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 Mr. Pascal Chaffard, Executive Vice President, Finance and Strategy. Sir, please go ahead.

Thank you. Thank you very much, and good evening, ladies and gentlemen. Thank you for connecting to this call. I hope that soon we will be able to see you in the real world, if I may say. You may have read the press release that we distributed after the market closed. And also the slide show, I'm going now to comment is available on our Investors section of our corporate website. We've been keeping you regularly informed about the group's activity. And today, we will review our revenue for the third quarter and the first 9 months of 2021. My presentation will be short or something like 10 minutes to allow maximum time for the Q&A session. Maybe before we start, please, it's important to note that the third quarter commentary will be made versus 2020 which is a valid comparable basis as Q3 2020 was barely not affected by the health crisis in our activity [ at least]. While the 9 months commentary will be made versus 2019, which is a more coherent reference point given the health crisis. So now we can move to the next slide. The good momentum of our activity during H1 have continued in Q3. And our full year outlook is confirmed -- is fully confirmed. Revenue growth continued in Q3 on all activities and all channels, plus 5.1% versus 2020. During the presentation of our half year results, we informed you that all our point of sales were reopened from the beginning of June with what we call the usual schedule of promotional activities and sporting events. In fact, we can now consider that our business environment is normalized. We have even a few more point of sale than before the crisis, more than 30,000 points of sale. Thanks to opening of new point of sales, while the number of point of sale that have closed is lower than before the crisis. We remain very vigilant, and we will follow in the coming months the evolution of the situation in the context of the end of the government aid. This normalized environment made it possible to confirm the return to growth of the point of sale with stakes up 2% year-on-year in Q3 and up 5% if we compare it to Q3 of 2019. At the same time, as we emerge from the health crisis, the performance of our online business is stabilizing at a very good level, plus 20% in Q3. For online lottery alone, the increase was 28% in the third quarter after a 51% in the first half. This growth is very sustainable as it is mostly driven by the increase in the number of players. On the basis of our performance through the end of September and the stability of the health environment that we anticipate, we are confident that we will be able to meet the 2021 objective that we announced on the 29th of July, and I will come back to this shortly at the end of my presentation. If we move to the next slide. Those are the key figures. In Q3, revenues amounted to EUR 529 million, growing by, as I said before, 5.1%. The stakes have been risen by 3.6%. The evolution of the player payout ratio, what we call the PPO leads to this difference in performance between revenue and stakes. In the third quarter, decrease in the PPO compared to the third quarter of 2020 implies a faster increase in revenue. However, in the cumulative 9-month period compared to the end of September 2019, the increase in the PPO leads to a slightly lower growth in revenue. Variations in the PPO are mainly attributable to sports betting, as you know, who own PPO and relative weights in total stakes can fluctuate. The 9-month growth in revenues amount to 7.6% versus 2019. And if I give you the figures versus 2020, it would be 19.1% versus 2020. Stakes are up 8.9% versus 2019 and 21.5% versus 2020. If we now look at the first -- the third quarter alone, the group's revenue was up 5.1%. As I just mentioned, an increase driven by all activities on the basis of a 3.6% increase in stakes. Lottery revenue rose by more than 4% to EUR 418 million. This growth was