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 Pascal Chaffard, Group CFO. Sir, please go ahead.

Thank you, Clotilde, and hello. Good evening to you all or good morning according to your time zone, and thank you for attending this FDJ Q1 2022 revenue presentation. You might have read the press release that we published after the closing of the market some minutes ago, and the presentation that I'm going to comment is available online in the Investors section of our corporate website. And I will keep this presentation brief to allow maximum time for the Q&A session. We can jump directly to the Slide 3. We had an excellent first quarter of 2022. Our revenue was up 14% to EUR 0.6 billion based on stakes up 10% to EUR 5.1 billion. This performance is based on a strong growth in point-of-sale stakes plus 12%, which we are very pleased with. It's true that the comparison basis with the Q1 2021 still impacted by the health crisis was favorable. If you recall, nearly 10% of our network was closed on average, mainly the bars and a number of shopping centers were also closed during at least the part of Q1 2021 and some curfews were imposed nationally. But our performance on the retail network is above all on this quarter due to the success of our commercial and marketing initiatives, which have well exploited the return to a normal footfall. Our players have totally resumed their usual gaming habits in a network maintained at more than 30,000 points of sale. Moreover, our performance on online is solid. Online stakes remain at more than 11% of total stakes. The slight increase is a good performance compared with a very challenging basis of comparison as Q1 2021 benefited from COVID situation and also from several long lottery cycles including a record EuroMillions jackpot of EUR 210 million. On Q1 2022, we had 0 high EuroMillions jackpot, and you know that high jackpots are an important vector of digital recruitment and activation. Our baseline online stakes reached in Q1 the level of last year's peak. All this confirms the 20% plus growth trend that we forecasted on full year. Our lottery and sports betting activities are both growing with revenue up 14% and 13%, respectively. We fully confirm our full year guidance, and you know that FDJ's financial performance cannot go without extra financial commitments, and we are very proud that for the fourth consecutive year, Moody's ESG Solutions has awarded us the highest sustainability rating, namely A1+. If you move to the next slide, Slide 4, give -- this slide gives you an additional element regarding our Moody's ESG Solutions rating. With A1+ rating, FDJ is ranked among the top 5% of all about 5,000 companies rated by Moody's ESG worldwide. With a score of 72 out of the 100, we gained 2 points versus last year's rating and 6 points versus that of 2 years ago. FDJ ranked 15th in the world and first in the hotel, leisure goods and service sector. FDJ ranks well above the hotel, leisure goods and service sector average of 32, 35 and 45 out of 20 -- out of 100, respectively. Our 72 out of 100 score can be break down (sic) [ broken down ] in-between 70 over 100 on the E, 74 on the S and 69 on the G. Let's come back to the Q1 revenue and stakes, and we are now on Slide 5. Our revenue increased by 14% to EUR 613 million, with a double-digit growth for both lottery and sports betting. Based on stakes up to 10.2% to EUR 5.1 billion with a different situation on lottery plus 15% and sports betting minus 5%, I will detail lottery and sports betting on the next slide. I have already commented on stakes by channel, U.S. increased by about 12%, precisely 11.5%, and online stakes increased by 1% versus again an exceptional Q1 2021, and I will also come back to this just on a few slides. Now we are on Slide 6, and let's have a look at the activity by business unit. First, with regard to lottery, revenue increased by 14%. I told you that broadly in the same proportion as the stakes, which increased by 15.3%. Draw games increased by 9.5% with Amigo reaching a higher level of activity than before the crisis, about minus 50% last year Q1 2021, but plus 150% in Q1 2022. Second thing on the lottery. Instant games continued to do very well, plus 19%, thanks to the success of launches and relaunches during the quarter, 3 successes in a row in this quarter, Baraka in January, then Cash in February with a record level of stakes and finally, 3 in 1 in March. Now we look at sports betting. The revenue increased by 13.4% while stakes fell by 5.2%. This situation is explained by the persistence since the end of November 2021. It's more than 4 months of a low player payout ratio related in particular to an expected sporting results, mainly in football. Q1 2022 player payout ratio, PPO, is 4 points lower than Q1 2021. This is good in the short term of the GGR and the revenue. But as the players lose more frequently, they place less bets. In the longer term, this could have an impact on the number of players. Nevertheless, this situation should normalize. We are used to succession of high and low PPO cycles. Our performance compares favorably with other operators that have disclosed their Q1. For example, 888, Entain or Kindred. And on sports betting, as for the rest of the market, the key of the year will be in Q4 with the football World Cup. So we will have to wait a little bit. If we move to Slide 7, let us now consider for a moment the online activity. Here, you can see the quarterly history since the beginning of 2019. In 2019, the online share of total stakes was 6.5%. The following year, in 2020, it rose to 9.6%, thanks to a very strong increase in online activity, up 40% and over EUR 1.5 billion on online stakes over the year. The lockdown and curfew are linked to the [ fragile cycle ] have been the catalyst to the results. We have explained that many, many times. But as we said before, the strong growth was enabled by FDJ's strategic investment in digitalization and the offer -- of the offer in its IT systems. This momentum continued in 2021 with growth of 42%, hence online stakes representing 11.4% of total stakes. In Q1 2021, this quarter was marked by a very -- marked a very high basis of comparison with a long Loto and EuroMillions cycles. And the effect of the [ F prizes ], this is not a surprise. It was anticipated in our forecast, except the lack of long cycles in Q1 2022, we are far below average. Nevertheless, despite the lack of long cycles, the level of stakes in Q1 2022 exceeded that of Q1 2021. Thus Q1 2022 is the second best quarter ever achieved with EUR 575 million in online stakes, a very good performance that illustrates the strength of the online base. As an example, we had in Q1 2x more new players than in Q2 2021. What was once the peak has become the bedrock now. The comparison basis will be far more favorable in Q2 and Q3, as you can see in the slide. And statistically, we can expect more high jackpots. For example, this Friday, tomorrow, EuroMillions reaches EUR 124 million. This is the beginning of a high jackpot cycle. Again, we are confident on a 20% plus growth in the full year. And given the excellent performance recorded at points of sale, the online penetration rate stood at 11.4% over this quarter, stable year-on-year, which is also a very good performance. If we move to the last slide and to conclude. I would simply like to express again our confidence in achieving our 2022 objective both in terms of revenue growth and EBITDA margin and remind you our long-term commitment to profitable and sustainable growth for the benefit of all stakeholders. Before we start the Q&A, maybe a few words on our financial calendar. Our Annual General Meeting will be held in a few days on April 26. It will be our first face-to-face real-live general meeting. It will be hybrid, so also available online. Shareholders will be asked to approve a dividend of EUR 1.24 per share for the 2021 financial year with payment on May 4, and our next meeting will be for H1 results that will be presented on July 28. So thank you for your attention, and I'm now ready to answer your questions.

