FDJ United (FDJU) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for joining us for the FDJ conference call. I'll now hand over to Madam Stephane Pallez, Chairwoman and CEO. Madam, please go ahead.

Thank you very much. Hello, everybody. So I'm with Pascal Chaffard, Executive Vice President, Finance, Performance and Strategy. So you probably have read the press release that we circulated a few minutes ago after market close, and the slide show that we will commence is available on our website. So I'm going to give you first general comment of this -- of those results and this communication, and Pascal will go more into the details of our figures. Just to mention, I have a press interview that I have to -- on TV, and so I have to leave you at 6:30 and so Pascal will continue and, of course, will stay with you for the rest of the Q&A, and we'll conclude the call. Sorry for that, but difficult to accommodate everybody at this time of the day. So just a general comment is to say, as you have seen and looking at Slide 3, that we had a good momentum in Q3, which has highlighted our resilience that we started, I think, that we showed all along the last weeks and months during this crisis, resilience, thanks to our business model, our strong business model and our responsiveness or reactivity. Of course, at this time, we are talking on a day where our President, Mr. Macron, is going to be on TV tonight, probably announcing strengthening measures that I do not know at this point. So of course, everything that we say cannot take into account any, I would say, very strict and general measures that would affect our business. And so we will have to examine that further on. But if we exclude this at this point, what we have seen in Q3, we believe is a good momentum and could continue into Q4. We have seen a limited decline of -- and then on the basis of this belief that we have today, we believe that we could end up the year with a limited decline of 6%, minus 6% in sales for the full year. And maintain actually, a quite nice EBITDA margin of around 21%. So that's, I think -- if this would end up, I think it would be good news for everybody, for us and, of course, for our investors, and we believe it's actually feasible. So when we look into more details at our Q3, you know because you've been following us that since the end of lockdown mid-May, we have seen a gradual recovery. It has accelerated in June with the gradual resumption of sporting events, which is the European football and the reopening of bars in our networks and the relaunch of Amigo after its voluntary suspension by us. During the second part of June, as we said during our first half results, FDJ's activity has been back to levels comparable to 2019, same month. And we have seen this good momentum confirmed in Q3, with stakes increased by 6% overall. This has to be explained by an unusual summer period with a very busy sporting event calendar, which is, of course, the consequence of the postponement of many events that were initially scheduled for Q2. Another, I think, interesting feature in our Q3 is the fact that both our point-of-sale and our online distribution performed quite well with growth in both. So point-of-sale stakes were up more than 3%, and online stakes still continue to increase, up 44%. So that's, of course, one other big trend. And I will also stress another point which is important to understand those results, which is that although our stakes were up 60%, our revenues are stable. This is actually not a surprise. This should not be a surprise to you because we, I think underlined in -- when we talked about our first half results, the fact that the player payout in the sports betting activity could not be sustained, could not be sustained at this level with normal level of activity. And this is, I think, what happened, and even maybe stronger than we expected. Since not only, of course, the sports betting activity came back, as we said, it was close to 20% of our business versus 18% in Q3 2018, as I mentioned earlier. But we also had a very high return to players in this activity, and Pascal will comment that further on. So that's I think something that has to be understood clearly to understand where we are now. So at this point, what we consider as an outlook for the full year is stakes around EUR 16 billion, which is -- which would mean a limited decline of 6% year-on-year, minus 6% in terms of stakes. What it means is that our anticipation for the Q4 is a mild increase in stakes in Q4. And of course, based on the assumption, as I said further, that there would be no, I would say, drastic and general measures at the point that it would affect our business and no cancellation or postponement of the sporting events. What we expect at this point, again, all things being equal, is quite a busy lottery schedule, but this is, I think, what we have, of course, usually at the end of the year. So we have I would say usual busy lottery schedule with the relaunch of a number of our games such as Keno, Mots croises, crosswords, which has -- which are scratch cards family game, and Amigo and other games. And we have also quite a good and busy schedule for sporting events, which is broadly comparable in terms of volume of what we had in Q4 2019. So on that basis and assuming return to players brought in line with that of the first 9 months and of course, taking into account our cost savings plan that has been implemented fully at this point. We now expect full year revenue of around EUR 1.9 billion, which would mean minus 7% compared to 2019. And EBITDA margin around 21%, which is a little higher, actually, than the one that we had at the end of 2019. 2019 was 20.6% on a comparable adjusted basis. So that's, I think, would be quite a good performance. And again, we believe that at this point, we are in a situation to go for it. As I said, our cost reduction plan has been implemented, but it has also been used, designed and used in order to accompany the rebound of our activity. Therefore, we have quite a strong advertising program in Q4, and our CapEx budget has been protected to continue to invest in our further development and accelerated investments, supporting our strategic priorities. We also have in mind, of course, that further on in 2021, we have to sustain quite strong marketing schedule, but this we'll talk more later on. So I might -- I will stop at this point and hand over to Pascal to get you more into the details of the different figures. And of course, I will be able to answer some of your Q&A -- some of your questions if Pascal is -- not too long. Thank you.

