FDJ United (FDJU) Earnings Call Transcript & Summary

Hello, good morning or good afternoon, ladies and gentlemen. So I'm Stephane Pallez, and I'm happy to be with you today with Pascal Chaffard to talk to you about our 2021 results -- annual result that we just released this morning. We would have, of course, loved to be in physical meetings, if I may say so, this day. But it's still a bit difficult, although it's getting better. And I think we're all looking forward to more meetings where we can actually see each other face-to-face. So I will start this presentation by giving you an outlook about our performance and what we did around this year. And I will hand over to Pascal to tell you more about our financial results for 2021 and we'll come back for the outlook 2022 and 2025. And of course, we'll have some time for Q&A. So to -- yes, this is a disclaimer. So we might -- thank you. So to tell you what we've been doing this year. I think we've been as we want to be. We've been a performing and supportive group. And we demonstrated this year again. This year, when I sort of look back when we had our IPO. We had, of course, a historical year in 2019 in very -- in several aspects, and of course, internally, our IPO. In 2020, we were able to demonstrate our resilience through the crisis. And I think we showed how the company was strong and reactive through the crisis. And 2021 is definitely a year of rebound in our activity. We actually came out of this crisis even stronger than we were before, both in terms of activity, and of course, in terms of profitability. And at the same time, we actually demonstrated and strengthened our investment and our responsibility to our society -- to society and stakeholders. So to talk a little more about this year. I think in 2021, first, we resumed our growth trajectory, the type of growth that we actually were looking forward at the time of our IPO and the types of margin also that we are in looking to at this time. We have now enjoyed for most of the year 2021, and especially at the end of the year, we have enjoyed a normalized commercial and operating environment. Therefore, we have been able to increase our activity across all our distribution channels and across a whole range of our games. So we actually were able to go back to the type of growth that we considered at the time of the IPO, which is around 5% on average per year. At the same time, as you have seen, the group EBITDA margin has increased. And of course, this is definitely linked to the implementation of our strategy, which has showed its efficiency during this period, this year; of course, the digitalization of the group, and we'll come back to that; but also the modernization of our point-of-sale network through investments; and also the development of our diversification activities, adjacent activity or diversification, this is the same; and particularly in France, with payments and services in our point of sale and the development of our B2B activity worldwide. So on this basis, we've been very -- we are proud to be able today to actually revise upwards our guidance for 2025 compared to the one that we gave at the time of our IPO, and we'll come back to that. And we're also very proud, again, to have been able to show our commitment to society and actually to increase them and to commit further to those commitments for the future. So to be even more specific about the figures for 2021, so our revenue have been growing 10% compared to 2019, which we think is, of course, the reference here given the type of persuasion that we had in 2020. Our EBITDA has reached EUR 522 million, which is a margin of a little higher than 23%, plus 22% in terms of growth versus 2020. Our net profit has reached EUR 294 million, and this is an increase of 38% compared to 2020. And on this basis, we are going to be able to distribute a dividend of EUR 1.24 per share, which is the implementation of our guidance of 80% of our results distributed in dividend, but of course, applied to net income, which has been much higher than the one that we had last year. Therefore, the increase of 38% that you have in a dividend distributed. So that's for the financial performance. For the highlights of our responsible and societal commitments, maybe 3 points, and I'll come back also to those in more details. In responsible gaming, we implemented our commitment to devote 10% of our TV advertising budget to responsible gaming, including to the fight against game of people that are under age 18, which is strictly forbidden and which is still an issue in the gaming sector in France. We also did take new commitments, both for our foundation which has now a new budget of EUR 25 million over the next 5 years compared to EUR 20 million before, and that is devoted to action and projects through association on education and vulnerable people. And also, we, of course, did maintain our extra financial rating with A+, one that was given again by Moody's ESG organization, and we'll come back to that. So to talk about growth. I think, we are very satisfied to have been able to come back to, as I said, a kind of normalized growth all in all. And to do that by having growth back in the point of sales with sales in the point of sale that have been increasing by 5% against 2029 (sic) [ 2019 ] and 16% against 2020. It's definitely a great achievement. We've got now -- we're adding a very stable and robust point-of-sale network with more than 30,000 outlets. We continue to invest in this network to be performance, particularly within logistics. So we actually integrated during this year our second logistics center to increase our performance to serve this network. And of course, at the same time, we had this very dynamic momentum in online stakes that you've seen already last year, but which has continued at a very high level of 42% versus 2020 and which is, in our view, very sound since it is based mostly in the increase -- on the increase of the number of players with over 70% of number of players in 2021 versus 2019. It does represent today over 11% of our total stakes. And of course, we have ambitions to continue to grow it, as we'll say. So we are now talking more and more about omnichannel development which is, of course, with the supply, of course, mostly to lotteries since we are in a monopoly in lottery, both offline and online. And therefore, we definitely -- in that do develop this omnichannel relation with our clients, where our clients actually for a good proportion of them now do play in both network, in both channels, which is of course value-accretive and also very good for our capacity to personalize our relationship with our clients. So turning to online momentum more particularly. I will briefly mention that 4 levers have been very efficient to get this online growth. First, as I said, the increase in the number of online players. In Lottery, our players have been increased by 2.7% -- have been multiplied by 2.7% between 2021 and 2017. In Sports Betting, it's 2.4 multiplication. So that's, of course -- that's, I think, the major achievement. We've been doing this by, of course, the increase in our online gaming offer, particularly in our Lottery business through innovation, through our phygital game that we have now launched regularly. We have now 1/3 phygital games and which has actually a very nice conversion rate of almost 40%, which means that 40% of the people actually do start their gaming experience in the point of sale with a scratch card and do continue to pursue it on our online site. So this is, I think, very, very also powerful. We have continued to invest in our mobile ads, in our user engagement, and well, of course, we can talk more about this. We've been also very determined in terms of increase of our digital communication. We have now more and more people that actually play through their mobile, as you see on this slide. And this, of course, is an investment for the future also. We also are very keen about the