FDJ United (FDJU) Earnings Call Transcript & Summary

Hello, and welcome to the FDJ Q1 2024 Results Call. My name is Karen, and I will be your coordinator for today's event. [Operator Instructions] Please note, this conference is being recorded. And I will now hand you over to your host, Ms. Pascal Chaffard, Executive Vice President, In-Charge of Finance, Performance and Strategy to begin today's conference. Thank you.

Hello, and good evening to you all. You might have read the press release that we published at the closing of the market a few minutes ago. The presentation that I'm going to comment is also available online in the Investors section of our corporate website. I will present the key elements of the Q1 2024 FDJ revenue, and then you will be able to ask all your questions. So if I start right now by the Slide #3 of the slide show that has been released. During the first quarter of 2024, our revenue amounted to EUR 710 million, an increase of 7% versus Q1 2023 published and plus 1% on a comparable basis, i.e. excluding the acquisition of ZEturf at the end of September 2023 and PLI at the beginning of November. This growth is totally in line with our expectations and also in line with our annual projections shared with you mid-February. Gaming revenues in France, i.e. lotteries, plus sports betting off-line plus online gaming open to competition rose by 3% despite a high business of comparison, excluding Amigo, this growth would be over 5%. In other activities, revenue came to EUR 65 million versus EUR 37 million in Q1 2023. And this increase is more than 77% is due mainly to the integration of PLI. The momentum on online gaming remains very strong with revenue up by more than 20% organically, i.e. excluding ZEturf and PLI and up by more than 30%, including everything. The digital penetration accounts for almost 15% of gaming revenue. This performance was driven by both sports betting and lotteries. I will go into more detail in a moment on those figures. And also as an introduction, I will add that the 39-week tender offer for Kindred launched on February 20, remains subject to regulatory approval. I'll come back also to this later. If I now move to the next slide. It shows a breakdown of revenue by activity, and I'll explain in the next 2 slides first on the lottery and then on sports betting and online gaming open-to-competition, what is important to know about it. Note that as the lottery revenue growth, excluding Amigo being above 4%, it leads to a total group revenue growth close to plus 10% comparing to the 8% yearly guidance. So next slide, talking about the lottery. About this activity, revenue totaled EUR 504 million, plus 1%. And as I just mentioned it, plus 4%, excluding Amigo. This performance was driven by instant games, thanks in particular to animation of the games portfolio, notably a new launch called Ticket d'Or that you can see on the slide, launched at the beginning of January and which had a lot of success. The draw games activity was down 3%, which was expected given the unfavorable base effect on Amigo with new formula, as I recall, was launched in June 2023. The Q1 performance of 2023 was therefore based on the former formula of Amigo, and the decline in activity for this game has stabilized since June 2023, as we already reported. And as illustrated by the graph on the right-hand side, depicting the average monthly stakes per PoS are showing that it has been stabilized, even a little growth in Q1 2024. On the digital channel, our business is very dynamic with revenue of online lottery games by almost 20%, driven in particular by the digitalization of EuroDreams, whose digital penetration rate is over 35%, which means it is 10 points higher than that of Euromillions and Loto, which are the better performers regarding digital penetration of all our games. But this success of online on this Q1 is also linked to instant games and to online exclusives that performed very well. If we now look at the next slide, which talks about sports betting and online gaming open to competition. The revenue amounted to EUR 141 million, up 10% and up 1% excluding the integration of ZEturf. The performance is noteworthy given an unfavorable Q1 2023 basis of comparison in 2 respects. First, Q1 2023 benefited from the fallout of the Football World Cup, which took place at the end of 2022. As a reminder, we had a huge success number of new players at this World Cup event that continued to play on the first part of the year last year. And secondly, it also benefited from a greater number of championship days as the calendar was adjusted post World Cup, as a reminder, to be able to organize this World Cup in November and December, some events have been done priorly and some events have been postponed port World Cup and we had benefited from that in the first quarter of 2023. On the online part of the online gaming union, the online business is buoyant with online sports betting, namely corresponding revenue up by more than 25% and driven by the intrinsic diversion of the offer, but also by the attractiveness of the poker offering with now nearly 20% of online sport betting players also play in poker, as you can see on the slide. And we are very happy with the poker performance really, very good as such, but it also encourages cross-selling, helping to reduce churn and boost the stickiness exactly what we set out to achieve. And on the next slide, some words about Kindred. And as I said at the start of the presentation, the Kindred tender offer launched on January 22 was opened on February 20 for 39 weeks, i.e. a closing date very precise on Tuesday, November 19. It remains subject to regulatory approvals, including the authorization from the French Competition Authority. And at its general assembly on March 15, Kindred shareholders approved the amendment to the company's bylaws to allow a squeeze out above 90% capital ownership threshold. On March 28, FDJ exercised its preemptive rights linked to Veralda irrevocable commitment and acquired 1.12% of Kindred shares at a price of SEK 122.5 per share. The irrevocable commitments made by 4 main shareholders, namely Corvex, Premier Investissement, Eminence Capital, Nordea and Veralda, now represents 26.82% of Kindred's capital. So globally, everything is on track. Maybe to conclude on Kindred and regarding the motions voted yesterday by the Dutch Parliament as of the [ preventative ] that you may have noticed. Let me share with you the following. Firstly, we are talking of motions. It's 2 out of 5,000 yearly on average, which must be addressed by the [indiscernible] to see if they deserve being turned into law proposal and motion are not legally binding. And it's clear that more than Europe to Dutch market opening or liberalization, the local regulator and the ministries are considering what is the right level of regulation, which, of course, can be the current one. And regarding further advertisement band for online gaming, we do not consider it materially impactful. And as you know in each such case, it clearly benefits market leader, and you know that Kindred is a clear market leader in the Netherlands. Regarding banning high-risk money games, not to say slot games, this will just be a dramatically backward and would open the door again to gambling via illegal, unregulated offers or operators. And the Dutch Ministry has already stated that it did not agree with such a ban. So in conclusion, ultimately, it would be a very long process, an unclear outcome at this stage. And to some extent, related to the ongoing political changes in the Netherlands as in Parliament, 3 of the 4 main parties expected to be part of a new government voted against these motions. Regarding the slot games ban, it really would be surprising to see such a backward move in the wake of the market opening as it contradicts all the objectives, channelization, player protection and tax revenue. Everybody acknowledge that regulated operators are committed to player protection and channeling play to authorized practice. And you know our clear commitment on player protection also. So as of today, most of the foreseeable impact seems to be factored in the current guidance and expectations. So what I can say to conclude really is stick on and carry on as would have said some famous British Prime Minister. So on the next last slide, a word about our upcoming meetings with investors. Our General Meeting of Shareholders will be held in a week's time on April 25 at 2:30 p.m. CET. At this meeting, shareholders will be asked to approve a dividend of EUR 1.78 per share for 2023. And as a reminder, it's a dividend up 30% on the dividend paid for 2022, and this dividend will be paid on May 7. Our H1 results will be published on Thursday, July 25, after the close of trading and just before the beginning of the Olympics in Paris. To conclude, I would simply like to express our confidence in achieving our 2024 objective with, if I recall, revenue growth of around 8% based on a growth of around 5% in our lottery and sport betting business in France as well as online gaming open to competition and a recurring EBITDA margin of around 24.5%, in line with our 2025 target of an EBITDA margin of at least 25%. I thank you very much for your attention, and I am now ready to answer your questions. Thank you.

