FDJ United (FDJU) Earnings Call Transcript

Welcome to the FDJ United Q3 2026 Revenue Conference Call. [Operator Instructions] Now I will hand the conference over to Dan Levy, Group CFO. Please go ahead.

Hello, everyone. Welcome to FDJ United Third Quarter Revenue Call. I am Dan Levy, the Group CFO, and I am here in Paris with Mark Willaume, Head of Investor Relations. We have just published, as you saw in our press release for our 9 months revenue, the presentation that I will comment is available on our website. And so I suggest we move directly to Slide #3. As I forward of this presentation, I want to say that since the beginning of the year, we have been facing numerous adverse factors that I will detail in a minute. And these factors were particularly exacerbated in Q3. That said, I also want to say that the management of the group is fully committed to carrying out different -- our different plants to come back to growth, both on the lottery business and on the OBG business. In the meantime, we are also committed to financial discipline to accommodate the lower-than-expected top line in order to protect the group's profitability. So let's now turn to the numbers at the end of September, as you can see on Slide #3. Group TGR is down by 2.8%. Revenue is down by 5.6%. These results are driven by a combination of adverse factors that I will detail later on when I will comment the business units, but mainly linked to inherent gaming risk. The first one, obviously, is the low level of high jackpots, particularly in EuroMillions, particularly compared to 2025, which was an exceptional year from that perspective and this unfavorable base effect was particularly pronounced in Q3. The second effect linked to intern gaming risk is in sport betting related to the very high PPO that we had in Q3, results were highly favorable to players in Q3, leading to high PPO and particularly in our French point-of-sale network. And finally, the consumer environment remains challenging in France, weighing on traffic in points of sales, both in Q2 and in Q3. So as you can see, all these factors have moved in the same adverse direction. And on top of that, that was, as you already know, compounded by a EUR 62 million additional gaming taxes at the end of September. We have taken several actions to support growth and improve performance across the group. And again, I will detail all of those when we will speak more in detail about the different business lines. In Luxury, we are implementing both short-term and medium-term initiatives to return to growth. In OBG, we are executing the turnaround plan. And at the same time, we are progressing with the rollout of our proprietary Sportsbook platform. And more broadly, we remain focused on optimizing performance and on resource allocation across the group. In particular, we are confident in our ability to deliver EUR 150 million in savings by 2028 under our performance plan. We can now move to Slide 4. Turning to GGR and revenue and the gap between DTR and revenue evolution. As you know, additional gaming taxes, which amount to EUR 62 million at the end of September, affect revenue, but not GGR. So I think it's reasonable to say that GGR is the relevant indicator to understand the underlying business trends. As I remember, we had gaming tax increases in France in July 2025 in Romania in August 2025 in Netherlands in January 2026 and in the U.K. in April 2026 and all of these tax increases explain the gap between the revenue declines are minus 5.6% and the GGR decline at minus 2.8%. Before I go into the details on our most significant BUs, which are LSF and BG, let me say a few words on the other activities. International lottery revenue is down 4.7%. This is actually reflecting the discontinuation of certain unprofitable B2B contracts that we had gone out. But the most important point is probably that primarily Lotteries Island, PLI delivered a 2% growth driven both by Scratch Card and draw games at September. Payment & Services generated EUR 44 million revenue compared with EUR 47 million last year at the end of September. As you know, this business unit is continuing to optimize its activity portfolio. Let's now turn to Slide 5 and take a closer look at the French lottery and retail sports betting business unit. GGR globally on LSF is down 3.5% while revenue declined by 4.8% after taking into account the EUR 28 million additional gaming taxes. When we look at Lottery, lottery GGR is down by 3.5%, reflecting quite contrasted trends between Instant Games and draw games. Instant games remain well oriented with GGR up by 1.9% despite the lower point-of-sale traffic that we have observed both in Q2 and in Q3. But by contrast, draw games GGR decline, as you see on the slide, by roughly 10%. And this is mainly the impact of the number of -- and the level of higher remain jackpots, which again, were significantly below the very high levels that we had in 2025. I think to illustrate that, it's very useful to have a look at the 2 bottom charts on the slide on the right. which shows and illustrate what I've just said. As you see on this chart, at the end of September 2026, we had 20 -- sorry, 12 draws with jackpot above EUR 130 million compared to '27 in the same period in 2025. And if we now set the threshold to EUR 200 million, which is the second chart, you can see that we had only one jackpot above EUR 200 million in 2026 compared to 12 in 2025. And this was particularly exacerbated in Q3. In the third quarter, which was particularly unfavorable, we had only one draw above EUR 130 million versus EUR 9 million in 2025. And I want also to dwell on the fact that in Q3 2026, we had the probability to have a more favorable scenario was 93% to have a more probable scenario on the long cycles. And as you know, this is obviously impacting our business because the stakes to