development of this customer relation, which is again a business objective, but also a responsible gaming objective, and will go more and more towards some form of identification in point of sales in the future as we are currently working on. And of course, this is supported by our constant investment: investment in technology, investment in online advertising and investment in skills and competence in our workforce. So to get a little more closer to what we did in Lottery, which was really transformed in this period. I think we are very happy to say that also in Lottery, we had growth in our 2 segments of game. So we had a very dynamic growth, of course, in instant games with 9% with good launch of new games. But I think we are even more proud of what we achieved in terms of draw games, which of course, had benefited from luck. Luck is the fact that -- it has long cycle with big jackpot. But actually, those long cycle and big jackpot do come from the transformation of those games that we actually did over those years, particularly for Loto and 10 Euromillions also, which has enabled that type of long cycle. And there, we see that we can actually get some good growth from draw games and growth that is actually very efficient in also bringing our clients to our online offer since it's actually through those draw games that usually most of people discover that it's very easy to play online. So it's quite a powerful growth also in terms of transformation of our business. Therefore, our online lottery stakes rose 37% this year after 62% in 2020. Our number of players has increased by 25%. And we are -- we think that we are clearly ahead by something like 2 years to what was our plan in 2019 in terms of transformation of our Lottery in an omnichannel business with a growing part of online stakes. For Sports Betting. When I turn to that, it's -- we were more, I would say, in the continuity of what we've been doing for those years. In -- we had growth also in both channels, in our point of sales and online, in a very dynamic and competitive market. In our offline business, we are also very satisfied to have continued to modernize the customer experience in our point of sales, particularly through the dematerialization of our offer. 85% of our customer in our point of sale actually do prepare their bets on their mobile. So it's also a very powerful way to boost our offer, to have a large offer and even larger than before than what we did. And we see that it's still growing in that sense, which is very -- which is a great thing. In our online offer, we definitely continue to invest in it, both in terms of customer experience and in terms of type of offers and bets. We have definitely increased at a level of 60% the number of bets available. And of course, this year -- last year, we had Euro 2020. This year, we are preparing for the World Cup. I must also stress that during Euro 2020, we did, of course, invest in those bets. We also did invest in responsible gaming. We think it's very important in the current context of regulation to show that we are a responsible actor in this market. And we've been definitely very invested in that and will be also in the future. So to talk about diversification. I think it's quite interesting to see that something that was mostly -- well, mostly projects, particularly talking about payment and services, has become real and is starting to be material in our business when we talk about diversification. So 2 main points of that. On the -- on our international B2B activity, we are very proud to have been able to launch -- well, first, of course, to win and there to launch contracts in North America, particularly in Canada with Ontario and Alberta. Those contracts are now up and running. They've been going through the last sports competition in the North American continent with success. And we are continuing to get new contracts. So this is very encouraging and very positive. Payment and services, I think, is also very interesting and encouraging, since as you know, we've been deploying these new services in our point of sales in 2020 when we gained the contract with the Treasury -- the French Treasury Department to be able to offer what we call, paiement de proximité, so local payments -- simple local payments available with our point of sales. This is a great success. We are now at -- we have now installed this service in more than 12,000 point of sales. So we continue to growing our presence in this -- in the territory. We have more than 2 million transactions. So all in all, this is still small compared to our revenue, of course, in Lottery and Sports Betting. But it's a new type of source of growth for the group. And of course, we are counting on it for the future, and we have good reasons to do so. So to talk now -- to turn now to our commitment and our support to society. I will briefly give you some more details about what we've been doing. So over the last 2 years, first, we supported people that were made vulnerable by the health crisis. We gave over EUR 5 million to that type of categories, and particularly EUR 2 million to young people that were definitely one of the categories that were the more affected by this crisis. We are now ready and we are starting to deploy a fund that we created with betting, a fund to support local retail after this crisis in fragile territories. So it can benefit to our point of sales if some would be eligible to it, but it can also benefit to others. We've been -- we are committed for EUR 5 million, which is roughly half of this new fund. And as I said, also, we've been increasing our foundation budget from EUR 20 million over the last 5 years to now EUR 25 million starting 2023 for the future. We are also definitely pursuing and increasing our investment in responsible gaming. So as I mentioned, we've been very active on this during the Euro in 2020 with a lot of TV campaigns, particularly in terms of prevention of under aged gaming. We've been also training all our retailers that do sell sports betting in this period. We have also strengthened our actions in terms of under age gaming by also training and now -- and controlling our networks. And we have actually started to implement for the first time some sanctions for the retailers that have not behaving satisfactorily. Of course, our intention is to be clear about the fact that now they have really to be very vigilant on that. So we would not like to -- our retailers, of course, to be numerous to get sanctioned. But we think it's a very important sign that now there is zero tolerance on that. And we have got also -- we have spent over EUR 10 million, which is including the 10% of advertising budget on TV for responsible gaming in a number of actions. And as we see, we will even increase that in next year -- in this year. So just to remind you that each year, we do assess our contribution, our economic and social contribution through an independent auditor and we publish this, both in terms of contribution to the GDP and in terms of equivalent of jobs created, particularly in our networks. So I will pass this, it is not new, but it's still very strong. And I will just comment briefly some of the evidence of this, the recognition of our action. First, as I said, our rating has been maintained by Moody's ESG at A1+ for the first -- third year, sorry. Second, we had our responsible gaming certification, which has been renewed by the EL Lottery Association. Third, we've been scoring very high on gender equality with a grade of 100 on 100 in the French index on this. And a very high, very nice fourth place in our first entry in the SBF 120 ranking. And we've also been granted a label for responsible purchasing with our suppliers. So that's, I think, the global view that I wanted to give you of where we are today in terms of general objective. And Pascal will, of course, give you more details about our financial performance for 2021, and I will come back to talk briefly about the outlook.