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

I've got 3 questions. I did have one on the Netherlands, but Pascal was extremely comprehensive. So a very useful answer on that. The first question I had was on your online performance. As you say, was notably stronger than it's been in the past. I think if we go back to thinking about how you framed maybe some of the more challenging period on online, you've said that you raised a lot of your customer acquisition was maybe reliant on high jackpots or long cycles, however we phrase it, to generate interest. But it seems like EuroDreams maybe in particular, has really helped grow that. So can you talk a little bit about if that's the right way to think that, that's been the main difference or if there are other things about your acquisition into online lottery or cross-sell from that, that's helped place that business to a much stronger growth rate? That's my first question.

Okay. Yes, what we can say that you're right, EuroDreams is helping stabilizing a high level of activity online, not depending on the jackpot phases or Euromillion. This is true. Secondly, we have a stronger and stronger instant games offering. And last year, we had a very heavy growth on the instant games, and we still have a very big growth in instant games, and they do not directly depend on the Euromillion jackpots. So this is the result of the work that we have begun 2, 3 years ago, and we have expressed that publicly to you, our analysts and investors that we will try on the medium term to be less dependent from EuroDreams. But I have to say also that the basis of comparison of the first quarter of 2023 was solid, but not exceptional. And last year, we had some quarters where we had to compare to exceptional levels the year before 2022. So it was solid yes, the Q1 with quite good results last year, but not exceptional. So when we do not compare to exceptional periods, as we have also communicated previously, the intrinsic growth of our online lottery is something like mid-teens and we are a little bit over mid-teens this quarter. So it's good, but it's in line with what we expect in average if we do not have exceptional events.