jackpot elasticity is high. And as a consequence, the impact of a lack of attractive jackpot has a very strong drag on our business. And I also want to dwell on the fact that this has been the case in all lotteries in Europe, all lotteries which do participate to EuroMillion have seen this very sharp decrease linked to the comparison basis with 2025. In addition, given the big difference between the payout ratio in Instant Games and in draw games, the sharply contrasted trends between drug games and instant games resulted globally in an increase in the lottery average payout ratio and thus impacted as well negatively our revenue. And finally, the decline in drug game activity weighed also on the online lottery, which, as you know, is mainly a draw game lottery on which GGR was down 4.6% at the end of September, but up by 2.3%. If you strip out the effect of the EuroMillion long cycle, which clearly shows the impact of this exceptionally unfavorable jackpot cycle. If we look now at instant games on digital. Digital GGR increased on Instant game by 1%, with nearly 30% organic growth for web exclusive games which represents -- which are doing extremely well and which represent an important growth driver for the future. All in all, the digital share of lottery revenue remained stable at 15%. If we now turn to retail sports betting. GGR declined by 3.2%. This is reflecting another inherent gaming risk, which is the higher player winnings in Q3 that was observed pretty much everywhere in the market, where the payout ratio increased for us on the retail by more than 400 basis points compared to last year. Currently on the retail, our payout ratio is close to 80%. And I would just take an example to illustrate how important this effect is. If we take the example of week 37, which was a week in the middle of September, during the first round of Champions leak matches, most favorites won and the leading golf scores court. And as a result, the payout ratio during this week exceeded significantly 100%, which means basically a negative margin with a particularly pronounced impact on accumulator bets. Coming back to lottery and to finish with LSF, for the foreseeable future, we have a broad range of commercial and marketing initiatives to revitalize the business. Starting in the current quarter with additional draw games events to secure growth in Q4 and pursued in 2027 with a very significant event in lottery, the relaunch of EuroMillion in March, the relaunch of Lotto in October, the launch of a new EUR 10 instant games, and we are also investing significantly to enhance the appeal of the digital offering, particularly through online exclusive games, which, as I said before, are doing very well and are an important driver for us for the future. And we continue also to expand the number of our point of sale within banners network. Now I suggest we turn to Slide 6 to have a look at OBG is broadly stable at the end of September at minus 0.8%. Revenue is down by 8.2% after taking into account the EUR 34 million additional gaming taxes. Unsurprisingly, and as it was already the case in Q2, the performance remains mixed across markets. If you take out Netherlands and the U.K., GGR increases by nearly 6%, which is a good performance driven particularly by strong performance in France and in Scandinavia, in the Netherlands and in the United Kingdom. The action plans underway are aimed at grade storing performance. We have seen some significant improvement in Netherlands over the last few quarters, and we expect this improvement to continue in Q4 in the Netherlands. Beyond the recovery plant in the U.K. and the Netherlands, we are taking broader actions across OBG to renew with profitable growth. We are sharpening our focus on core customer lifetime value, which means basically focusing on recreational players with a more disciplined approach to marketing investments and to generosity. And at the same time, we continue to improve the player experience. We are also accelerating the development of our unique proprietary sports betting platform we had already reached a major milestone in France in the first half, as you might remember, with the integration and the rollout of property sport betting technology in France. Our 2 platforms in France were merged and players migrated to a single account with Unibet becoming the sole brand for online sport betting and poker enabling us to do some more cross-selling. We are now accelerating the rollout of our single proprietary sport betting platform more globally across the piece in combining the best of our current technologies, namely ABP, which was the former FTG platform and KSP, the former Kindred platform. So we have taken the best of each of those. And we intend to cover with this new single proprietary sport betting platform, the majority of markets by the end of 2027. Turning now to Slide #7. Having a look at the 2026 outlook. We have, as you have noticed in the press release, updated our objectives, and we now target a low single-digit decline in over 2026. We target a mid-single-digit decline in revenue. This is obviously including a more than EUR 70 million impact from additional gaming taxes and we target a recurring EBITDA margin around 23%, supported by financial discipline. We also confirm our objective of increasing the dividend level based on the payout ratio of at least 75% of adjusted net income. So in a nutshell and as a conclusion, it is clear that this is a more demanding environment. The management is fully determined to resume with growth. The actions we are taking are underway, both in lottery and in online betting and gaming. And we are focused on execution with continued attention to profitability and to resource allocation. I thank you very much for your attention. And now Marc and I are available to answer your questions. Thank you.