Yes. Thank you, Stephane. I take the challenge. So good evening. And I will just stress some 2 more points on the Slide #4 because the figures, you can read it. And Stephane has as already talked a little bit about it. First, as mentioned by Stephane, the strong squeeze in the player payout, combined with the impact of the higher share of sport betting. We have said that, now 22% versus 18%, combined with higher sport betting PPO over Q3. I will come back specifically on this point in 2 slides with graphics. But just to remind -- as a reminder, FDJ revenue is a percentage of the gross gaming revenue, it means stakes minus player payouts. When the player payout is increasing, revenue is decreasing. That's why you see a 6% growth from the stakes and the barely flat revenue in Q3. The second thing I would like to highlight is the partial recovery of the stakes and revenue lost during the first half thanks to a good performance in the third quarter. If we see the 9-month stakes, they amount to EUR 11.3 billion, and they are down only 10% year-on-year. They were down respectively, 18% for the stakes and 15% for the revenue when we compare it at what we said for the first half of the year. If we now go right to the Slide #5, to give you some maybe more information about our Q3 activity. Sports betting stakes grew strongly, up 27% to nearly EUR 1 billion, driven by the postponement of many sporting events from Q2 to Q3, as Stephane had mentioned it before. Lottery recorded a moderate 1% increase in stakes to EUR 3.4 billion with first promotional activity of instant games resumed and a 2% increase in stake, and draw gains benefited from the good restart of Amigo, but suffered with from the comparison with in Q3 2019, which is so long cycle of an exceptional nature. We communicated a lot last year on those exceptional events to make it easy to understand the average jackpot of Euromillion in September 2019 was EUR 170 million when it fluctuated from EUR 17 million to EUR 130 million in September 2020. If we exclude those exceptional long cycles, draw games would have increased by 6% in Q3, just to stress that it's for us, a normal behavior of those games. On Slide 6, you have the graphic of the price payout. And it enables you to -- with some more color on these price -- player payout ratio, in particular, the sports betting one. At end June, sport betting player payout was 73.1%, a sharp 460 basis point drop from its H1 2019 level. We told a lot about that at the end of July. As we said, this was mainly due to the very nature of the few sport betting event that occurred in Q2, such as football championship games in Belarus, for example, which correctly -- which -- for which correctly you're predicting the outcome was much more challenging for our players. In Q3 alone, the trend reversed with a player payout increase of 600 basis points to around 80%. This can be explained by the very strong performance of both Paris and Lyon Football Club in the European Champions League, for example, and leading at a stable 9 months sports betting PPO of around 76.5%. So if you see the situation in -- of 9 months, it is a normal situation. These swings in sports betting PPO as well as the change of the relative weight the sports betting in total group stakes are the main drivers behind the overall change in the group player payout. And as you have noticed, the group player payout is barely unchanged year-on-year at 68.1% versus 68.2% last year. If we move now to the next slide. You may recall that Slide #7. You may recall that at the beginning of the year, over the period from 1 January to mid-March stakes were increasing in line with our full year guidance at that time. Q3 saw a return to growth. And beyond this, a typical summer, September. So a return to the level of stakes recorded in Q1, recovered and in line with our pre-COVID forecast. This is interesting to be mentioned. And to conclude on Slide 8, you see on this slide the figures that have been highlighted by Stephane. And on top of the elements of the full year 2020 guidance already detailed, I would like to say that we are also confident that we will maintain an EBITDA to free cash flow conversion rate of more than 80%, as it was in our original guidance. So we come back to this original guidance. And we did not mention our dividend policy because it has not changed. We still target 80% payout ratio calculated on FDJ consolidated net results. So thank you for your attention. Now Stephane and I will be happy to answer your question. And I've done my best to be short.