Thank you, Stephane, and good morning, good afternoon to you all. So before going further into the financial presentation, it's important to note that all the 2019 figures presented to you, including those presented by Stephane earlier, have been adjusted to be comparable to 2021 with the same adjustment we did since the IPO, mainly the new tax regime and regulatory framework. So after a year, 2020, as it has been said, marked by a decline in stakes and in revenue, FDJ is therefore resuming its initial growth trajectory. And we are very pleased about that. All the figures I will comment are new records for the group, stakes revenue, EBITDA, margin, cash flow, net result and net cash surplus. The growth is higher and higher as you go down the P&L from 18 gross -- growth in revenue to 38% growth on the net results. On the next slide. You have on this slide, our financial model that you have already seen many times now. We have updated it with our last figures, and you have it in the presentation, and I propose not to comment it now. So our rebound and return to our initial growth trajectory in 2021 is really well highlighted on this slide. With 10% revenue growth from 2019 to 2021, we are back on our historical growth pace of about 5% per year on average. In detail, Lottery in blue represents more than 3/4 of our activity and grew nearly by 9% from 2019 to 2021. Sports Betting in red represents more than 20% of our activity and grew faster: stakes, plus 19%; and revenue, plus 14% due to a higher price payout ratio in 2021 versus 2019. Revenue from diversification activities increased by almost 22% and represents about 3% of our overall activity. So let's see now how the main cost items have evolved in 2021. The retailers commission fluctuate end in end with the point-of-sale stakes and exceed for the first time EUR 900 million threshold, about plus 5% versus 2019. The other cost of sales increased by 8.8% compared to 2020, but were almost stable compared to 2019. The moderate growth in 2021 is explained by a low level of commercial and marketing activities in point of sales due to the still significant disruption induced by the crisis. And we expect, I'm quite sure, to have a more normal level in 2022. Within the marketing and communication costs. You have first advertising and promotion costs, up 19% versus 2020. But remember that more than half of the cost reduction plan we implemented in 2020 was related to advertisements. But it should be noted that advertising expenses are stable versus 2019, as we develop the activity by controlling our advertising budget. As Stephane indicated, the stability has to be put in the context of a significant evolution of the media mix, keeping in mind that online activity requires greater advertising support than the point-of-sale activity. The cost of developing the offering, which is the cost of designing, operating games and services both on the IT side and the marketing side, continued to rise both versus 2019 and versus 2020. Remember that this expense item was the only one to show an increase in 2020. We are significantly increasing these OpEx because they are the basis of our future growth, especially online and for the diversification activities also. General and administrative costs increased by more than 19% in 2020, but they integrate the EUR 25 million funding towards the FDJ Corporate Foundation. EBITDA thus stood at EUR 522 million, up more than 22% compared to 2020. The EBITDA margin is of 23.1% is a little bit higher than the guidance we have communicated at the -- in July for 2 main reasons. The first is the fact that we had less field marketing activity than expected. I have already mentioned it. And it has led to less expenses on the second half of the year. And the other important element, which you might have noticed, is that we had a very good handier especially in Lottery including online with several what we call long cycles or high jackpot records and with records, both on Loto and Euromillions. And these long cycles boosted EBITDA by more than EUR 10 million and margin rate by about 50 basis points. It's barely a pure marginal as low additional expenses were required to do so. So regarding online rating OpEx. We told you in July with the guidance that they would continue to grow in H2, which was indeed the case. The offering development costs and advertising expenses increased by more than EUR 20 million in H2 compared to H1. And finally, we have been able, thanks to different savings, to form entirely the 2023-2027 budget of the FDJ Foundation endowment starting in 2021 to give more visibility without prejudice to the overall margin rate. Now this slide shows the EBITDA bridge between 2020 and 2021 with the contribution of each business unit. We will detail this contribution margin on the following slides. And as far as holding costs are concerned, the year-on-year increase of EUR 42 million is related to the funding of the FDJ Foundation and also the corporate advertising campaigns that we put in place in 2021. So let's cover now in more detail Lottery. The improvement in the contribution margin from 33.6% to 35.9% is due to the increase in revenue, combined with a tight control of expenses, only up 11.7%. The point of sale commissions increased hand in hand with point of sale stakes, and the other cost of sales increased by only 7%, mainly due to the lower-than-expected field marketing activity that I have already mentioned earlier. Marketing and communication costs were kept under control with an increase also slower than the revenue, 7% for advertising expenses and 12% for the development of the offering and services. In the end, the contribution margin rate improved by 230 basis points in 2021, and this can be explained by 3 major drivers: first, the favorable mix effect of the online lottery growth; second, the operational leverage, plus the long cycle boost in Q4; and third, the low level of commercial and marketing activity in the point of sale, this is a conjunctural level. Now let's review the Sports Betting activity. The revenue increased by 25%, but stakes increased by 32%. Overall, the operating expenses increased by 28%, and the increased point-of-sale commission was in line with the increase in point-of-sale stakes, 29%. Other cost of sales increased by 25% and the marketing and communication costs increased by 27%. This has been very sharply reduced in 2020, and this -- the increase, it has driven by the gaming offering development cost and also advertisement and promotion in the context of the Euro 2020 that was postponed in 2021. So the contribution margin stood at EUR 121 million, up 17% compared to the EUR 103 million of 2020. Compared to quite atypical cost structure in 2020 and given the 120 basis points increase in the player payout ratio, the contribution margin rate contracted slightly in 2021. So to conclude on EBITDA. It consists of the contribution margin of the 2 business units, Lottery and Sports Betting, plus that of the diversification activities minus holding costs. We have just reviewed the Lottery and Sports Betting activities. Regarding diversification activities, the contribution margin was less EUR 2 million in 2021. Those activities are now close to breakeven. Now let's have a look at the bridge between EBITDA and net profit. Depreciation and amortization amounted to EUR 129 million, an increase of EUR 27 million compared to 2020, mainly due to the reduction in depreciation periods from 5 years to 3 years on our capitalized digital IT developments and the start of the amortization of the 2024 Paris Olympics contract. These effects were already commented in H1 results. Noncurrent items represented a net cost of EUR 1 million this year. The financial result was EUR 21 million, up 7 -- up EUR 16 million compared to 2020. And this variation can be explained by 2 factors. First, the fair value accounting of our investment in innovation funds. We invested EUR 70 million since 2015 in French tech. And some of them are -- have become unicorns, so it's a good thing for us. Second point, the overall more favorable financial market environment in 2020. So after considering the tax expense of EUR 122 million, our consolidated net profit amounted to EUR 294 million. The group cash flow generation in 2021 was very satisfactory with an excellent 95% of conversion of EBITDA to cash. The free cash flow amounted EUR 495 million, up 28%. And to get to the free cash flow, we had the change -- the net change in working capital to the EBITDA, an inflow of EUR 49 million, and we deduct the capital expenditure of EUR 76 million. The group's tangible and intangible CapEx were almost stable at EUR 76 million. IT investment increased by EUR 11 million, while point-of-sale investment were reduced. As already mentioned above, the [Indiscernible] did not allow us to invest in the network as intended, and it will come back to a more normal level in 2022 between EUR 15 million and EUR 20 million a year. And finally, other CapEx were impacted in 2020 by our partnership and license agreement for Paris 2024 Olympics with no cash out or less cash out in 2021. So one of our indicators reflecting the level of the net cash generating by the group is the net cash surplus. It corresponds to short-term financial investments and net cash balances. At December 2021, the net cash surplus amounted to EUR 916 million compared to EUR 577, 1 year earlier. Its increase largely comes from the EBITDA contribution and also the working capital inflow, as we have just explained. Available cash is amounting nearly almost EUR 1 billion at the end of year 2021, and the bridge between the cash and cash equivalent on the balance sheet and available cash is as follows. We add the term deposits and we deduct the unavailable Euromillions funds. Then we have a bridge between the available cash and the net cash surplus. We add the investment securities and we deduct our growth of financial debt. You will find on this slide the different components of our net cash surplus that I have just talked about and where you can find it in the balance sheet, and it will maybe help you. FDJ, as you can see, has a very solid balance sheet. And I wanted to come back just 1 second to the company's results in order to remind you that the legal and statutory reserve amounting to EUR 100 million are not distributable. The optional reserve is only available up to EUR 168 million, considering the legislation in force, which requires the net book value of the capitalized development cost to be retained. So this is to remind you that contrary to what some might hope or say, we cannot just like that distribute our surplus cash. Although, so that -- as already mentioned in the past, we want to keep firepower for M&A transaction. In a few words, FDJ is efficient, ready to meet the challenges ahead, ready to invest to pursue its development. And I hand over now to Stephane to talk about 2022 and midterm outlook.