[Operator Instructions] The next question comes from Estelle Weingrod from JPM.

I've got 3. The first one, you mentioned challenging economic conditions in France weighing on traffic at points of sales. given the events in France at the moment, I'm talking about the social unrest, how should we look about the potential impact on the French rotary and retail sports betting on this front? And is it included in your guidance? I guess, traffic must be down more in October on the High Street. I've got also one question on M&A. You've seen several M&A in recent months in gambling, do you plan to consolidate further to gain in scale? And how is the pipeline looking at the moment? And just a last one on the midterm guidance. When should we expect an update on this front at the same time as a strategic review at the full year?

Thank you very much for your question. So starting with the challenging conditions globally would it be economic or global conditions in France, particularly this weekend. So we did have roughly 100-point of sales impacted by the events over the weekend. So I want, first of all, to reaffirm our solidarity with the point of sales, which were impacted in France, so roughly 100-point of sale. Last time it happened, there were more point of sale impacted and business came back very quickly. So it is clear that this is a tough situation for the impacted point of sale but the event of the weekend do not have a material impact on our business. Now if I turn to the other part of the question, which is the sensitivity to let's say, consumer environment or macroeconomic environment. When you look at what happened in the past. So historically, the group's business has demonstrated to be very resilient to economic cycles and particularly because it is based on a very broad player base and relatively average stakes, which is as well consistent with the recreational model. So what we see currently is that clearly the macroeconomic impact -- the macro economic situation has had an impact on the traffic in the point of sale, and we have seen traffic in front of sales decreased by roughly 10%, both in Q2 and in Q3, but the number of FDG players has remained stable. So at this stage, we do believe that we are not, if you like, specifically sensitive to the macroeconomic condition, but the way it plays is more through the traffic of point of sales. So that's for the first question. Second question on M&A. It is clear that the market is currently consolidating. It is consolidating for reasons that were already well known, which is that it is a sector where scale matters. And so as a consequence, there is a strong incentive for the players to consolidate. And I would say that the recent trends over the last 2 years on tighter regulation and tax increases has even more put pressure on the players to consolidate. And this is actually what we started to do with the acquisition of Kindred 2 years ago. And this is also what some other players are doing, and you have seen recently the merge between Lottomatica and tiers. So I think at this stage, for us, we want obviously to fix the OBG performance which is not at the level that we expected, and we can come back to that, if you like. But we might also do some bolt-on acquisitions, particularly in countries where we are not in the top 3 positions. I think it is a market where it is important to be in the top 3 position because of the effect. We are clear in the situation in France. We are clearly in the situation in many countries, particularly in Scandinavia, but we could probably update our situation in some other markets. On the midterm guidance, I don't think it's obviously the moment to have a look at this for Q3, as you probably imagine, but I think we will be in a position to update our medium-term targets when we announce our full year results in February 2027.

