INTERVIEW: CEE casino operator Olympic prepares for tougher times

By bne IntelliNews July 31, 2008

Mike Collier in Tallinn -

Andy Warhol's "Dollar Sign" paintings are among the most popular choices for corporate art, but it seems particularly appropriate to see one hanging in the boardroom of the Olympic Entertainment Group (OEG) in Tallinn, behind Andri Avila, the company's chief financial officer.

Olympic is the largest provider of casino entertainment throughout Central and Eastern Europe, with more than 100 premises employing more than 4,000 people in Estonia, Latvia, Lithuania, Belarus, Ukraine, Romania, Poland and Slovakia.

Shares of OEG are traded in the Main List of the Tallinn Stock Exchange and the Warsaw Stock Exchange, and for some years it's been one of the darlings of investors in the region thanks to its rapid expansion and brisk, professional approach to business, which the soberly suited, meticulously prepared Avila embodies. You couldn't get further from the image of dodgy dons and money laundering, which many people assume lie behind the region's casinos and slot machines. Avila believes that politicians can largely take the blame for any seediness that does linger in his industry.

"If the legislation is set in a way that is favourable to higher-quality operators and higher-quality casinos, like in Lithuania, then public opinion about gaming tends to be more positive. If the regulations are more positive towards small locations and a big number of operators, then it tends towards lower quality - of which the classic example is Latvia, where there are approximately 600 casinos, including slot casinos. About half of those are in Riga, which definitely I think is too many. You only have to walk around Riga to see this. It causes public opinion to turn against casinos. Operators need to be regulated and there needs to be transparency in the casino business."

Europe-wide gaming laws would probably help, but Avila sees no immediate prospect of their introduction. "Currently, it is entirely up to every member state to regulate," he says. "The European Commission tried to put it into a service directive, but it was taken out. If I had to make an estimate, I would say that in 15 or 20 years there will be a unified gaming law in Europe."

But with teams of specialists in place in each country to stay abreast of legislation, Avila's priority is seeing OEG come through the economic slowdown in the best shape possible. Despite year-on-year growth of more than 50% in revenues during the first quarter, pre-tax profits were down 33% to just over €4m. "People still go into casinos, but they do not spend as much time there," he explains. "Also the average bet is smaller than it used to be, so people are much more cautious. Definitely we can feel the slowdown in the economy - and this slowdown seems to be much deeper than previous ones."

This finally disproves the notion that the casino business is "recession-proof," he believes, as the downturn has been just as pronounced in Las Vegas as in Europe. "The previous boom was generated not so much by increased productivity or the normal forces of economic growth, but because people were really spending their assets. Now that it's dropped off, the effect is very sharp and severe," he says.


As a result, OEG has had to revise its own expansion plans, Avila admits, though a new location is still opening up every other week, the most recent being the Olympic Casino Nyvky which became Kyiv's 22nd Olympic casino with more than €1m invested. "Our initial plans were much bolder. Our capex initially was over €120m. Currently, we have revised it to about €80m for this year. Also we were planning to have a secondary issue of shares in the middle of this year, which we have now postponed. But sooner or later we will still have the issue."

Part of the reason OEG is able to remain active even during a downturn was a decision made in its early days not to invest in bricks and mortar, but to concentrate solely on the core business. It leases nearly all its premises after negotiating favourable long-term contracts, reducing overheads and allowing it to remain flexible in times of uncertainty. But Olympic may be forced into the real estate market as it pursues the next big thing in gaming - casino resorts. "We would like to enter that line of business. In Europe, there are many hotels which have casinos, but not really any casino resorts other than one operating in Slovenia near the border with Italy," Avila says.

Even though the global economic downturn is squeezing profits in gaming, it's not dampening Olympic's ambition. "We want to become a global player," Avila asserts.

"So far we have been focusing on Central and Eastern Europe, but if you look at the countries where we are present and the countries which still could be of interest to us in that part of the world, then the choice is getting very limited. We have already identified potential partners all over the world, so I'm pretty confident that in 10 years we will be global rather than regional players."

You wouldn't bet against Olympic achieving achieving that goal - or against a few more of Warhol's dollar signs finding their way into the Olympic boardroom.

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INTERVIEW: CEE casino operator Olympic prepares for tougher times

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