Thank you. Thank you, Pascal. So briefly, since I think we've been quite -- already quite detailed on the company's situation, to give you some perspective. I will start by just stating that our strategy is still the same. So what you have on this slide is a confirmation of what we have been doing and what we believe has been very relevant and successful during those 2 years. And we definitely think that in Lottery, as you have seen, we have still an opportunity for development, particularly through the omnichannel development. We believe that in Sports Betting, we have opportunity to get more growth, both in our point of sales and in our online business. To achieve this, we believe that investment in a stronger customer relationship is absolutely key and will also be key to strengthen our responsible gaming policy. And we also believe that the investment that we did in our diversification activities will give us opportunity to grow those activities over this period. So in 2022, this is what we're going to do. We're going to do that, of course, in our core business in Lottery with the launch of more than 30 new games in online and point of sales. For Sports Betting, we will, of course, continue to invest and particularly taking advantage of the big sports events of this year one, of course, being the World Cup at the end of the year. We also are going this year -- and this is a more structural point, we're also going to install a new generation of lottery draw and instant games engines. This is an operation that we have not done for years. So it's a new engine in Francaise des Jeux that will be implemented during this 2022, which will allow us more capacity to develop our omnichannel approach for lottery with a single player account, both online and the point of sale. We will also continue to extend our point-of-sale payment services. We will now enlarge our offer to allow also other bills to be paid in the point of sale. So we have now obtained a new authorization to do so, and we will certify probably roughly 5,000 outlets to be able to develop these new services in terms of payments. And of course, we will continue to strengthen our commitment in underaged and excessive gaming. And for instance, we have decided that the 10% commitment that we did implement this year in terms of 10% of our advertising on TV being devoted to responsible gaming, this commitment was going to be taken on the totality of advertising budget, which is an increase of 50% of this commitment in terms of money. So this again, briefly in terms of strategy, will, I think, is putting us in a situation where we can have a pretty positive guidance for this year 2022, based, of course, on a stable environment, the type of environment that we have today. So we aim for revenue growth of close to 5% with digital stakes growing by more than 20%. We believe that our EBITDA margin should be above 23.5%. In line with our group strategic objectives, we will continue to invest in our game and service offering, invest faster probably than the business. So that's, again, for the future and particularly and absolutely consistent with our profitability objective. We also consider that the level of other cost of sales, as Pascal has explained, was a little bit low in 2021 given the restrictions and due to the [ sanitary ] situation. So it should come back to normal. So that's again the hypothesis under this EBITDA margin guidance. We expect our conversion rate from EBITDA to free cash flow to remain above 80%. And this, again, is very much in continuity with what you have seen this year. We are now also, I think, at a time where we can and we have to revise our 2025 objectives. Those objectives have been set in 2019 at the time of IPO. Since that, the company, of course, has been experiencing, well, 2 years that have been very, in a way, difficult but also I think very interesting and very transforming for the companies. I think we are now in a situation where we are quite confident in our capacity to restate those guidance. And what we see today is revenue growth in a range of between 4% and 5% on an annual basis, of course, for the year to come which, of course, this growth will be fueled by probably higher growth in sports betting and also by the growth of our diversification activities that I've been describing. Our online stakes should represent at the end of this period more than 20% of the group's total stake, that is to say, in 2025, which is a doubling of their 2022 level with, still, growth at the point of sale because this is what we believe is the best model for the company in the medium term. We think that on this basis, our EBITDA margin will continue to increase over the years to over 25% in 2025. This will be accompanied by a cumulative investment over the period 2020, 2025 that are still expected to amount around EUR 600 million to develop our game and service offering and also to develop our projects in terms of customer identification and knowledge and data strategy and also to continue to invest in our network and to also sustain the transformation of this -- of our commercial relationship with this network, which is something that also will generate positive impact, but in -- at the end of the period as we see today. So on the basis of this, we have decided that we were able to increase the range of our dividend policy. So at the IPO time, we say 80%. We are now confident enough to commit to distribute the dividend with a payout ratio that should be between 80% and 90%. So we believe there is definitely, again, potential given the level of activity, profitability and cash of the company to increase our distribution over those years. We will, of course, monitor that distribution according to our capacity to deliver those results. And also, we are, of course, going to maintain what we have said from the beginning of this story. So no change in our balance sheet policy or in our capital allocation, which means that this level of distribution of dividend leaves us room for external growth that we are still very convinced that it should be one of the instruments to continue to boost the growth of the company. Even though we did not use it at this time, it's still definitely on our agenda. So I will finish at this point by just stating what you have, I think, understood, which is that we are confident in our capacity to continue to grow sustainably and profitably for the benefit of all our stakeholders, including our shareholders and by continuing to cement our position as the French gaming operator leader and by becoming more and more a prominent operator in gaming and services internationally, as we started to do so, and as definitely, we want to accelerate in the next years. And thank you very much for listening to us, and we are ready for your questions. Thank you.

