Earnings Call: Q3 2021

Oct 14, 2021

Ladies and gentlemen, thank you for joining us for the FDG conference call. I'll now hand over to Mr. Pascal Chafa, Executive Vice President, Finance and Strategy. Sir, please go ahead. Thank you. Thank you very much, and good evening, ladies and gentlemen. CFO. Thank you for connecting to this call. I hope that soon we will be able to see you in the real world, if I may say. You may have read the press release that we distribute after the market close. And also the slideshow I'm going now to Citi. And today, we will review our revenue for the Q3 and the 1st 9 months of 2021. My presentation will be shorter, something like 10 minutes to allow maximum time for the Q and A session. CFO. Maybe before we start, please, it's important to note that the Q3 commentary will be made versus 2020, Which is a valid comparable basis as Q3 2020 was barely not affected by the health crisis in our activity at least, While the 9 months commentary will be made versus 2019, which is the more coherent reference point given the air crisis. So now we can move to the next slide. The good momentum of our activity during H1 has continued in Q3 and And our full year outlook is confirmed. It's fully confirmed. Revenue growth continued in Q3 on all activities and Solutions. Plus 5.1 percent versus 2020. During the presentation of our half We informed you that all our point of sale were reopened from the beginning of June With what we call the usual schedule of promotional activities and sporting events, in fact, we can now consider that our business environment is normalized. We have even a few more point of sale than before the crisis, more than 30,000 point of sale, thanks to Strategy opening of new point of sales, while the number of point of sales that has closed is lower than before the crisis. We remain Chief Financial Officer. Very vigilant, and we will follow in the coming months the evolution of the situation in the context of the end of the government aid. CFO. This normalized environment made it possible to confirm the return to growth of the point of sale with stakes up 2% year on year and Chief Financial Officer in Q3 and up 5% if we compare it to Q3 of 2019. At the same time, As we emerge from the health crisis, the performance of our online business is stabilizing at a very good level, plus Strategy 20% in Q3. For online Lottery alone, the increase was 28% in the 3rd quarter after 51% in the first half. This growth is very sustainable as it is mostly driven by the increase in the number of players. On the basis of our performance to the end of September and the stability of the health environment that we We are confident that we will be able to meet the 2021 objective that we announced on the 29th July and I will come back to this shortly at the end of my presentation. If we move to next slide, Chief. Those are the key figures. In Q3, revenues amounted to EUR 529,000,000 growing by, as I said before, 5.1%. The stakes have been has risen by 3.6%. The evolution of the player payout ratio, what we call the PPO, Chief. A lead to this difference in performance between revenue and sales. In the Q3, decrease in the PPO compared to the Q3 of 2020 implies a faster increase in revenue. However, in the cumulative landmark period compared to the end of September 2019, The increase in the PPO relates to a slightly lower growth in revenue. The variations in the PPO are mainly attributable to Sport Pating, as you know, Stifel. Who is the own PPO and relative weight in total stakes can fluctuate. The 9 months growth in revenues amounts to 7.6% versus 2019. And if I I give you the figures versus 2020. It would be 19.1% versus 2020. Stakes are up 8.9% versus 2019 and 21.5% versus 2020. If we now look at the 1st the 3rd quarter alone, the group's revenue was up 5.1%, As I just mentioned, an increase driven by all activities on the basis of a 3.6% increase in stakes. Lottery revenue rose by more than 4% to EUR 418,000,000. This growth was driven by 5.6% increase in stakes. Eastern games were up 8%, thanks in particular to the 4th Our National Heritage Games and Pro Games also performed well up 2%, thanks In particular to Lotto, which benefited from long cycles with a record jackpot of EUR 26,000,000 in September. Online lottery stakes continue to grow, plus 28% and represents 10% of total lottery stake. Chief. This performance is, as I said in the introduction, totally responsible as it is mainly driven by the increased Mainly, we're exclusively driven by the number of players. We have 29% of More players than last year and 28% more stakes. Sport betting revenue rose by 7% To €97,000,000 while stakes were down slightly on the high 2020 basis comparison. Maybe it's important not to forget that Q3 2020 benefited from the postponement of many sports betting events Scheduled on Q2, including the Champions League. Thus, if we compare Q3 2021 to Q3 2029, Both betting stakes were up by 24%. And this exceptionally high volume of stakes in 2020 Was accompanied by a high level of PPO, which was not the case this year. Thus, the revenue has grown, whilst they slightly decreased. But it's important to say that it is the case for all the market, not FDJ Specialty, it's the same for everybody. Now I move to the 9 months Revenue. So over the 9 1st month of the year, the cumulative revenue Amounted EUR 1,600,000,000 up 7.5% versus the same period in 2019, And it's based on the barely 9% increase in stakes. The increase in lottery revenue, plus 5% is in line with the increase in stakes and Strategy. And it's mainly driven by Instant Gains. Online Lottery Stakes rose by more than 42%, totaling EUR 1,100,000,000. It is interesting to comment that this represents more than 2 fold increase Compared to their level in September 2019 and EUR 1 point EUR 1,000,000,000 is a level comparable to the one recorded for the rule of 2020 financial year. Online Lottery Stakes represents, as I said before, more than 10% of the total Lottery Stakes. The increase in post betting revenue is strong, plus Strategy. 