[Operator Instructions] We have one first question from Mr. James Ainley from Citi.

Yes. Congratulations on another good performance. I'm just sort of interested to hear a bit more about how the margin performance that you're guiding to, colors you're thinking about, the performance next year. The implication from what you've said is that second half margins will be around 21.5%. Is that a fair run rate that we should be thinking about for 2021? And an underlying that, are there any positives or negatives to think about? Thinking whether there are some annualization benefits from the cost-saving program, and annualization benefit from the recent acquisition of Bimedia that might kind of impact that outlook?

Thank you for your question. As you have certainly noticed, we are giving 2020 outlook. We're not giving today 2021 guidance. And frankly speaking, I think it's quite bold from us to give 2020 outlook. But I think at this point of the year, it's also reasonable and given the fact that we had this good performance. So well, I don't think we're going to give you much more details on 2021. But maybe I will let Pascal complement on the question, which is what in the EUR 80 million cost saving plan, what could we -- what could you expect to be reproduced in 2021.

Yes. Maybe to comment a little bit. The Q3 this year was quite specific because we had a good activity as you have noticed, with barely no advertisement because we began again advertisement in September. July and August, the business went by tough as people were -- in France, French people were in France for their holidays as point-of-sale were opened during August summer for part of them. It is quite atypical. It's not sustainable to have such a quarter with such a low investment in advertisement. Just to give you a clue about 2021, it's not as easy to do the same performance as we did into Q3. And when you say you have a 21.5% EBITDA margin on the H2, the half of H2 is Q3. So you have to take that into account. Second point about the savings plan. You have to remember that out of the saving plan is advertisement. Next year, we will advertise our games, advertise our brand and we will also advertise big events like European Championship or Tokyo Olympic Games. So it will be -- it will -- those savings will not be savings for 2021. Second thing, important also to mention, those EUR 80 million are in regard with the 2020 budget of FDJ, not the 2019 figures. If we compare the savings with the 2019 figures, it's EUR 30 million and not EUR 80 million. So it gives you not the total answer, but a clue to guess what could be the savings that we can -- that we can prolong on the 2021 next year.

Next question is from Mr. Jaafar Mestari from Exane BNP Paribas.

I've got 3 questions, please. The first 1 is on your guidance for the full year. If I read correctly, you are stating that any general lockdowns would obviously put it in jeopardy. But can you talk us through what sort of smaller, more local disruptions you have taken into account? Have you seen any impact, for example, when the bars in Paris were ordered to close, et cetera? So what degree of disruptions is baked in, in your guidance, please? My second question is on your online mix. So I think at the H1, you talked about your online mix almost doubling during the lockdown as all the point of sales we're closed. And if I look at the online performance in this quarter, it looks like it hasn't reverted at all. Would that be correct? It looks like 9% of your stakes replaced online whereas it was sort of 6% the year prior. So that looks like the biggest improvement you've done in a quarter where all the point of sales were open. If you could talk a little bit about the consumer behavior there and have some people reverted to off-line or all of the improvement been sticky? And my last question would be if you could detail a little bit the marketing schedule in Q4, especially for draw games because you will still have pretty difficult comparables in Q4 '19. You've talked about some of these. They look to be concentrated on smaller games than last year like Keno? What sort of growth can you deliver on that marketing push?