driven by a 5.6% increase in stakes. Instant games were up 8%, thanks in particular to the fourth edition of Mission Patrimoine, our national heritage game. And draw games also performed well, up 2%, thanks in particular, to Loto, which benefited from long cycles with a record jackpot of EUR 26 million in September. Online lottery stakes continue to grow, plus 28% and represents 10% of total lottery stakes. This performance is, as I said in the introduction, totally responsible as it is mainly driven by the increase -- mainly -- exclusively driven by the number of players. We have 29% of more players than last year and 28% more stakes. Sports betting revenue rose by 7% and to EUR 97 million, while stakes were down slightly on the high 2020 base of comparison. Maybe it's important not to forget that Q3 2020 benefited from the postponement of many sports betting events initially scheduled on Q2, including the Champions League. Thus, if we compare Q3 '21 to Q3 '29, (sic) [ Q3 '19 ] sports betting stakes were up by 24%. And this exceptionally high volume of stakes in 2020 was accompanied by a high level of PPO, which was not the case this year. Thus, the revenue has grown whilst they slightly decreased. But it's important to say that it is the case for all the markets, not FDJ especially. So the same for everybody. Now I move to the 9 months revenue. So over the 9 first months of the year, the cumulative revenue amounted EUR 1.6 billion, up 7.5% versus the same period in 2019, and it's based on the barely 9% decrease in stakes. The increase in lottery revenue plus 5% is in line with the increase in stakes and is mainly driven by instant games. Online lottery stakes rose by more than 42%, totaling EUR 1.1 billion. This is interesting to comment that this represents more than twofold increase compared to the level in September 2019 and EUR 1.1 billion is a level comparable to the one recorded for the whole of 2020 financial year. Online lottery stakes represents, as I said before, more than 10% of the total lottery stake. And the increase in sports betting revenue is strong, plus 17% and the increase in stakes is even higher, plus 25% due to the increase in PPO in 2021 versus 2019. You cannot see directly on the slide, but I can mention that revenues from other activities totaled EUR 37 million and plus EUR 9 million compared to the end of September 2020. If we move to the next slide and to complete this analysis. We'll now have a look to -- at the detail of stakes by distribution channel. In the third quarter stakes increased in both our distribution channel plus 2% at POS. As I said in the introduction, fully opened since the beginning of June. And despite the introduction of the health pass at the beginning of August, which may have had a slight negative effect on footfall at certain POS, but it's not a major effect. So POS plus 2%, as I said, and online, plus 20%. This is a good continuation of the momentum, which is stabilizing, as we said earlier. Over the 9 months, in the first 9 months of the year, stakes are also up in both our distribution channel in cumulative terms, plus 3% at point of sales and plus 91% online. And at the end of September, online stakes globally represented more than 11% of total stake. The renewed growth in point of sales is a very good news. And however, as I said also in the introduction, we remain attentive to the evolution of our network, especially now that government subsidies will have ended, is going to end or have ended, and that change and also we will look carefully at the change in behaviors and consumption pattern of our clients. To end this presentation, let's have a look to our confirmed 2021 outlook. All these elements have developed our 9-month revenue performance and stabilized health context allow us to confirm our full year guidance, i.e., a revenue of EUR 2.2 billion based on total stakes of around EUR 18.8 billion and an EBITDA margin of at least 22%. Thank you for your attention, and now I'm ready to answer your questions.