Very useful. My second question was if you could perhaps help quantify the Euro's benefits coming up in June and perhaps to a much lesser extent relevant, but maybe asking in the same way, Olympics. Obviously, we had World Cup, but it was sort of a different calendar and a different event. So I wonder if you have any thoughts about how we think about the potential benefit you'd get in Q2 and into Q3?

Yes, yes, it's a good, interesting question. So if you recall what we said about the World Cup of 2022, which is a good point of comparison, this World Cup had an impact of something like 6% of the yearly GGR. So we can expect an impact of this kind of level. What is less interesting than the World Cup is that we have a lower number of events of matches as we have less competitors in the Euro than in the World Cup. This is a negative element. But the positive element is that it's more likely to drive additional business as the World Cup in November, December was placed at a moment where the offer was really good, even without World Cup, to have a European championship in June, July is a good thing, especially for the point of sales as the offer is quite weak at this period. It's less the case on the online offer that is more complete. But on the point of sale, it is okay and this is a good thing. So you can expect maybe or something like your 300 million stakes on the type of event like that. And the revenue will depend on the level of the payout, which is quite uncertain and will depend also on the fact that France will go to the end of this competition or not. But even if France goes very far in the competition and the payout is very high, we have 6 months to normalize it after that. And we will, for sure, take the opportunity to recruit a lot of new players at this moment. So it will be, in our case, a good thing for us. And one word about the Olympics. The Olympics is clearly less attractive for our players than can be Euro. Maybe if I can do some comparison. We expect for the Olympics something like we had for a World Cup of Rugby, for example. But the we have something like 1/10 of the level of European or a World Cup of Football, something like that. But we think it will be more significant than it has been in the past, but still, it's only 2 weeks, and it's mainly sports that have not a huge base of experts apart from basketball or football or some sports like that. It's not the same as a European championship of football or World Cup.

My very final one, I apologize. I know it's a customary question, which will get a customary answer, but I have to check, have you got any update on the European Commission investigation?

If I want to be short, I can say just no. No, but we still are in the same position that we had 2 months ago during our 2023 full year communication, saying that we cannot be sure of that. But we expect that we get an outcome before the new commission will be put into place at the end of the summer being a back-to-school period. As we have understood that they expected to put this file behind them and not let it treat by the new commission that will be put in place back to school in September. [Technical Difficulty] Very important what [ Mark ] says, gut feeling, but no commitment really, we don't have any impact on this decision. We would think that it would be a good thing and logical. But is logical is something [indiscernible] of investigation...

Understood. So you sort of have your thoughts.

Our next question comes from [ Andrew Tan ] from [ Ribbit ] Atlantic.

It's kind of jumped on most of my ones. But just in terms of the potential bad for online slots, can I just clarify, are you saying you're describing 0 probability for that to potentially come in? And I guess my question is, should that indeed actually come to pass? Does that change your views on the Kindred acquisition?

Yes. So clearly, no, it is not changing our views on the Kindred acquisition. We have to be prepared to have some backwinds in certain jurisdictions. This is a nonevent really because it's just a motion, as I explained. And this motion is clearly not consistent with what has been put in place quite recently by the Netherlands government. And as I said, I think if we come back to the objective of what did the Netherlands government, they wanted to channelize the consumption of online game into a channel with regulated and controlled offer and operators. They wanted to have a better player protection with a regulator making sure that everything is done correctly to prevent game addiction. And thirdly, they expected some tax revenue, if they choose at the end prohibition, they will lose on all the 3 aspects. So it's totally un-consistent. So this is why we think that we should take on, as I said, looking at that. It's for us more a nonevent. And we will have some because in some jurisdiction, you will have people that are against gambling by nature, and they would say things like that. But just back to reality and back to objectives, it will be really un-consistent.

Got it. No, that makes sense. And just a side question related to it. Obviously, there are still customer deposit limits that are still meant to be moving. Kindred has been curiously silent on this. Does this mean that there's a little to no impact on the Kindred business or your views on the profitability of that business going forward?

Yes. On the deposit limits, we have factored what requires the regulation of Netherlands. We know also that there is some discussion put in place to do more about affordability checks on customers. very difficult to have a view on that as it has not been disclosed precisely what they want to do. What we can say about that is that having a better player protection is not a bad thing for us and we think for Kindred and for us with Kindred tomorrow. So today, we don't expect any downward or problems linked to that. But again, let's see precisely what the government want to do with affordable checks, et cetera. We don't know precisely what they want to set, but really on this point also keep come. And again, the position of Kindred in Netherlands is a good position as it's a position of leader. They are, I think, would be the less impacted if something happens in this jurisdiction. And again, our positioning Kindred is doing what they want today as we are 2 different companies at this stage. But when FDJ will be there, clearly, the positioning that we want this company to have is clearly protect the players and protecting the players, we think is the good strategy for a sustainable medium-term growth.