Okay. Well, thank you for your questions. I will start quickly to answer and will let Pascal finish because I have to run quite soon from now. So on the question of the -- what type of assumption can we have -- did we take or can we take within our guidance in terms of sanitary measures. It's quite -- it's a tricky question because, of course, it's quite difficult to, I would say, to predict what will be the sanitary situation. And what kind of measures will have and what kind of impact they will have. So we have clearly resisted about predicting something big and putting it into the guidance. What we have done is, we have looked as your question also -- as you mentioned in your question, we have looked at the impact that we actually measure on the closing of bars. Actually, the bars that are really only bar, as you certainly know, and it's only in some cities of France, not in all France and this, frankly, is not material compared to all the risks that we have in our business. So that type of local and limited measures, I would say, we can accommodate it. What is not clearly in our guidance is general lockdown. Although we believe that the general lockdown probably will be different in terms of impact, the first one. But we have not -- again, we have not put that in our guidance because, well, our government has been stating that they do everything to not to go for that. After that, you can have some new measures, everybody is talking today in France about curfew. Curfew is the new '20 world. And what kind of curfew, where, and at which scale, I don't know. So of course, this has not been put into our guidance since it's not decided, and we have no idea of what it's going to be and how it could impact our business at this point. So it's quite -- frankly, it's quite difficult to be more specific than that. And a word maybe on the online mix. And after that, I will have to go. On the online mix, we have actually, during the 2 months of the lockdown, we had, as you said, we doubled the online stakes for the lottery. Now what we have is something intermediate, which is actually quite nice in terms of online growth, which is over 40%. So clearly, we have something which is both good news in terms of a trend that is sustained, but not at the same level that we had during the lockdown because our players, and they have said that in the studies that we made. A number of our players have come back to the point-of-sale, and said that they like to play in the point-of-sale. So we have, at the same time, I think, a good trend because over 40% of growth on online stakes is a good trend. And also, clearly, a number of people that have been coming back to the point-of-sale, which is, I think, good, too. I think at this point, our last assumption about the share of online stakes in the lottery stakes is, I think, around 8%, if I'm correct. So not exactly the 9%. But again, it's been clearly nicely increasing. And of course, we would like to sustain this trend as much as possible. The teams here are saying that at the last quarter of the year is a quarter where we have a lot of events in the point-of-sale. So it might not be the best quarter to have the highest performance on online sales. But I tend to think that we have certainly during the lockdown period, acquired something in terms of online players that will not disappear. So we'll see. So that's -- sorry to leave you at this point. I will certainly talk later on, and Pascal will complement me on your first question and handle that.

And I will answer the third question about the marketing schedules on draw games. Yes, we have a number of relaunch. This month, the Keno and Amigo. Yes, Keno is a small game if you compare it to Loto. It's 1/3 the size of Loto. But Amigo is quite sizable with -- as the same size as Loto is. So it's quite an important one. We also have a number of jackpots and a new EUR 130 million jackpot will occur in November, about Euromillions. So we will have that. We also have Friday 13, and some events at the end of the year. What is important to understand on our Q4 is, as Stephane said, the saving plan made it possible for us to reinvest on advertisement, on the advertisement support for our relaunches and activity, lottery and sports betting activity on Q4. And all those things will be -- will have an advertising support. So we think, even if the comparison with 2019 is a hard comparison, we had stronger numbers on Q4 for lottery and especially, on draw games on Q4 last year. But we think that it will be possible to do even more than last year on this -- for the fourth quarter. If the sanitary measures make it possible, obviously.

We have the next question from Madam Sabrina Blanc from Societe Generale.

Yes. I have 2 questions, if I may. The first one is, as you mentioned that you don't have a clear visibility on what could happen this evening and containing potential local lockdown. Nevertheless, could we have a sort of a breakdown between the point of sales between big cities and regions, if it makes sense? And the second question is regarding the sports betting. Do you have any comments about the payout that you have in mind for the end of the year, shall we have still a lot of pressure -- competitive pressure. And then what is the calendar, the sports calendar, do you expect sort of normalization?