[Operator Instructions]. We have very first question from Mr. Jaafar Mestari from Exane BNP Paribas.

I've got a couple, please. Firstly, just on the marketing spend, your guidance implies lower margins in H2 and a big part of that is marketing OpEx. So I'm just curious whether those marketing investments are done because Q3 was the quarter where a big chunk of those were planned. And therefore, do you have visibility on that? Or is your guidance still based on further future planned marketing investments and could have upside? And then I've got a couple of questions on longer-term topics if that's okay.

Okay. For his first topic, yes, we are doing what we have said we will do in the second part of the year. We invest more in marketing and especially in online lottery to assure that the momentum that we have on online lottery will be the momentum of the next year also. So we are working on this. So we can confirm that we will do what we said about those investments in marketing, especially online during the second half of the year.

And then just one on regulation. If you could just update us since it's obviously the European Commission inquiry into license conditions. So do we know where this has progressed in terms of the French State submitting their initial answer. And then separately, the ANJ sounds unimpressed with the aggressive advertising during the Euro Championship may introduce limitations. And do you think it's positive for you because it's the other guys who are doing the bad marketing? Or do you think it's negative because in the end, your own growth also relies on overall player recruitment?

Okay. So if I take your first point, which is related to the inquiry of the commission, we are waiting for the publication of the complete decision to enter to open this inquiry, which we think will occur in the next future weeks. So there's no news flow about this question. As we know, the French State is preparing its answer, to the commission, to European Commission. This answer is not yet ended. So it will be indeed also in the coming weeks. And it will also, at some point, I don't know when exactly because it has to be confidentialized. The answer of the French State will also be published at some point. So in the coming weeks, first, you will have the long length form of the notification of the beginning of the in-depth inquiry and then you will have another news flow with the answer, the first answer of the French government. All that will be done in the coming weeks or month. As we said on the end of July, nothing has changed between now and end of July. We anticipate that all those discussions will take some time, and we don't anticipate that any decision will be taken before the second half of 2022. So we will have to wait a little bit to have some new things. We have not changed our mind since the end of July. So we think that we have a really good case. Yes, it's a strong case for us. We have done the work very professionally to calculate the equalization payment because if I remember you, the point is if -- whether the equalization payment is appropriate or not, it's not other things. It's not an inquiry relative to exclusive right. It's an inquiry just relative to the amount of the equalization payment. And to remind you, all those things, this amount has been calculated by the CPT, which is an administrative independent authority, and it has been calculated considering all the good practice, French and European practices to do so. So we think we have a strong case, but we will have to demonstrate it to the commission in the coming months.

Second.

Yes. Second point of your question, the ANJ, our regulation. So it's right to say that the ANJ has open discussions about the advertisement in sports betting and that ANJ thought -- ANJ was not the only one to think that it was -- it has been too far the advertisement during the European Championship. And to be very clear, FDJ is okay to say that it has been too far. We have not been among those that crossed the yellow line, but some of our competitors crossed the yellow line. For example, letting think to the customers that we can earn our life, earn money by playing sports betting. We will never advertise letting think that sports betting is a way to earn our money. Sports betting must be always a game. It's not a way to earn money. So this is one of the point. The one other point that has been said by the ANJ and it's also right that those commercials are focusing on very young public which could be a point -- a difficult point. If you look at the commercial of FDJ, we have good practices, not showing people under 25 years old. So we are not in this -- also in this trend to focus on very young people. So globally, we think that to regulate more clearly the commercial, the advertisement on sport betting is a good thing for us because as we have better practices than the market, the market will be at our level and we'll not be alone to have such good practices. So the -- what will happen from now is next week on Monday, there is a meeting between operators and the ANJ in Bordeaux to talk about that. We will propose some measures to ANJ by the end of October. And if I, well remember ANJ will decide which measures they will take by the end of the year.

Next question is from Mr. James Ainley from Citi.

Two from me, please. First on sports betting. Can you remind us whether Q4 2020 was also flattered by catch up on sporting events? Or is it more of a fair basis of comparison going forward? And based on your current run rate, do you think you will be returning to growth in sports betting in the fourth quarter? And then the second question is, can you just remind us where you are on the launch of poker for the business, please? And when that -- if it hasn't launched really when that might launch?

Yes. On sports betting, to be clear, we are yet back to growth. And if you see our Q3, we have a growth in revenue. We have slightly declined in stakes, but we have a growth in revenue by something like 7%. And the point is concentrated on the month of August 2020. August is usually quite empty month regarding sports betting. In 2020, it was a very busy month as the Champions League finals were organized in Portugal. So if we look at the figures month-by-month, the only month that we have decline in stakes is August. We are back to growth in September, and we think that will be -- we will see a growth by the fourth quarter of 2022. So it's not -- it's really not a change on the trend on the sport betting, it's just conjunctural thing with the basis of comparison in August. If you see the communication of other sports betting operators like, for example, Entain, they also have this August thing that they highlight in their communication. So really no worry for us on sports betting, just a question of basis of comparison on August 2020.

Q4 will be clean.

