation for some of the year-over-year differences that you are seeing, but there is no major change in the commissioning scheme. And the third question, I'll hand over to Pavel.

Good afternoon from me. So we remain committed to our standing dividend policy, that is to distribute the maximum 100% of the net profits with a minimum of EUR 1 dividend per share. Additionally, we might go to any further special dividend distributions. And of course, we are now complementing this dividend policy with the share buyback, which we started in September last year, which -- where we really use any additional surplus cash after maximum return was paid. So that remains in place, dividend and share buyback with no change.

Could you just repeat the question? I'm sorry, for the rest of the audience. My line got cut off. Sorry about that. I just lost you when you started to respond, sorry.

Okay. So what I said that we are committed to our dividend distribution policy to distribute 100% of our net profit with a minimum of EUR 1 dividend per share. We may complement it in future with any special dividend distribution, like we did in the past and like we have a good track record. And we are complementing this dividend policy with additional share buyback, which we started in September last year, but we only use any additional surplus cash after maximum dividend has been paid. So we want to continue to pay maximum shareholder returns also going forward.

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

A couple of questions. Going back to the previous question, you said that the casino market share has gone up in the online world. Could you just give a view of what's happened in sports betting? Have you increased market share? And you referenced that there will be some improvements to drive that business forward. Could you just talk about what those improvements are? Is it the odds? Is it the platform itself? My second question is on marketing. Now if you look back over the last 3 years, relative to revenue, it's been a pretty consistent percentage, which is, I would say, is pretty good given online, which is more competitive, has increased in the mix. So could you just talk about the trends for that going forward, especially in light of essentially, you're guiding to a flat margin year-on-year? And my third question is just on Instant & Passives, which had a challenging fourth quarter that followed a weak Q3. Now apologies, I've got about halfway through your presentation so far. So if you've addressed it there, I apologize. It would just be good to get a feel for why you think Instant & Passives will improve in 2024?

So starting with the sports betting, where we are and where we are improving. If you're a bit familiar with sports, I think you will probably understand that there is no golden egg to be fixed to become successful in sports betting. It's a rather complex agenda and you need to do many things right to meet and exceed the customer expectations. So starting from the end of your question. The platform, as I said, we, now, after the change last year, have a very solid base to build on with our partner, OpenBet. But it's not only about the platform. That's an important base. It's about what you build on that and very importantly, also how you enhance your front ends and overall support and operations of the game. So the key areas where we are aiming for improvement, meticulously following the customer research we are doing to understand where our gaps are is across all the important elements of a good and successful sports betting proposition. Starting from the basic layer of reliability, speed, cash in, cash out functionality, registration process, et cetera, going on to the next level of loyalty schemes where we will be launching a very competitive one very soon, taking care of your VIPs, your call center services and how much attention you pay to taking care of any problems along the way. You mentioned [ odds ] very correctly. Having competitive odds is always very high on our agenda and always agenda that you need to continuously follow. So there is no specific thing that I would say we will change next month and things will dramatically change in terms of performance. It is really about that continuous improvement across many fronts that we are aiming for. Both -- in a nutshell, the proposition that you will see our customers will be able to enjoy during Euro, I believe, will put us in a really good place in terms of competitiveness on Greek market. Yes. Handing over to Pavel, if I covered you, I don't know if you are there. We can move to the next...

Sorry, could you just clarify a bit, you said, it was market share online, was that positive in the year? Or did you lose share? Or is it stable?

We have been -- in terms of sports betting, we have been likely losing market share. But overall, we didn't, I mean, across the noncompetitive world. And very importantly, on a group level, which is our dual brand strategy that we follow, we continue to keep a strong market share of 50% plus.

Now on your marketing question, there are some trends -- we are always trying to have prudent management, of course, across all categories, including marketing. Obviously, we need to continue to invest into our business. We just launched EuroJackpot. So naturally, you can expect that it's a new important vertical, which is trying to address also nonplayers. So we will continue. This is a new thing on EuroJackpot. Also, we have Euro in 2024 ahead of us. We have a competitive world in the online where obviously, we have to react to the competition. And also, there are certainly inflationary pressures and also the -- all the assets in terms of sponsorship, there is also high inflation there. So across all these fronts, there is sort of upward trend, but you shouldn't expect anything dramatic, and we are always trying to be prudent and diligent. And the third question on Instant & Passives, can you please just repeat that, would you be so kind?

I'm sorry, I think -- bad luck on the line today. My third question was with respect to the Instant & Passives. And again, I apologize, I'm halfway through watching the video for your presentation. So if I missed something, I do apologize. Why -- could you talk about why you think Instant & Passives will improve in 2024, the initiatives you're doing?

SCRATCH and Passives is certainly a category, where we continue to see an opportunity to increase penetration in the market, innovate the product, innovate the way we present it in the point of sale. So there is quite a plethora of activities that we will be doing. But just highlighting some of the key ones. It's a complete refresh of the way we present SCRATCH product in OPAP stores. So even now, if you come to OPAP store, you'll see EuroJackpot communication all over the place. But the counter where the spontaneous purchase happens is fully dedicated to SCRATCH. And that's just the beginning. We will be doing much more with SCRATCH in OPAP stores to really strengthen its presence and stimulate the spontaneous purchase. Likewise, in the indirect networks, we are increasing the presence. So you may see in mini markets, in tobacco shops, increased presence of SCRATCH visibility, again, for the same reason. Last but not least, the portfolio, we see opportunity in further growing the families of SCRATCH, where there is a lot of synergy between similar products that are for a specific target group. And cherry on the cake, an essential new element of our strategy is the gifting proposition, where SCRATCH is being established as something that people use as a gift on different occasions, not only on Christmas, but Christmas would be the main period of time. So that's in a nutshell about SCRATCH. Passives is a slightly different story, and that's a product that is really making us happy. We have done an innovation of the product last year, a refreshment of the products in terms of the winning structure logic. But equally, we are paying attention to the general positioning and evolution of the product. So you will see modernized design, refreshed communication so that we make the product -- rather traditional product more relevant to the new generation customers also with different special additions, et cetera. So that's hopefully giving you an answer to your question.