17% and the increase in stakes is even higher, plus 25% due to the increase in PPO in 2021 versus 2019. Strategy. You cannot see directly on the slide, but I can mention that revenues from other activities totaled €37,000,000 and Corporate and plus €9,000,000 compared to the end of September 2020. If If we move to next slide and to complete this analysis, we'll now have a look to other detail of stakes by distribution channel. In the Q3, stakes increased in both our distribution channel, plus 2% at POS. As I said in the introduction, fully opened since the beginning of June. And despite the introduction of the Health past at the beginning of August, which may have had a slight negative effect on food sold at certain POS, but it's not a major effect. So POS plus 2%, as I said, and online plus 20%. This is a good continuation of the momentum, which is stabilizing as we said earlier. Over the 9 months, the 1st 9 months of the year, stakes are also out in both our distribution channel in cumulative terms, Plus 3% at point of sales and plus 91% online. And at the end of September, online Stakes globally represented more than 11% of total stake. The renewed growth in point of sale It's a very good news. And however, as I said also in the introduction, we remain attentive to the evolution of our network, especially Now that government subsidies will have ended is going to end or have ended and that change and So we will look carefully at the change in behaviors and consumption patterns of our clients. To end this presentation, let's have a look to our confirmed 2021 outlook. All these elements have developed our 9 month Strategy. Revenue performance and a stabilized Health context allow us to confirm our full year guidance, I. E. Revenue of EUR 2,200,000,000 Chief, based on a total stake of around €18,800,000,000 and an EBITDA margin of at least 22%. Thank you for your attention. And now I'm ready to answer your questions. Thank you, sir. We have one first question from Mr. Jaffar Mestari from Exanezio and Pitarida. Sir, go ahead. Hi, good evening, everyone. I've got a couple, please. Firstly, just on the marketing spend, your guidance implies lower margins in H2 and a big part of that is marketing OpEx. So I'm just curious whether Those marketing investments are done because Q3 was the quarter where a big chunk of those were planned. And Chief. And therefore, do you have visibility on that? Or is your guidance still based on further future planned marketing investments and And then I've got a couple of questions on longer term topics, if that's okay. Okay. For the first topic, yes, we are doing what we have said we will do in the second part of the year. We invest more in marketing and especially in online lottery To assure that the momentum that we have on Online Lottery will be the momentum of the next year also, so we are working on this. So We can confirm that we will do what we said about those investments in marketing, especially online, during the second half Steward. Thanks. And then just one on regulation, if you could just update us. It's obviously the European Commission According to license conditions, so do we know where this has progressed in terms of the French states submitting their initial answer? And And then separately, the A and J sounds unimpressed with the aggressive advertising during the Euro championships May introduce limitations. Do you think it's positive for you because it's the other guys who are doing the bad marketing? Or do you think it's negative because in the end, euro and growth also relies on overall player recruitment? Okay. So if I take your first point, which is related to the inquiry of the commission, We are waiting for the publication of the complete decision to enter to open this inquiry, which we think will occur in the next weeks, next Future weeks. So there's no news flow about this question. As we know, the French state is preparing its The answer to the Commission, to European Commission. This answer is not yet ended. So it will be indeed also in the coming weeks. And it will also, at some point, I don't know when exactly because It has to be confidentialized. The answer of the French state will also be published at some point. So CEO. In the coming weeks, first, you will have the long length form Of the notification of the beginning of the in-depth inquiry, and then you will have another The news flow with the answer, the first answer of the French government. All that will be done in the coming weeks or more. Chief. As we said on