OPAP revenue grows in 2019, but Covid-19 set to bite

Greek gaming operator OPAP has reported a 4.7% year-on-year increase in revenue for 2019, though the shutdown of its retail network in the country looks set to have a significant impact on revenue and earnings in 2020.

Revenue for 2019 amounted to €1.62bn, with marginal declines in lottery, instant win games and sports betting offset by a growing contribution from video lottery terminals (VLTs). Amounts wagered across all products was up 1.8% to €4.47bn.

While lottery still accounted for the majority of revenue, its full-year total was down 0.1% to €778.6m, while instant win games’ contribution declined 3.3% to €147.5m. Sports betting, meanwhile, saw revenue decline 2.5% to €396.2m, which was attributed to the lack of a major sporting event in the year.

VLTs, however, saw revenue climb 42.6% to €297.7m, aided by the completion of the roll-out of 25,000 terminals across the country in December 2019.

After duties and fees were paid out, OPAP’s net gaming revenue for the year stood at €1.09bn, up 4.4% year-on-year. Agents’ commission for the year amounted to €387.3m – up marginally – while other revenue-related commissions grew 26.4% to €76.7m.

This left a gross profit from gaming operations of €622.1m, up 4.0%.

OPAP received €149.4m in other operating income, as well as €8.5m as a share of profits from associated businesses. Other operating costs came to €98.4m.

Operating expenses for the year were down 4.4% to €268.9m, while payroll expenses grew to €82.3m. Marketing expenditure declined to €60.9m, while other operating expenses, comprising technology costs and rent, among other items, fell to €118.5m.

OPAP also recorded a net impairment loss on financial assets of €7.1m, up 138.4%, after which earnings before interest, tax, depreciation and amortisation (EBITDA) for 2019 was up 16.7% at €412.6m.

After depreciation, amortisation and impairment expenses totalling €116.3m, OPAP’s operating profit amounted to €296.3m, up 23.8% year-on-year. Income tax for the year came in at €67.1m, down marginally, leaving a net profit of €202.1m, up 39.1%.

The year had ended on a strong fourth quarter, with revenue for the three months to 31 December 2019 up 5.9% at €1.37bn. After duties and fees of €464.7m, net gaming revenue for the period was up 6.3% to €905.2m.

After payroll, marketing and operating expenses, EBITDA grew 26.3% to €365.0m. Operating profit was up 31.0% to €285.3m, while pre-tax profits grew 34.2% to €268.3m. After income tax, net profit for the quarter jumped 52.1% to €205.6m.

“Q4 2019 concluded another successful year for OPAP with significant growth in both revenues and profitability over 2018,” OPAP chief executive Damian Cope, who today announced he was to step down from the business, commented.

“It is evident that the transformation that OPAP has undergone over the last few years continues to show positive results and in our seasonally busy Q4 our performance was helped by a particularly strong December, especially from VLTs and sports betting.”

While full-year sports betting revenue was down in 2019, Cope noted that the year marked the return of the operator’s retail sports betting business to growth, aided by digitalisation features and product enhancements.

“Our young OPAP Online business had its strongest period so far with record active customers and our investment in Stoiximan also continues to benefit from the impressive growth of that business across all their major territories,” he added.

However, looking forward, OPAP faces a significant negative impact from the Covid-19 pandemic. The Greek government’s shut-down of retail stores and indoor venues from 14 March, originally for two weeks. This has since been extended to 11 April. Its retail stores in Cyprus, meanwhile, are closed until 15 April, while Greece’s nationwide lockdown has restricted the distribution of lottery products by street vendors.

OPAP noted that while its online business makes a small contribution to total revenue, there had been an uptick in lottery activity as a result of the retail network’s closure. This was aided by the addition of a third weekly draw from 31 March.

Online betting activity, meanwhile, had been affected by the suspension of sporting action around the world. OPAP said it was taking steps to add new games to its online portfolio as a result.

“Clearly the impact of the Covid-19 pandemic has had a very damaging effect on our business in recent weeks with the closure in March of all of our retail outlets in both Greece and Cyprus, thereby eliminating around 99% of our gaming revenue,” Cope explained.

The pandemic would therefore “materially impact” its financial performance in 2020, the operator said. Just how much of an impact was dependent on the duration of the outbreak, how long the Greek lockdown would last, and the level of economic disruption.

Assuming the restrictions were extended, OPAP projected monthly gross gaming revenue to be reduced in the region of €130m and €140m, with earnings down between €50m and €53m.

The operator said it was taking measures to protect cashflow, and aiming to maximise liquidity within the group. It has recently secured additional funding of €325m, including overdrafts, resulting in current cash reserves of €623m as of 1 April.

“As a company we have responded quickly to protect our employees and agents, taking a number of necessary mitigation steps, and protecting the overall financial position of the company,” Cope said.

“Overall we have a solid balance sheet, with healthy cash balances and I am confident that OPAP will bounce back strongly once this unfortunate period comes to an end.”