Organization of Football Prognostics S.A. (OTCPK:GOFPY) Q3 2022 Earnings Conference Call November 23, 2022 9:00 AM ET
Company Participants
Jan Karas – Chief Executive Officer
Pavel Mucha – Chief Financial Officer
Conference Call Participants
Pointon Russell – Edison Group
Draziotis Stamatios – Eurobank Equities
Kourtesis Iakovos – Piraeus Securities
Memisoglu Osman – Ambrosia Capital
Operator
Ladies and gentlemen, thank you for standing by. I am Gali, 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 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 OPAP S.A. Mr. Karas, you may now proceed.
Jan Karas
Thank you, Gali. Good evening or good morning to everyone. And welcome on our regular Q3 2022 results conference call. I am pleased with the set of strong results announced, demonstrating elevated topline 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 million now in line with our original outlook. Hopefully, you have reviewed and enjoyed the results recorded with you. We shared with you earlier today. So we will jump directly to our Q&A session.
Gali, over back to you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question is from the line of Pointon Russell with Edison Group. Please go ahead.
Pointon Russell
Good afternoon. I have three questions, if that’s okay. The first question is, 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? And my second question is on VLTs, although they improved 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 first fall dwell time or spend per visit or was the comparative from last year’s so exceptionally high, perhaps, reflecting the re-openings post-lockdowns? And 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.
Jan Karas
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 our 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 ATLs 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, et cetera.
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 am not sure if that’s what you were asking for, so maybe if you want to amend your question regarding the third part.
Pointon Russell
No. That’s fine. And do you have a feel for how your market share changed in response to that marketing spend?
Jan Karas
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 Stoiximan. 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 time 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, 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?
Pointon Russell
Q3 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?
Jan Karas
Yeah. Well, we had indeed exceptionally strong 2021. But it’s not the only thing that we should be looking at, because 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 normalizing now and certainly a positive that we are happy to observed.
Pointon Russell
Okay. Thank you.
Jan Karas
Yeah. So sequential improvement in 2022. Now to the first quest — first part of your question, you were referring to a breakdown between — can you repeat please that?
Pointon Russell
Yeah. 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?
Jan Karas
So that is — I am 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 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 customer’s expectations.
So whatever evolution of products and function of these is largely driven by evolution of customer expectations or are aim to attract new customer groups that we possibly did not even targeted three years back.
So I am sorry, but I am 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.
Pointon Russell
Okay. Thank you very much.
Jan Karas
You are welcome.
Operator
The next question is from the line Draziotis Stamatios with Eurobank Equities. Please go ahead.
Draziotis Stamatios
Hello, there. Thank you very much for taking my question. I have three questions, if I may, please. Firstly, I guess, we have all seen the…
Jan Karas
Okay.
Draziotis Stamatios
… upgrade you provided to the guidance. Just wondering what has given you this confidence, I mean, it must have been the topline performance during Q3, which I feel has been a bit better than you had seen your budget, maybe same has been the case in Q4 so far. So I guess what I am basically asking is, what has been going better, is this the high frequency gains, is it sports. So that’s my first question. Secondly, I sound quite interesting the point you made that you communicate regarding Pame Stihima sports [ph], in fact that you have made this 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 workout? And lastly, if you could just give us an indication as to your intentions regarding shareholder returns. So we have a floor, namely €1. We have €1.5, which is last year’s total remuneration. You refreshed the EBIT guidance with quite a good degree of confidence. So what should shareholders be looking for, please? Thank you.
Jan Karas
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 topline 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 year-to-date and we will continue to do in the future. So those are the key drivers about our new outlook. Do you want to cover the third question, Pavel?
Pavel Mucha
Yeah. Intentions regarding shareholders’ returns. Certainly, as you mentioned, we made a commitment to distribute as a minimum €1. We have done €0.30 recently. So for the final distribution, we remain very confident that it will be north of €1.
Last year, the 150 [ph] total shareholder return was including the — also share premium created by the script 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 €1 and north of €1. We are strongly committed to distribute — to maximize the dividend per share and we have yet to see how we finish the rest of the year.
Jan Karas
As for the middle question regarding Pame Stihima new attractive ads [ph]. 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 on many — 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 ads. So that’s why we have made this poll decision to significantly improve our ads 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 ads 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 OPAP store to play in online and that’s fine.
What we want is customers to also appreciate the retail experience that in many areas have 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 move we have done. Thank you.