the end of July, nothing has changed between now and end of July. We anticipate that all those discussions will take some time, and we don't anticipate that any decision will be taken before and The second half of twenty twenty two. So we will have to wait a little bit to have some new things. We have not changed our mind since the end of July. So we think that we have really Chief. Good. Yes, it's a strong case for us. We have done the work very professionally Stu. To calculate the equalization payment because if I remember you, the point is if Whether the equalization payment is appropriate or not, it's not other things. It's not an inquiry relative to You write it in inquiry just relative to the amount of the equalization payment. And to remind you all those things, This amount has been calculated by the CPET, which is an administrative independent authority, and Security. And it has been calculated considering all the good practice, French and European practices to do so. So we think we have a strong case, but we will have to demonstrate it to the commission in the coming Yes. 2nd point of your question, the ING, our regulation. So it's right to say that the ENGIE has opened discussions about the advertisement in And that Angie thought Angie was not the only one to think that it was it has been too far, The advertisement during the European Championship. And to be very clear, FDJ is okay to Say that it has been too far. We have not been among those that crossed the yellow line, But some of our competitors crossed the yellow line. For example, letting think to that we can earn our life, earn money by playing sports betting. We will never advertise letting think that post betting is a way to earn our money. Prop betting must be have to be a game. It's not a way to earn money. So this is one of the points. One other point that has been said by the ING, and it's also right that Those commercials are focusing on very young public, which could be a Stifel Point. If you look at the commercials of FDJ, we have good practices, not Showing people under 25 years old. So we are not in this also In this trend to focus on very young people, so globally, we think that To regulate more clearly the commercial advertisement on Store Betting is a good thing for us because As we have better practices than the market, the market will be at our level and will not Alone to have such good practices. So what will happen from now Next week, on Monday, there is a meeting between operators and ING in Bordeaux To talk about that, we will propose some measures To ENGIE by the end of October. And if I well remember, ENGIE will decide which measures They will take by the end of the year. Okay. Thank you for the update. Thank you, sir. Next question is from Mr. James Henley from Citi. Sir, go ahead. Yes. Good evening. Thanks for taking my questions. 2 from me, please. First on sports betting, Can you remind us whether Q4 2020 was also flattered by catch up on sporting events? Or Is it more of a fair basis of comparison going forward? And based on your current run rate, do you think you will be Returning to growth in sports betting in the Q4. And then the second question is, can you just remind us where you are on the launch of poker Strategy for the business, please. And when that if it hasn't launched already, when that might launch? Thank you. Yes. On Sports Betting, To be clear, we are yet back to growth. And if you see our Q3, we have a growth In revenue, we have a slightly decline in stakes, but we have a growth in revenue by something like 7%. And And the point is concentrated on the month of August 2020. August is usually quite empty month regarding sports betting. In 2020, it was a very busy month as the Champions League finals were organized and Stew in Portugal. So if we look at the figures month by month, the only month that we have a decline in stakes is August, we are back to growth in September, and we think that we'll be We will see a growth by the Q4 of 2020. So it's not it's really not a change The trend on the Sport Vecting is just a conjunctural thing with the basis In August, if you see the communication of other spot betting operators like, for example, Entain, they also have This August thing that they highlight in their communication. So Really no worry for us on small betting. Just a question of business of comparison on August 2020. Chief. Yes. Q4 will be clean and Q4 will be with growth. Sports. Both states and revenue. Your second question was about poker and when We will launch poker. We will do it, but I will not tell you exactly when we are working on it. So when we will be ready, we will announce a schedule. But what I can confirm is what Stephane Pariser said Some months ago is that we are working on that because we think that this is important to be Exposed to both poker and full betting for the resilience of our activity and Strategy in the competitive online games. Okay. Very good. Thank you. Thank you, sir. Next question is from Mr. Khad Diem from Morgan Stanley. Please go ahead. Thank you. Can you hear me? Yes, yes. Yes. Thanks for taking my question. Just one, 2, you've already answered. So you mentioned very clearly about how you feel about the advertising environment Operator is being too aggressive. I'm not maybe a