[Operator Instructions] We have one first question from Mr. Ed Young from Morgan Stanley.

My first question is on the online stakes growth. You said you're still confident of getting to the 20% mark for the year. I think that implies high 20s growth from here. I understand the comparison basis is more favorable in Q2 and Q3, but there are also obviously seasonally sort of lighter quarters for sports betting. So outside of long cycle, is there anything else to bear in mind for why given it was up, one -- I appreciate your comment about making a bedrock now, but is there any reason why we should be expecting high 20s growth for the remainder of the year? Or do you expect any Q4 phasing into the World Cup? Or is there anything we should think about in terms of that phasing?

Okay. So maybe I will split my comment on sports betting and on lottery because long cycle things and so on is relating to lottery and not to sports betting. So if I focus first on lottery. Yes, we have reached this quarter the level that we had reached last year, but last year was really boosted by long cycles and this year we had no long cycles. And this is why I say I'm confident because the baseline of our activity is 20% higher than it was last year if we take the same level of long cycle. And if you look at the Q2 and Q3 2021, you will see that they are far below the level reached in Q1 2021. So even if we have no long cycles in Q2 and Q3, this is [ unprobable ] (sic) [ improbable ]. We will get 20% more growth on those quarters just by doing the same thing that we have done in Q1, and it will be done for sure because what we have done in Q1 is really the base -- the new minimum base that we can do on the online lottery. So we are not worried about that, and we will have surely some long cycles in Q2, Q3 and Q4. So it will add some more business for sure. It's statistically probable, at least. And other point, we are working hard on our CRM, on our recruitment, on our game play, on our old things. And all that will reinforce month after month the strength of our business on online lottery. So really, we are very convinced and very positive about the fact that we can achieve this 20% goal on the lottery online. As I said, we had anticipated a growth less than average on Q1. We knew that this Q1 was not a favorable comparison basis. It was on our models, so no worry about that. On sports betting, it's different. We had a growth in online stakes in Q1 on sports betting online. I spoke about globally less -- minus 5% on sports betting stakes, but it's a little bit more decrease in sports betting offline and it increased its growth on sports betting online. So no worry about sports betting online. And we know that all the year will be done at -- on the second half of the year and especially on the Q4. We will also be boosted in Q4 by the launch of our poker offer, which is -- which we are working on and we announced that we will launch it before the World Cup and it will be done. So this will also help us to achieve our goals in 2022. So no worries on lottery and no worries on sports betting.