[Operator Instructions] So our first question comes from the line of Ed Young from Morgan Stanley.

I've got 3 questions, if that's okay, and perhaps I'll ask them one at a time for ease. The first question was on marketing. You've touched on this last [ quarter ], a bit of a follow-up, I guess. But in Lottery, particularly it was down about 50 basis points as a percentage of revenue. It's gone up annually 40 basis points for the last few years is online mix increased, and you said that the trend that should continue. So just in terms of how we think about that normalizing, I appreciate you gave some of the reasons in your commentary. Should that be going up gently as a percentage of revenue, i.e., sort of slightly dilutive to margins as the online mix increases? And therefore, it's also fair to say that the EBITDA margin growth is going to come more from cost of sales or other cost efficiencies as you scale the business? Just to get an idea of the moving parts. That would be very useful.

Okay, maybe...

Pascal, you want to take this one? Yes. This is your first question, right?

Yes. So I answer your first...

Yes. It's basically what's going to happen to marketing, but I guess I was a bit long there. Apologies.

Okay.

Sorry, I will answer -- try to answer this question. So maybe I can comment it a little bit higher. If we come back to the difference between online and off-line, because I think behind this question, this is the real question. We have a difference about 1 to 4x of marketing intensity when you come off-line and online. On online, you need 4x more marketing expenses than offline. So effectively, when you grow -- when you become more and more online, you will see this marketing budget more and more high -- higher and higher. But at the same time, you will see savings on cost of sales. And overall, the balance is good for FDJ because on the Lottery side, when you come from the off-line to the online, you have 1.5 to 2 or maybe 1.7, to be precise, multiplication factor of the EBITDA margin. You have barely 1.7 more margin online than off-line because those are additional costs in marketing but also in IT, in a commission paid to the banks for the payments and so on are not at the level of the POS commission that we save and all the other supply chain costs that we save. Is it a good answer to your question? Or I misunderstood your question?

No, that was a perfect answer. That's actually clear. My second question is an open one. There was obviously no mention in either of the statement or the presentation today around the European Commission Investigation. I just wondered, now the complaint is fully public -- or the initial complaint is public, I should say. Do you have any color on how you think about it and the potential risks or the time line you expect? Is there any update there?

Okay. I will take this one. We did not talk about it because there's actually no material news to be commented. It's -- I think just to be clear on that, first, in terms of time line, we are actually in the normal delays of such procedure. The normal delays are 18 months. The procedure has actually started in July 2021. It was the first publication of the intention of the Commission to open an inquiry. The full decision was published beginning of December. So again, the normal delays are 18 months. So we should -- and we, of course, are willing, as you imagine, as you are, to get a decision before the end of this year, 2022. It's not completely in our hands, but we will do everything we can because we think that we have a good case, as I stated already. In terms of what we've been doing, and again, this is not news. But just to tell you that we are not just waiting for the Commission to decide. We have -- since the publication of the decision, the full publication, beginning of December, that was -- it's a decision against the French State, as you remember. So we had -- we are a third party to this case. So we've been allowed as a third party to comment what was published, and we did so within the 1 month delay that was opened at this time, as other third parties have certainly done. So now we are at the stage where The Commission has not only the answer of the French State, but also the comments of the different third party, including us. So during the month, the weeks and months to come, as you -- as we have said, there will be no decision, not only because it's a French presidency, but it's just because -- well, in the usual schedule, The Commission, it's never happening that -- again, that quickly. But we will, of course, be active with the French State to defend our case. So there is no news. There is no news in terms of no new evaluation of risk. Again, this procedure is opened on the level of the equalization payment. It's not opened on other issues, even though The Commission is, of course, has been commenting on other points. So we will continue with the French State to defend our position that we think is strong. Thank you.

Okay. And my final question is, I guess, slightly related. But you've obviously talked about the leverage ceiling, that you would potentially go to around 2x EBITDA, you said, of your available cash position. You've also signaled, I guess, you're more interested in acquisitions than outright returns. Would you be potentially happy to do a material deal and bring yourself close to that leverage target ahead of a final decision? Or are you minded that you could look at things maybe but not really go ahead of them until you had full clarity from the EC in terms of what was -- is it a constraint, I guess?

No, no, it's not a constraint. I've already answered to this question, and my position and my [ business ] is still the same. We are looking at potential targets. We've been looking at potential targets during this year. We've not been doing it for reasons that are linked to, I think, the opportunity and the interest of those targets. But the EC procedure is not at all an element in our decision to use our balance sheet to do some M&A.

Our next question comes from the line of Jaafar Mestari from BNP Paribas.