little bit with your last question on how you see your competitive position. Does it make you more reticent to make an acquisition in the sports betting environment if many of the leading operators Being more aggressive on advertising, maybe more of their revenue is skewed to the cohorts they've got through those methods, I. E. The sort of an earning Quality risk, is that something that makes you more reticent or the kind of gains you can make by acquiring a more scale operator Kind of outweigh that. Is there anything that changed your towards the pretty clear desire you've stated over the years To scale up your operation in. Clearly, it does not change our mind on The attractiveness of operators on the sports betting area, what we want and what My comment was about that. The rules are the same for every operator. And Chief. And we think really think that some operators have crossed the yellow line. And Stew. The conclusion of that is that ING has to work about advertisement. If nobody has would have crossed the yellow line, maybe ING will not have been obliged to work on this. At the end of the day, we will all have the same rules and we will use all the rules that That are possible. And we do think that for the sustainability of this activity in the future, We should have rules that are really sustainable. And I think that in other countries, The same type of discussion is also opened. And I think that a large number of Operator now think that they should behave really correctly because this is the only way To sustain growth on the medium term, if the behavior of the operators It's too much. What we will have is a regression backlash, and we don't want that. So we for the The sustainability of this activity, a good behavior is not just good for ethical reasons, but it's Good also for economical reasons. So there is no difference for me. It's on an economical point of view, This is good not to go too far. Thank you. Thank you, sir. CEO. So we have another question from Mr. Alexandre Girard from CEC. Sir, go ahead. Yes. Good evening, Pascal, and thank you. Chief Executive Officer. Good evening. Thank you for taking my questions. A few questions on my side. Just to come back to support the betting, CFO. How do you see yourself in the industry right now? Are you progressing? Are you still far away from the leaders? You used to tell us that you were more in the second half of the industry. So are you despite this all that Marketing, I guess, in Nesbrom competitor. Are you progressing? First question. 2nd question, still on sports betting. You are posting a 24.6 increase in the stakes over the 1st 9 months, 2021 versus 2019. Can we have a vague idea and CEO. Of how this splits between offline and online. And my last question relates To the pipeline of new games that could be launched in the coming weeks or months and that could boost your revenues, can we know more on that side? Thank you, Pascal. Service. Okay. So I take your first question about the spot betting, are we progressing in this market or not? We have we think that we are progressing, but it's not very easy to know In which number of progress it corresponds? Because the AMG, our regulator, has not published any figures since the beginning of the year. We don't have the RFP figures, neither the Q3 figures to date. We just have added the Figures from the European Championship, and we have seen that our market share has risen Versus what it was before during this European Championship. So we think that we are Consolidating our position and we are progressing, but still we don't have all the figures to be very sure about that. And Chief. And we don't think that the aggressiveness of the communication of other It's really as really an impact on their market share. We think that this is Citi. A large number of points that has been to be taken into account to see if The position is growing or not. So we don't think this is just that, that will be the key. Chief. The second your second question was about the increase in stakes of Sportbetching between 2021 2019 and And you have the split between online and offline. What I can say is that The mix the online spot betting is going 2 to 3 times faster than the off This is, I think, fair to say that. The 2 are in They are growing, but really the online store bidding is growing faster and it's not a surprise. It's quite normal, 2 to 3 times faster than the spot betting offline. All right. Thank you. Maybe just one last question on my side, if I may. On the M and A side, not properly for the betting, Are there any assets which are up for grabs at the moment, maybe in technology? Yes. Just not to forget your third question, and I will take the 4th and After that, the question was about the pipeline of new games. This is quite a traditional pipeline. We have launched a new instant game beginning of October. At the beginning of November, we launched a new FEGI 2 game, Which is, a friend what he says, take it or leave it. I think this is the correct translation in English. We and We will have a new game also for The end of the year and also some super mega jackpots, as we call them, of €1,000,000. They are very important because those mega jackpots begin at €130,000,000 and makes it more probable that we have a long cycle. And And this is