Okay. So for your first question, I don't think I have, like the figure you asked for the breakdown of our point-of-sale between big cities and regions, but I can say it in another way. If we have some -- yes. No, it's really -- it's hard for me to say or to have this kind of measure like that. But you can think it another way. We have a point-of-sale where the population is so you can guess that it is linked to the level of population you have in each region. So you have maybe 1/5 of our point of sales in the Paris region because there is 1/5 of the population there, something like that. It's -- I think it's a correct guess. And we really don't know if a local lockdown will occur or not. We really don't know if a curfew will occur or not. About curfew, what we can say if it's a curfew after 11:00 p.m. or 10:00 p.m. or even 8:00 p.m. It is not a very bad thing for us because our point-of-sale usually are closed after this -- after 7:00 p.m. or 8:00 p.m. The question would be sport betting. How can in sport betting be organized if it's not possible to go out after 8:00 p.m., I think the different leagues will adapt their schedules to this new thing if it happens. On sports betting, it's very hard to also -- sorry, because the 2 answers are not very clear. It's very hard to guess what can be the player payout of the end of the year. What we know that it's a -- it will depend on the results of the different games, and we will see. But what we have in our guidance, we have prolonged the 9 years to the 12 years. So quite a normalization of the player payout on the fourth quarter. This is our best guess, but thus, it can be over that or a little bit under that also. The calendar expected is as we know now, is quite normal. We expect it's not the exact calendar that could -- should have been done in the fourth quarter. But all in all, we will have as -- we will have an offer quite comparable to the one of 2019. If I can take 1 or 2 examples. For example, on tennis, we will not have Asian tournament. But on football, we will have more football matches and even football matches until 31st of December because the different championship are quite late and they have to have more and more days of playing days since the end of the year. So globally, we think the offer is quite comparable to the one of last year. If -- again, if sports betting are not canceled or postponed because of new sanitary measures, but that we don't have taken it into account in our guidance.

We have a next question from Mr. Gérard from CIC.

Two questions on my side. A very general question on the online sports betting market. There seems to be new players entering the French sports betting market recently. I'm referring to Groupe [indiscernible]. Can we have an idea of how fierce this market is becoming? Are you aware of new initiatives from other players trying to enter the market? And more generally speaking, how did you see your market share change from the beginning of the year, to date in that market? So this is my first question. And second question is a very basic question regarding your balance sheet situation at the end of this year. Given that EUR 400 million EBITDA guidance that you are giving us tonight. What should be the net financial debt situation of the group at the end of this year?

Okay. On your first question, interesting question on this -- on the online sport betting market. What we can say globally before going to your precise question is, we have seen more of the crisis than in other type of crisis. It means that we are doing well in sports betting, but others are also doing well. If we look at the first figures or the first guess that we can have on the Q3 of the global market in France, we think that the global market in stake has been growing quite fast also. So -- and what we have seen is pace of the growth of the sport betting market and our growth also is comparable to the one we had pre-COVID. So I don't know if it's an effect that will last forever. But what I can see now into Q3 and what we expect in Q4 is to see a market continuing to grow, as if the crisis have not taken -- been there. So this is the first thing. Second, I think the newcomers into this market, you have [indiscernible] but also [indiscernible]. But it's not real newcomers. I explained myself. They don't apply for a license directly. The license is the Vbet license. And they licensed their brand to make some sports betting and also poker, maybe horseracing also to market their brand on this market. So we don't think that those players will be real challengers for the big players of this market. It's more a way to value the brand, [indiscernible] or the brand [indiscernible] in this market that is becoming quite big. Another player has not entered this market, but we think they have new ambitions is PokerStars. PokerStars did not market very well or very hard their sports betting brand. They changed their sports betting brand in France and elsewhere in Europe for PokerStars Sports. And they have begun since September to market this brand. So we think that they have some ambitions to be bigger in this market. Last thing on this market regarding our position. I will not give you our market share because we don't give the market share. But what we could have feared -- what other people could have feared looking at our situation in sports betting, as we did not have any poker during the crisis or also horserace betting during the crisis. We could have feared that some of our players would have stopped playing with FDJ and began to play with Winamax, for example, sports bet and played Poker with Winamax, and then stay on Winamax, but we don't see that, really. We don't see that. Our trend is good. We are doing well. And we don't see any problem regarding the lockdown period, and we could have feared that and feared that people in the point of sales would have played more online and then stayed online. But it's not the case. If you look at our figures, 27% of growth on sports betting in Q3, it's very high. And we think that, that's -- our position has not been weakened by the lockdown period. On our balance sheet, I ask the net -- our net financial position, there is 2 ways to see it, the amount of cash that we have and the amount of cash will be over EUR 1 billion. And if we see our net debt, it's a negative net debt which means that it's a net cash. And this net cash is some hundreds of euros -- million of euros. Maybe I can have the precise number in a minute. I don't think it's a problem to give it -- to give this number. It will come in a minute. Okay. Yes, some hundreds of million euros.

We don't have any more questions. [Operator Instructions]