Okay. And second question. I appreciate this is a revenues call but just thinking through one of the things you said drove the strong momentum at points of sale was the return of the marketing and sales initiatives. And we've also got a lighter than average number on line mix, if you like, for the year in Q1. Does that all suggest as we're thinking through to the H1-H2 split, that might lead to a sort of lighter margin in H1 versus H2? Is that also a fair way of thinking through how the year might look?

It's complicated because I do have the figures of the margin of Q1, but we don't disclose the margin quarter-by-quarter. But what I can say for sure is that we are not late on our current trading on margin on Q1. There is the question of the mix online/offline. Yes, but there is also another very interesting point, which is the operational leverage driven by the level of activity, which is very high. So globally, we are on a good trend on our margin at least to do our guidance. So no worries about the level of margin despite the fact that the split online versus offline is less favorable to online. We do have more -- a higher level of margin online, it's true. But offline is very relative. If you look at the additional contribution of additional revenue when we make EUR 100 more stakes in points of sales with the same types of products, it's quite very relative. So no worries on the margin on Q1 and on Q2. We don't expect any problem. On the global year, maybe if I can just comment that because I think it will be one of your questions further. You may ask us about the impact of inflation on our cost base on 2022. It's -- globally, there is an impact, but it's globally very low and totally absorbable on our level. We are protected by contracts that picks the prices of, for example, the tickets and other things like that on all the years. So we will not be impacted in 2022, at least not impacted. We will have some impact, but it will not be seen on our level of margin in 2022.

You've anticipated it well. That's helpful. I guess I'll ask finally, another one inevitable question, perhaps it will be a short answer. But I wonder if you could tell us if there are any updates on the timing of the European Commission investigation?

We don't have any new information. What we can say is that French State has answered again to the European Commission because France answered first time in November. Then the full inquiry -- full length inquiry was published. Then FDJ and the other people concerned have answered to the European Commission by the beginning of the year. And the state had the information of what answered the other people and have answered again in April. What we aim -- what we think that could be a good timing is before the end of the year and H2. We think that it could be H2 2022 for -- to have a decision.

Next question is from Madam Sabrina Blanc from Societe Generale.

I have just 1 question. It's regarding the AGM and the proposal of resolution concerning the statutory reserves. So I would like to understand what's happened to the source the reserves. And what that means that potentially in terms of share buyback?

Okay. Let's talk about the statutory reserve. This reserve is no longer very useful as it is supposed to protect the shareholders from some bad experience of FDJ, bad level of -- for example, statistics in draw games and so on. But if you look at the situation, we had, since the IPO, an assurance -- an insurance that is protecting us from problems related to counterpart subjects, for example, on Keno or on other games like that. So it's no longer very useful. And if you look precisely at the way it has been set, we have the obligation to rebuild the statutory reserves as soon as we use it. So it doesn't -- it's no use, really no use. It's something like a little bit less than EUR 100 million. It gives us some room, yes, to be able to distribute this money or -- and it's more like that. For example, if we do some M&A, we could have -- we don't want to be -- to have difficulties to serve 80% to 90% of our dividend each year, and it gives us some more room to work with the results. Because you know that when we do M&A, you may have 1 or 2 years to get the cash from the target and be able to distribute the results that have been accounted for on a consolidated basis, but it has to be accounted for on a statutory basis to be able to distribute it. So it's more technical than a big thing. And clearly, it's not a way to propose a share buyback. As we said before, we don't have a lot of money to make share buyback. We now have potentially EUR 100 million more, but we still are committed to use our cash to do M&A than doing share buyback. We gave an interesting positive sign to our shareholders on the level of distribution because we move from 80% -- to a range from 80% to 90%, and we think this is a good way to have this balance between an interesting distribution to shareholders and also the investments and the development of the Group.

Next question is from Mr. Simon Davies from Deutsche Bank.

Two from me, please. Firstly, I was just wondering, have you seen any signs in latter part of the quarter of softening demand from consumers, given the current squeeze in discretionary spend across Europe? And secondly, you talked about your online poker launch in the fourth quarter. Online poker has been a very challenging product vertical for a number of the other operators. I was just wondering what you think you're going to do to differentiate yourself, and how material do you think online poker could become, i.e., what would you view as success in this product launch?

Okay. On your first question, we don't see any problem on demand. If I well understood, you were asking if we see some problem on demand on our product caused by the recent crisis. This is -- I have well understood your question. This is that?