I've got 2, if that's okay. Firstly, would it be possible to walk through all the different nonrecurring items in full year '21, just so we get a better base? So marketing costs, for example, as of H1, you were flagging EUR 20 million extra OpEx to be incurred in H2. Has that all been postponed? And will 2022 be a normal marketing year? Or are you actually catching up on some of that postponed marketing OpEx? Then this long cycle, if there's a way to quantify that and compare it to '19, I think, was the last big year. And you were saying it's EUR 12 million EBITDA benefit. So was '21 even better? And then lastly, on the Foundation funding, so that -- there has been -- it looks like this has been recorded in central costs. Is that the whole EUR 25 million that's in the '21 P&L? And then it's 0 in the next 3 years? And then if that's okay, I have a follow-up on digital.

Okay. I think Pascal is going to take the -- and your question is to identify all the elements that were exceptional that will -- or not we -- could not be reproduced in 2022.

Yes. So if I take all those items, first items, marketing cost, what we said and what we did is to invest more in second half of 2021, and we did it. In 2022, we will continue to invest not only in advertisement, but also what we call the developing of the offering. For example, Stephane has explained that we will change our gaming core systems in Lottery for draw games and instant games. And this is a very hard work with a part of it in CapEx, but a part of it in OpEx. And it will be done in 2022. So you can think about a quite important level of marketing expenditure and also development of the offering next year. Second point is long cycles. Yes, what I indicated is that roughly, it brings something like EUR 10 million additional EBITDA in 2021. It's difficult to say if it will be the case also in 2022. What is important to think about with the long cycles, and Stephane has mentioned that very briefly, is that we reinvent Loto and EuroMillions to make them generate more long cycles than before. So what we had in 2021 is over the average, but the level of the average has a reason. And this is what -- it is a very interesting thing that we have done because we have generated more and more long cycles within the mechanic of those games. So to answer your question, it's -- we cannot expect to have those EUR 10 million in 2022. Again, we don't know. It's -- we will see.

We cannot be sure.

We cannot be sure. But what is also interesting is each time we have a long cycle, we have a super jackpot, it brings new customers to the game. And a part of those customers are staying in the game. So it reinforce the basic basis level of Lottery and EuroMillions. Maybe the one thing you did not mention, and it will be important in 2022, is normalization of the commercial costs. I've said sometimes in my explanation that we had some low commercial cost in 2021, and we will normalize it in 2022. And we hope that it will be possible. We think it will be the case. So it will be some expense, more expense. And we will also in 2022 begin to change our visual identity in the point of sales. And this will cost also a little bit. And also we'll start what we call a new phase of the transformation of our commercial -- of our sales activity, and it will also cost a little bit, but it's for a good reason. It's be more efficient and less cost full in the midterm. To end my long answer, sorry for that, about the Foundation. Yes, we have recorded the EUR 25 million one shot in 2021. So you find it totally in 2021. And what we -- has been approved in the in our Board is a minimum EUR 25 million. So I cannot be totally sure that it will not have some more in a few years, but it's -- this basis of EUR 25 million is in the 2021 accounts.

That's very helpful. And then my second question would be on the digital mix. So 11% in 2021 is not up materially from 10% in 2020. And of course, you have the lockdown effect in that 2020 base. Did you have any consumer intelligence, behavioral patterns that allowed you to estimate what that lockdown effect effectively was? So if you start from 10% in 2020, did you lose 1 point or 2 points because people go back to point of sales? And then on a clean basis, the digital mix increased by 2 points, 3 points, something like that? Because you now need to do 2 or 3 points each year until 2025.

It was -- sorry. It was difficult to hear you at the beginning for -- I mean, the sound was not good at the beginning. So we actually -- I think we missed the beginning of your question. My guess is that your question is trying to understand what was the impact of the lockdown or sanitary restrictions in 2021 that do explain some part of the growth of the online lottery. And so how can we deduct from that. What should be the sort of structural trends of development of the online lottery. This is how I -- what I got from -- again, but sorry, because it was not easy. I think what we can -- I think what we have done, when we say that after a year where the online lottery has been growing at 37 -- by percentage of 37%, we believe that we're going to -- we are close to normalization at the end of the year because, as a matter of fact, part of this year was almost normal and people have adapted to that. So we believe that on the basis of what we've seen during particularly this second half of the year, we should be growing. As I said in the past, my sort of personal belief that we should be growing between 20% and 30% our online stakes. We've been a little cautious in assessing what should be the sort of minimum growth by saying that we'll be growing by more than 20%. Because we believe, again, that now we are getting close to something to normalization, at least for part of the year. And therefore, we believe that a number of people now are becoming mixed in terms of practice. Today, my last figure is -- I think that's interesting, are that we have actually over 4 million of people that have been playing online lottery at the end of 2029 (sic) [ 2019 ] on the basis of the last studies. This is an estimation, of course. So this is, I think, an interesting number of people. Maybe they're not all going to play on a regular basis, but those people have been created an account. So we know them. So we are able to have action of them. And actually, we have -- among our players, we have now a good proportion, I'm trying to find the exact number, we have actually a good proportion of them that are playing both online and offline.

60%.

It's 60%. That's -- sorry, I was checking the right number. So we believe that, that is quite -- I think this is an interesting number to -- which makes us believe that to grow at a minimum of 20% our online stakes in lottery should be possible while having still growth in the point of sale as we projected in our numbers. That's -- I hope that does answer your question.

And maybe if I can add just one thing. We have some benchmark of lotteries around us and especially North of Europe. If I take the example of the U.K., the situation is not totally the same but they have the possibility to sell products that look like ours. And they are currently at 40% of the mix, online lottery versus offline. So to reach 20% in 2025 does not seem totally out of the range for us. And we have -- we can, as Stephane said, work on the loyalty of the players online. We can work on new players and mix players, omnichannel players. And we also can work on new players that are not going to our point of sales and that would be happy to pay lottery. So we have made many levers, many ways to develop this lottery. Maybe last figure, Stephane said at the end of 2021, we were back to normal. And if you take the Q4 growth of online lottery, it's 28%. So it's in the range of 20% to 30% that Stephane mentioned.

[Operator Instructions] Our next question comes from the line of James Ainley from Citi.