Draziotis Stamatios
Great. Thank you so much. So certainly great news for shareholders. Just wondering about the point regarding the ads, since when have you, I think, made these changes really evidence for the pointers?
Jan Karas
We started at the beginning of September, supported by the campaign in the second half of September. So it’s really fresh now. It — keep in mind that the ads in retail were there for years and years and it takes obviously a lot of effort to change people’s perception that is 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 amount of customers really getting it and appreciating. And we have a lot of customers that even consider the ads 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 make any conclusions and assessment. But it’s on a good track.
Draziotis Stamatios
Great. Thank you so much.
Jan Karas
Okay.
Operator
Hello. This is — ladies and gentlemen, the next question is from the line of Nekra Solmax [ph] with Citibank. Please go ahead.
Unidentified Analyst
Yes. Good afternoon. Thank you very much for the call. My first question is on margins, right? So underlying margin if we exclude concession benefits was very strong in third quarter 28%, right, which is about 3 percentage points higher previous quarter and higher year-on-year. And I am wondering what was driving the such high level of margin and how sustainable do you think it’s going to be going forward? That’s the first question.
Jan Karas
Okay. Well, 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 effect. Basically, our long-term development of the margin we believe will continue to be in the mid-30s. So at around 35%, 36% mark level. That’s really the long-term sustainable margin.
Unidentified Analyst
Okay. Thank you. My second question is more on the kind of outlook, right? So what is the current outlook for the next year and do you think that the market pressures that we see and inflation may drive some pressure on the gaming market in Greece?
Jan Karas
Well, obviously, the macroeconomic — macro situation and its impact on business and any business, not just an OPAP 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 simply the high relevance of our offering.
We offer entertainment, the past difficult period 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 €1,000, €2,000 holiday. It’s about deciding almost at a single-digit amount of euro to still buy in a store or browse in an online and have some moments of fun and excitement of possible winnings and the entertainment connected with that.
So because of that — 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 situation.
Like everyone else, we are, obviously, yet 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.
Unidentified Analyst
Okay. Thank you very much.
Jan Karas
You are welcome.
Unidentified Analyst
Very clear. My final question, if possible, could you share some maybe trends — most recent trends that you saw in October and basically November so far?
Jan Karas
Well, October and especially the period now was primarily a warm up period for the whole World Cup. I was mentioning about the ads where we paid a lot of attention. Now we have a lot of upon that takes all of our resources and focus on that the big bet we are having.
And not only for the 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 so far 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 it has a great — 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 that.
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 — I would say, 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.
Unidentified Analyst
Okay. That’s very clear. Thank you.
Jan Karas
Thank you very much.
Operator
The next question is from the line of Kourtesis Iakovos with Piraeus Securities. Please go ahead.
Kourtesis Iakovos
Yes. Good afternoon and congratulations on the results. First question, it has to do for the full year CapEx, where do you see it to finalize for the year? Second question it has to do with Betano sale. As I remember, you have guided that you 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, that would be benefiting your free cash flow of €50 million, if I remember correctly, do you see any other benefits in terms of accounting 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 DDR 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.
Pavel Mucha
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 demerger in Malta. So December should happen. With the third question, I will ask Jan to comment.
Jan Karas
Yeah. Thank you, Pavel. Regarding the Hellenic Lotteries arbitration that you correctly referred to. At this moment, it’s a process that continues with hearing, 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.
Kourtesis Iakovos
Thank you very much.
Operator
The next question is from the line of Memisoglu Osman with Ambrosia Capital. Please go ahead.
Memisoglu Osman
Hello and congrats on a record quarter. Just coming back to your guidance. You have done €533 million in EBITDA in nine months. Why is the EBITDA going to be lower Q-on-Q, 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.
Pavel Mucha
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 one which brings GGR lots of activity. But typically with the favorites winning, it doesn’t have necessarily a very high margin. So it’s a current forecast of the mix of products which take us to believe for Q4 to be as we indicated.
Memisoglu Osman
Is there also a bit of investment with the better ads in retail betting or that’s not a…
Pavel Mucha
Not really because we have done the better ads not to drive turnover and activity, but obviously, to drive incremental GGR. So better ads is not the reason that it will drive our margin or profitability down.
Memisoglu Osman
Okay. Thank you.
Jan Karas
Thank you.
Operator
[Operator Instructions] 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.
Jan Karas
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.
Operator
Thank you, Mr. Karas. Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.
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