Got it. And then just finally, just in terms of the change in the macro environment and the potential for the interest rate outlook, does that change your ability to refinance the bridge in relation to Kindred deal, and does that change in the accretion guidance at all?

Yes. We really don't fear anything refinancing the bridge. Currently, what we have done is syndicating the bridge that was put in place with the 2 banks and we had 1.5x the money that we need for the refinancing, we had to choose between a number of banks that were fighting to be part of the syndicate, and they wanted to be part of the syndicate because they wanted to be part also of the takeout after that. Today, we are in the position of hedging the ForEx and the interest rates, nothing really bad for us, and we still are very confident on the fact that we will be able to refinance in a good way this bridge as soon as we will take control of Kindred...

Significantly at a lower rate than the one we have taken in our business model projection and the projection we've shared with you on the 22nd of January.

Yes, we have been cautious and the tax rates are going in direction. Interest rate, sorry. Interest rates are going in the right direction, and we expect some good news.

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

So can I just confirm within your expectations for Kindred, you've made no changes for the latest regulation. And in the context that you do is [indiscernible] shut down. What do you anticipate impact to be?

What I said is that we don't expect finally that slots in the Netherlands will shut down. So we don't take this potentiality into consideration as we think this is totally un-probable. What we factored in the business plan is that we know that the number of jurisdiction of regulations that are more and more demanding. For example, we know that in the U.K., we have to comply to white paper that is in timing much more control, much more limits on the different players. It's the same in the Netherlands with the limits that are going down. And we thought that it was good in the Kindred strategy is that they have made their revolution, if I may put it like that, not basing their core business on high roller gamblers, but on medium-sized gamblers, which is much more safer regarding the potential changes on regulation. To have regulations that are demanding more and more is the base of our business. It's the case also in France. And our job is to navigate these changes in the regulations with no downwards on our growth expectations. It means that we have to do good business with our clients and business with clients that are not in a risk of addiction. This is a commitment that we have taken already in France, and we are doing that. And we have seen last year in France in our activity that we have been able to, at the same time, grow and lower the level of players that are high-risk players. So this is clearly our strategy. And this strategy, I think, is a good mitigation of the regulation risk on different jurisdictions.

Our next question comes from Johanna Jourdain from ODDO.

2 questions on my side. On the Kindred proposed acquisition, where do you stand in the process, in particular on the discussions with the antitrust authorities in France and in Poland? And my second question, still on the Netherlands regulation. Does that bans or those bans could change your view on the acquisition of Kindred. So you have already answered that, but resulting the usage of a material adverse change clause, for instance, to amend the price that you have already proposed.

Okay. So on your first question where we stand regarding the antitrust notification. We are in the right path. We have done all what we have to do prenotification very quickly after the announcement. And we are in France, which is the main subjects into this period of prenotification, it was like that in France. So we answered those questions from the antitrust and at this stage, no problem that we have on this path. And we still expect that we will have a positive outcome at the right timing in the open. So yes, I will say exactly the same thing that I've already said on the Netherlands. Again, we don't think that it's really credible to forecast a ban on online slots. But yes, we have such [ MAC ] circumstances that are having a material adverse effect. But really, it's not the point now to envisage this kind of atomic bomb thing. But yes, we have done what is needed. But you know also the difficulty to put in place those kind of elements. On Poland, we had the [indiscernible]. So the subject is France. And again, it all is going on as it is expected...

Poland was [indiscernible].

Yes.

[Operator Instructions] We have our next question from Andrew Tan from Ribbit Atlantic.

Just a follow-up to that last question. I don't think I've quite heard correctly. Can you just confirm that there are indeed material adverse change clauses available to you? My understanding was you could not pull out of the acquisition, but there are causes available to you. Is that correct?

Yes, we have a MAC clause in our deal. But again, usually, it's very hard to put it in place. So don't be too optimistic about that. And I actually don't think that we will have to go there. Again, we think that the probability of an atomic bomb falling into Netherlands is very low.

We are very far from reaching this stage.

Yes. [indiscernible] at this stage.

There are no further questions in the queue. So I will hand you back over to Mr. Pascal Chaffard to conclude this conference.

So thank you very much for your attention tonight. I hope that we have correctly answered all your questions. And I will be happy to see you physically or maybe online at our AGM next week. And I will also be happy to comment our H1 results by the end of July. So have a good evening, and see you very soon. Goodbye to you all.

Thank you for joining today's call. You may now disconnect.