Yes, absolutely.

Yes. Okay. Okay. So we don't see anything to date. It doesn't mean that we will never see nothing. It's really too soon to be too affirmative. What I can say is that our model is a -- in a cyclical model. We have proved it for the [ 30 -- last 3 ] years. France has faced some economic crisis since -- for the last 30 years. For example, the 2008 crisis, worldwide crisis, and we haven't seen any impact, no positive or negative on our activity of those crises. I must say one thing is that in France, those type of crisis are a little bit, how can I say...

Softened up?

Yes, softened because of the [ wealth of state ] France, if I can put it like that. So we did not really, in the last 30 years, suffer from a very deep crisis in France. No deep economic positive cycles, on the contrary. But this kind of cushioned crisis, if I can say, is what we have faced in France since 30 years. So if we have to face those kind of crises, we know that our model is very resilient to that. And our model is resilient because it's a very large number of players, 25 million, that play low stakes. This is very different lottery from gambling from other type of gambling, if we had at the moment of the 2008 crisis looked on across Europe to the consequences of the crisis. And it is true that lotteries resist far better than other types of actors with higher stakes -- less players playing higher stakes. So we are quite positive because we know that we are resilient. What we don't know to date, and it will be [ foolish ] for me to say that we can resist to anything. We don't know what we will face, and I cannot say that we can resist everything. But we know that the crisis that we have faced in France for the 30 last years, we have no impact on our activity. This is, we think, a very good thing for us. Maybe the kind of effect that we can have is 2 kind of consequences, maybe I can comment this. One is consequence of purchasing power, which is what you commented. The other that you can ask us is the impact of the inflation on business. If I explain it, we cannot raise the prices of our ticket. This is not very easy to raise the prices of cash from EUR 5 to EUR 5.5. So you can think that we are not very easy to adapt our products. This is not true. This is not true because what are doing our customers, they are buying a basket of products, so they can arrange their basket of products, first. Second thing, we have a large range of products from EUR 1 -- less than EUR 1 to EUR 15 and they can choose the kind of product that fits the most. And this is why since several years the core price of our Instant ticket is now EUR 5. It was EUR 2 15 years ago. So it can move now to EUR 10 if the inflation is there and we will adapt by launching products with higher price points. On the sports betting, there is no problem because you choose your bet, so no problem. And on draw games, no problem because it's very rare that you buy only 1 grid. You buy a number of grid, so you buy a number of EUR 2, the average number of grid bought is [ 3 to 4 ]. So this also can adapt. So we don't have any big problem of adapting the prices. It will do -- it will be quite automatic.

Great. That's very clear. And what would you view as success in terms of the launch?

Sorry, sorry, the poker. So yes, yes. To be clear, we launched poker to be an add-on activity to the sports betting. What we have -- what we think is that it's mandatory to be an actor in the French market to offer more than 1 activity online. It's mandatory, because this is a demand from the players. This is a condition to have a player -- for a player to choose our platform as its main platform. If we don't have any poker or -- but it's less important or sports betting, it's a problem but poker is a problem not to have it. We are the only actor which has not poker in its offer in France. So this is why we are doing this move. We are doing this move not by investing a lot in the poker platform. We will connect to a B2B poker platform already present in France and -- which have already a number of players. We will not operate directly. We'll operate via our supplier. So there is no risk, no important -- no financial nor operational risks for us. So it will be just a cross-sell between sports betting and poker. We don't have big expectations on the level of market share that we can have on poker. It's really the fact that we want to propose our sports betting player the capacity to play also poker, to better retain our player on our platform and also to upsell their spendings on our offer. And those things are important for the economics of the activity. Did I answer your question?

Yes, absolutely. What platform are you moving on to?

We don't have disclosed it yet. We will do it, I think, in -- at the moment, when we will do the file for the [ ING ] but ask a license for the poker, we'll do it -- at this moment, I think, maybe end of H1, but we have not disclosed it yet. But what I can say, it's a very well-known platform internationally. The question for us was not to take any unuseful risk on this activity.

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

So it seems there's no further questions. So maybe Pascal, if you want to conclude the call.

Yes. So thank you for attending this call. I think you are convinced that we have very good performance in this Q1. We will do, I hope, the same thing in Q2, and we will speak again at the end of Q2 to disclose our H1 results, and I hope and I'm positive that they will be very, very good and very positive for the Group. And maybe you will connect to the general meeting on April 26. So I say -- I'll see you at this event physically or digitally. Goodbye, and thank you very much for your time.

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