the case today because we have a long cycle and we have beaten the record of EUR 210,000,000 jackpot that has been reached in February. Now we are at EUR 220,000,000 and And this is rolling also on Friday. So quite a traditional pipe on our new game, and we also launch every 2 weeks, something like that, a new game on the online. So if I come to the M and A asset, yes, we are working on M and A. We have also Structure and M and A team hiring some new people. We also have a new Head of M and A And I are inside the Vijay. So we are working we are looking at all the areas Chief. That we have already disclosed. One area is the Sport Betting and especially Sport Betting Online. Another area is to improve our adjustment activities. This could be B2B International. This means technology driven B2B International. This could be Services. And this is also quite technologic. If we look at the asset that we can it can be interesting in this area. And And the 3rd adjacent activity is entertainment and also could be some technological assets. So we are looking at various Chief. I have nothing to comment especially today on which we could work. Strategy. All right. Thank you. Thank you, sir. Next question is from Madam Giorgiette Gorgia from Bank of Stuka. Please go ahead. Hi. It's Kiran Jot here from Bank of America. Just one question from me. In terms of stickiness of customers online, is there any difference you're seeing between the luxury segment and the sports segment? Or Show. Are they performing similarly? And actually, second question, has there been a change in how customers are playing at the point of sales? Thank you. Steward. Yes. For us, the way we work to turn our customers online It's very different between Sports Betting and Lottery because of the regulation matter. On sports betting, the regulation is different on sports betting offline and online. So offline, it's Monopoly, an exclusive right we have for 25 years. And online, it's a competitive business. So we have a clear Chinese wall Between the two activities, online and offline, and we cannot drive our customer offline to the online As it could we would drive them from monopoly to a competitive activity, which is totally forbidden. We don't do that. So there is 2 different markets, and we work online to recruit new players online and to recruit players that have churned from other competitors. On the Securities. On the Lottery side, this is completely different because we have a monopoly rights on both The Retail Network and the online, this means that we can work an omnichannel Strategy. And this is exactly what we are working on, a strategy in which a player can, for example, Register on the point of sales and then play whether online and offline, both the 2 channels. And Chief. And we think this is a good strategy because we have seen that the players that are playing both online and offline are the most valuable More value than players that are playing just on one channel. So what we will develop in the coming years is the capacity To have a seamless capacity to play online and offline for our players, we I think that this is very important. We can also drive players from offline to online and Chief Financial Officer. And give a remuneration to our point of sale to help us doing that. So this is opened When it's about lottery, this is not possible when it's about Sportbatten. Sorry, you had a second question concerning the change In the consumption, A bit, it's quite a little bit Too early to answer really completely to your question. What we have seen is that mostly most Our players have come back to the point of sales as it was before. What we think that will happen is that As the Teletrada home office will is developing, Maybe we'll add some changing in the areas where our point of sales will Are located, for example, areas in the center of the towns where you have offices may have less People, for example, on midday during the week, and we will have more people on the residential Towns on the suburbs where people are working on home office. So we may have Some changes in the split of the business between the point Maybe a less business on the business Cartig, we blocks some business part of the town, okay, so and more and more activity In the suburbs where the people are living. So this is one of the things that we can see. And And we are doing some more folds to understand Really what is happening and we don't think this is totally stabilized yet because people are coming back to office Just now, if we see what is happening in a lot of companies, they are coming back to work. And Chief Financial Officer. And we will look at what is happening in the coming months. But what is good for us is that we have seen Globally, our customers back to the point of sale, but not But also on the online, this is why online is continuing to grow quite rapidly. Okay. Thank you very much. Thank you, madam. We have no other questions. And We have no other questions, sir. Okay. So thank you very much for your attention and your very interesting question. Chief. So I wish you a pleasant evening, and I look forward to talk to you again in the coming Weeks months to comment the other news flow from FDJ. Goodbye. Have a good evening. Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.