Great. Three from me as well, please. The first is just wanted to follow up on the sort of margin expansion point. Should we expect contribution margins for both lottery and sports betting to improve? And I guess I'm mindful here of the competition in the sports betting market, how you're seeing that and how is that affecting the odds you offer your advertising promotion and so on. The second question is on financial income. Clearly, it was very much flustered, the reasons you mentioned earlier. But I suppose, how should we think about that as interest rates rise, vol yields rise, what's the exposures of your investment portfolio? And then the third question, really related to the balance sheet more broadly. You talked about -- you talked for a while now that wanting to expand inorganically. Is the French sports betting market is still the key focus? And I guess I'm interested in how you're thinking about the other lottery bids. You talked about launching poker. So any update there, please?

Okay. Maybe I can start by answering the third question, and Pascal will come back to the 2 others. So on the balance sheet use, we are -- I think we are still convinced, as I said, that external growth could boost our strategy. It is still -- I think it's still pending on sports betting. This is something that we clearly had in mind -- that we still have in mind. We didn't -- we were not able to, I would say, to find the right opportunity at the right price. So at this point, it was not done, but it's still very high in our agenda. You mentioned poker. So for poker, I think it's a little bit different because we don't actually need to do M&A to have -- to complement our Sports Betting offer with poker. We actually have launched another process to get a poker offer to complement our Sports Betting. And we will be probably able to launch that before the end of this year. So it's not an M&A question, but it's still -- it's very much high on the agenda. On lottery, I think that we've always been answering questions about will you do some M&A on lottery. Obviously, it's not a question for the French market because we have exclusive rights. But if they were, I think, interesting targets abroad, we would obviously consider them. As we said in the past, it's not that frequent to find interesting targets in lottery. But I think as lottery is becoming more and more digital, probably the argument that was made in the past on the idea that there was no synergies when you consolidate lottery is an argument that probably could be a little bit nuanced. But again, that's, at this stage, only a theoretical debate. So that's our balance sheet use. And I'm very determined to actually use this power that we have in our balance sheet, but to use it, of course, only if we find value accretive targets. And that's why I didn't do it at this point. So Pascal?

Yes, I will answer the question about the margin and also the financial income. So if I begin by the margin. What we expect by 2025 is the margin of the Lottery -- margin rate of the Lottery to continue to rise. And we will have 2 effects in that. We will have the positive effect of the online. I don't come back on this point. I've already explained it earlier. And we will try at the same time to stabilize the margin rate on the point of sales. And we -- what we do to stabilize it is to invest on the point of sales to drive some growth on the point of sale, first thing. And second thing, we have begun a new transformation of our sales force to bring more value to the sales force and also to reduce the cost. It will not be seen at -- on the short term, but it will be seen in the medium term. And it will be a driver to stabilize and even grow the margin of the point of sales. On the Sports Betting, the situation, as you have understood it, is little bit different because we don't have this positive effect when we go online, and we will turn more and more online. We will drive some growth in the point of sales, but it will not be a double-digit growth. But we hope that we will be able to continue have a double-digit growth on the online. And the mix between online and off-line is a little bit dilutive. So our ambition in -- with the contribution margin rate over -- globally on the sports betting is to stabilize it. And on the medium term, it means to have a balance between the improvement of the margin of the online that will improve as it becomes bigger and bigger. This is the scale effect that we are trying to have on the online, so improvement of the margin online, and at the same time, this dilutive effect with a point of sales. And overall, what we aim is to stabilize it. Second question was the financial income. Yes, we have plenty of cash, but we -- hopefully, we are not too much in trouble with the question of the interest rate, et cetera. If you look at what we have on our financial assets, it's mainly cash deposits . So it's not linked to the level of interest rates. A small part is linked to a level of interest rates, but we are not in danger even if interest rate grew in 2021 for our financial income.

Okay. Can I just follow up a quick one on the balance sheet? I think you said on your prepared remarks that the distributable reserves are only EUR 157 million. But does that effectively limit any additional cash returns? Or under French law, can you restructure the reserves?

No. I think...

Simple answer is no.

Simple answer is no. I can comment it a little bit more, but the answer is no way. We have looked at it. Then what we can do best to improve the return for our shareholders is to invest our cash and to make it profitable for every year for everybody. This is the best thing that we can do is to develop and invest.

Our next question comes from the line of Simon Davies from Deutsche Bank.

Three questions from me as well, please. Firstly, can you give us some color on what you've seen so far in terms of Q1 trading? Are we seeing growth rates in line with the run rate coming out of Q4? Second question is you talked about introducing personal identity requirements at point of sale. Can you just talk a bit about how that might work, whether you imagine there will be some resistance from customers? And is that something that you want to do? Or is that something that you feel that you have to do because of regulatory pressures? And what was my last question? Last question is just on Amigo, which is one of the most disrupted products through the COVID impact. Is that now back to the run rate from 2019?

Okay. So maybe I can ask Pascal to talk about Q1 trading and also maybe on -- one word on Amigo. And I will follow on identity requirement.

So if I begin with Amigo, Amigo is back on the level of activity we had in 2019. So we feared that the game could be damaged by the 8 month of a problem with the COVID that we faced. But this is not the case, and we are very pleased to see the game back to totally normal figures. So this is a good -- a really good news for us. And the second half of 2021 was in the direct line with numbers, very similar to 2019. Second point on the current trading. To date, we are totally on track with our guidance and what we expect. If we -- if I give some more colors about lottery and sports betting. Lottery is doing very well at the beginning of the year. We have some very nice launch of new products that we did notably on scratch cards at the beginning of the year, so it's okay. And the sports betting is at the level that we expect. But sports betting, you have to have in mind that the climax of the year will be at the end of the year. So the year will not be totally flat. We will have to wait a little bit to see what will bring the World Cup of the end of the year. So it's correct beginning of the year, in line with our budget. But we are waiting for better figures when we will have this World Cup at the end of the year.