Yes, Q4 will be clean and Q4 will be with growth both stakes and revenue. Your second question was about poker and when we will launch poker. We will do it, but I will not tell you exactly when. We are working on it. So when we will be ready, we will announce a schedule. But what I can confirm is what Stephane Pallez has said some months ago is that, we are working on that because we think that this is important to be exposed to both poker and sport betting for the resilience of our activity in the competitive online games.

Our next question is from Mr. Ed Young from Morgan Stanley.

Can you hear me?

Yes, yes. clearly. Yes.

Just 1, 2 you've already answered. You mentioned very clearly about how you feel about the advertising environment. Operators being too aggressive. And in that, maybe a little bit with your last question on how you see your competitive position. Does it make you more reticent to make an acquisition in the sport betting environment if many of the leading operators being more aggressive on advertising, maybe more of their revenue is skewed to they've got through those methods. Are you at sort of an earnings quality risk? Is that something that makes you more reticent or the kind of games you can make by acquiring a more scale operator kind of outweigh that? Is there anything that's changed your view towards the pretty clear desire you've stated over the years to scale up your operation in?

Clearly, it does not change our mind on the attractiveness of operators on the sports betting area. What we want and what -- and my comment was about that, is that the rules are the same for every operator. And we think -- really think that some operators have crossed the yellow line and the conclusion of that is that ANJ has to work about advertisement. If nobody would have crossed the yellow line, maybe ANJ will not have been obliged to work on this. At the end of the day, we will all have the same rules, and we will use all the rules that are possible. And we think that for the sustainability of this activity in the future, we should have a rule that are really sustainable. And I think that in other countries, the same type of discussion is also opened. And I think that a large number of operators now think that they should behave really correctly because this is the only way to sustain growth on the medium term if the behavior of the operators is too much what we will have is a regulation backlash, and we don't want that. So we -- for the sustainability of this activity, a good behavior is not just good for ethical reasons, but it's good also for economical reasons. So there is no difference for me. It's on an economical point of view, this is good not to go too far.

[Operator Instructions]. So we have another question from Mr. Alexandre Gérard from CIC.

A few questions on my side. Just to come back to sports betting. How do you see yourselves in the industry right now? Are you progressing? Are you still a faraway from the leaders? You used to tell us that you work more in the second tier of the industry. So are you, despite this -- all that marketing aggressiveness from competitors? Are you progressing? First question. Second question still on sports betting. You are posting a 24.6% increase in stakes over the first 9 months '21 versus '19. Can we have a vague idea of how this splits between offline and online? And my last question relates to the pipeline of U.K. that could be launched in the coming weeks or months, that could boost your revenues. Can we know more on that side?

Okay. So I'll take your first question about the sports betting. Are we progressing in this market or not? We have -- we think that we are progressing, but it's not very easy to know in which number of progress it corresponds because the ANJ our regulator has not published any figures since the beginning of the year. So we don't have the half year figures, neither the Q3 figures to date. We just have had the figures from the European Championship, and we have seen that our market share are the reason versus what it was before, during this European Championship. So we think that we are consolidating our position and we are progressing, but still, we don't have all the figures to be very sure about that. And we don't think that the aggressiveness of the communication of other is really -- has really an impact on their market share. We think that this is a large number of points that has been to be taken -- has to be taken into account to see if the position is growing or not. So we don't think this is just that, that will be the key. The second, your second question was about the increase in stakes on sports betting forgetting between '21 and '19 and to have the split between online and offline. What I can say that the mix the online sports betting is going 2 to 3x faster than the offline sports betting. This is, I think, fair to say that. The 2 are in -- are growing, but really the online sports betting is growing faster, and it's not a surprise, it's quite normal 2 to 3x faster than the sports betting offline.

All right. Maybe just one last question on my side, if I may. On the M&A side, not particularly sports betting. Are there any assets which are [ for grabs ] at the moment, maybe in technology?

Yes. Just not to forget your third question, and I will take the fourth after that. Third question was about the pipeline of new games. This is quite a traditional pipeline we have launched a new instant games beginning of October. At the beginning of November, we launched a new digital game, which is at [indiscernible] take it or leave it. I think this is the correct translation in English. We will have a new game also before the end of the year and also some super mega jackpot as we call them of EuroMillions. They are very important because those mega jackpot begin at EUR 130 million and makes it more probable that we have a long cycle, and this is the case today because we have a long cycle, and we have beaten the record of EUR 210 million jackpot that has been reached in February. Now we are at EUR 220 million, and this is rolling also on Friday. So quite a traditional pipe on our new game, and we also launched every 2 weeks, something like that, a new game on the online. So if I come to the M&A assets. Yes, we are working on M&A. We have also structured an M&A team, hiring some new people. We also have a new Head of M&A and IR inside FDJ. So we are working. We are looking at all the areas that we have already disclosed. One area is the sports betting and especially sports betting online. Another area is to improve our adjacent activities. This could be B2B international. This means the technology-driven B2B international. This could be payments and services. And this is also quite technologic. If we look at the asset that we can -- it can be interesting in this area. And the third adjacent activities is entertainment and also it could be some technological assets. So we are looking at various type of things. I'm nothing to comment especially today on which we could work.

Next question is from Madam Kiranjot Grewal from Bank of America.

It's Kiranjot Grewal from Bank of America. Just one question from me. In terms of stickiness of customers online, is there any differences you're seeing between the lottery segment and the sports segment? Or are they performing similarly? And actually, second question, has there been a change in how customers are playing at the point of sales?

Yes. For us, the way we work to turn our customers online is very different between sports betting and lottery because of the regulation matter. On sports betting, the regulation is different on sports betting offline and online. So offline is a monopoly, an exclusive right, we have for 25 years. And online, it's a competitive business. So we have a clear Chinese role between the 2 activities online and offline, and we cannot drive our customer offline to the online as it could -- as it would -- we would drive them from monopoly to a competitive activity, which is totally forbidden so we don't do that. So there is a 2 different markets, and we work online to recruit new players online and to recruit players that have turned from other competitors. On the lottery side, which is completely different because we have a monopoly right on both the retail network and the online. This means that we can work an omnichannel strategy, and this is exactly what we are -- we are working on a strategy in which a player can, for example, register on the point of sales and then play whether online and offline, both the 2 channels. And we think this is a good strategy because we have seen that the players that are playing both online and offline are the most -- the more valuable -- have more value than players that are playing just on one channel. So what we will develop in the coming years is the capacity to have a seamless capacity to play online and offline for our players. We think that this is very important. We can also drive player from offline to online and give a remuneration to our point of sale to help us doing that. So this is opened when it's about lottery. This is not possible when it's about sport betting. Sorry, you had a second question, concerning the change in the consumption habit. It's quite a little bit too early to answer really completely to your question. What we have seen is that mostly -- most of our players have come back to the point of sale as it was before. What we think that will happen is that as the [indiscernible] or home office will -- is developing maybe we'll have some changing in the areas where our point of sales will -- are located. For example, areas in the center of the towns where you have offices may have less people, for example, on mid-day during the week. And we will have more people on the residential towns, on the suburbs where people are working on home office. So we may have some changes in the split of the business between the point of sales, maybe less business on the business blocks -- business part of the town and more activity in the suburbs where the people are living. So this is one of the things that we can see. And we are doing some more [ goal ] to understand really what is happening. And we don't think this is totally stabilized yet because people are coming back to office just now. If we see what is happening in a lot of companies, they are coming back to work, and we will look at what is happening in the coming months. But what is good for us is that we have seen globally, our customers back to the point of sale, but not -- but also on the online, this is why online is continue to grow quite rapidly.

[Operator Instructions]. We have no other questions, sir.

Okay. So thank you very much for your attention and your very interesting question. So I wish you a pleasant evening. And I look forward to talk to you again in the coming weeks and months to comment the other news flow from FDJ. Goodbye. Have a good evening.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.