Okay. So on identity on how we -- why and how we want to develop identification of our customer in the point of sale. Well, first, we think it's a long-term project. And this is not something which is going to be done in 1 year. This is something that we've been thinking of and looking at and see it as something that will be any way progressive because it's delicate. But on the other hand, we think it's a good project, not because it is compulsory. There is no obligation to do that at this stage at least. Actually, when we look in our environment to other gaming operators or lotteries, you would see that it's something that is happening progressively. Some countries are well ahead. In some countries, actually it is becoming compulsory, but after a period where it's been something that has been put in place through incentives on a voluntary basis. So it is something that I would say is in the air. And we think it's rather intelligent to anticipate that rather than to wait for this to happen maybe one day. We think also it's an interesting project because -- it actually goes with 2 objectives. One is a business objective, which is stronger customer relationship, which is, of course, value-creative. And the other, that is this stronger knowledge of your clients is -- also goes very well with the responsible gaming policies that we want to implement over the long term. So we really believe it's a very critical and strategic project. It's something that will have to be done, I think, on a progressive basis, as I said. And I think the main point to be dealt with is how you do that with your retailers. Because it's absolutely, of course, impossible to imagine to identify your customers in the point of sales if you're not in agreement with your retailers and if they don't see why and how they are -- actually, they get something for it. And on this, you've also got some examples around. So this is an issue that we need to crack with our retailers, but it will be done progressively. We have -- in our midterm guidance, we have a provisioned for some investment on that, even though we're not, again, actually deploying it. So this is something that will be done over the years anyway. So we'll keep you posted. Thank you.

What kind of cost could we be looking at?

We'll keep you posted. So at this point, I'm not going to give you more. It is embedded in our guidance.

Our next question comes from the line of Kiranjot Grewal from Bank of America.

Just 2 questions from me. Firstly, could you comment on the market share development for sports betting online over the last year? How has that changed from the prior year? Also, you've spoken about marketing expense bouncing around a little bit over the last year. If I think about the business going forward, how should I be thinking about marketing expense as a percentage of sales? Should it be stable? Or should it also decline or increase?

On the market share development of our online Sports Betting activity, it's not easy to answer your questions. As you know, we don't actually communicate this market share. And the main reason why it's not easy is that we have not actually had any release of actual figures by the regulator, which is supposed to give us -- to give a view to all market participants since they collect all the information. So our assumption is that we have actually grown a little bit our market share, but I will stay at this level of qualification because I'm not able to be more specific at this point. On the level of marketing expenses in the point of sale, Pascal, you want to?

Yes. In the percentage of sales, if you look at the percentage of sales, it should grow in the future as the mix online/offline will be more online and as we need more marketing expenses on the online activity. So we -- you should put in your model more marketing expenses in percentage of sales as the percentage of sales online is higher in the future. But on the contrary, you will have less cost of sales that will balance this provision for more marketing expenses.

Perfect. Just one follow-up question. I think last year, you said that you were looking for M&A in France for online sports betting but the valuations had gone a little bit crazy. I mean where are you seeing that now or really in the market, we're seeing valuations have pulled back. Is there a more comfortable position for you to maybe execute something in France?

We'll see. So it's -- again, there is no -- just there is no simple answer to your question. As I said, we are definitely still looking at opportunities to consolidate in the French sports betting market. So of course, it's a question of value. But it's a question also of the existence of -- the actual existence of potential targets. But that's, of course, part of our thinking. Thank you.

[Operator Instructions] Our next question comes from the line of Alexandre Gérard from CIC.

Congratulations for that good set of numbers. I have 2 questions, please. The first one relates to M&A dividend policy, I mean cash allocation, generally speaking. If you were to releverage yourselves by 2x EBITDA in case of a major acquisition, would that put your 80% to 90% dividend payout ratio in [indiscernible]? And related to M&A, can we have examples of assets or companies for which you have submitted a bid over the last 12 or 24 months? For example, I have in mind [ Sisal ], for example, in Italy, which was a EUR 2 billion deal at the end of last year. Is this a company that you have looked at? So that's my first question. And second question on governance. I know that you're doing a lot on the ESG side. But specifically on the G, many companies are splitting the roles between Chairman and CEO, which is not your case at the moment. Is this something that you might consider? And I'm asking also that question because your name has been cited as one of the potential candidates to become the Chairwoman of Orange. Can you confirm any comments on that?

Okay. So I guess I'm going to take all the questions, even the one that I'm not able to answer to. So on the first question, M&A and dividend. Of course, our guidance -- the guidance that we've given in terms of potential releveraging to do some M&A and dividend distribution are compatible. This is absolutely sure. This is what we -- this is how we structure it. So that -- I think that's one. So I'm -- I don't think that you are -- you -- I don't think that you expect me to give you the details of what we've been doing in terms of looking at potential targets last year. So we definitely look at everything that is happening in the sector and is around us. And after that, we submit or not bids. But as you know -- well, this is much more complex to be described than what you asked. So we've been looking at a number of assets. Sisal -- frankly speaking, Sisal, as I see it, is a company that is more -- well, not much lottery, a lot VLT and online casino. So it's quite different from us, just a little insight on that. On governance, for -- on governance for FDJ. Well, my shareholder, and specifically my Board, has been at this point -- has decided at this point to not to separate the role of the CEO from the role of the Chair of the Board. I have, however, and this is very, very important in the governance. I have an [Foreign Language]. I don't know the translation of that in English. I should know, but I -- it doesn't come to my mind right now, which is Mr. Pierre Pringuet. So we are, as a number of French companies actually, in that structure, which is very well, I think, accepted and very transparent and which has been communicated to all the, I would say, governance bodies and is well known. And again, I'm in the hands of my shareholder and Board, but not until probably the end of my current mandate, which is 2024. And I have no comments on the governance of other companies that I'm not part of. Thank you.

Thank you very much. We have no further questions in the queue. So I'll turn you back over to the speakers.

Well, thank you very much for all those questions. I hope that our answers have been interesting and gave you sufficient colors to what we said. Again, I think we were very proud to present those results and guidance to you, and we're looking forward, of course, to show you the results and comment on them further in the future. Thank you very much. Bye-bye.

Goodbye. Thank you.