The next question comes from Jaafar Mestari from BNP Paribas.

I have 3 questions, if that's okay. And firstly...

Sorry, the line is quite, I would say, feeble.

So on the long cycles, it looks fairly demonstrable that this year is a bad year. But can you remind us when the relaunch of EuroMillions happened, what has changed in the mechanics because from the charts you show, which are very interesting, it looks like the average numbers indeed higher, which is something you try to achieve. But on a small number of years, it could also look like the variance has increased a lot. So when do you have an opportunity to tweak those mechanics or are you happy that this is just a very statistically unlikely year and the mechanics are good and do the job? Secondly, on front point of sales. I think as of Q2, obviously, nobody can really attribute or predict those things. But as of Q2, you were mostly blaming it on the wave. So just curious now that you have the full picture. Do you still believe it became progressively worse in Q3 macro wise? Or do you have a better hindsight view that it was the macro all along? And lastly, on regulation. If you could just factually remind investors what are the bids you've seen in the various budget discussions and budgets drafts for France for the U.K. or other countries that you will be paying attention to, please, in the coming months.

Thank you. So on the long cycles, we -- as I said during the presentation, we have a big relaunch that will be happening, obviously, in France and in all the countries which participate to EuroMillion. This is going to be an important relaunch, and it's going to change the shape of the game, and this is not simply cosmetic refreshes. We are going to be reinforcing the promise of exceptional prices particularly with the jackpot that could increase up to EUR 300 million, meaning also that there could be faster Jackpot growth and we will introduce as well a new second draw offering to win EUR 1 million. So all of this should be deepening the engagement among our regular player base and attract probably some new players. By the way, you didn't ask the question on auto, but it is also the case on to. We are going to reshape the offer on Lotto in October 2027. And and we will introduce on lot more regular events, including some specific mechanism with -- under which the jackpot must be won after 11 draws if it is not won by a specific winner. And the jackpot increase in the second draw will be a move from EUR 100,000 to EUR 1 million. So I think we are -- again, we are reshaping the 2 main draw games in a way which should be more attractive than it is currently. So that's for the first one. Go ahead.

The statistics you can see on the slide are indicating the long cycle for long cycle is a combination of, I would say, natural long cycle. So growth starting at 17% after growing in order to reach quite a high level. And also, as you know, we have the opportunity to -- from scratch of EUR 130 million of what we call special events or dedicated special events. So it's clearly a combination of those 2 that -- you can see statistics on the slide with the figures of preshow above EUR 130 million or EUR 200 million. So it's clearly those 2. Definitely, as Dan mentioned, in a matter of statistics. This year, we are definitely at the lowest end of the statistics, notably when it came to the -- what we call the boosted jackpot, once again, the one that's been starting at EUR 130 million. So far, we have -- we had 32 out of these 3 were won at the first row. So they did not rule and this is why among the events that we've been talking of regarding the fourth quarter, we will have one, what we call boosted jackpots. So starting at EUR 130 million early in November and another one, early December of times. I think it's important to have this or those kind of mechanisms. Really, the long cycle row of unwound growth purely statistically speaking, we were really at the lower hand of such number for this year-to-date.

Okay. And so on your other 2 questions. So on point of sale, so actually, we saw in Q2 a decrease in traffic by roughly 10%. And we see again in Q3, a decrease in traffic by 10%. We do -- so in Q2, we saw particularly this decreasing of traffic during the heat wave, which is what we communicated to the market. But it's a bit difficult to say that it was more an economic impact or the fit wave. It is true that during the heat wave, the weeks it was very hot, we saw a specific decrease in the traffic in point of sale. Now the number is the same in Q3, and we do believe that this is linked to the macroeconomic context. On the regulation side and budget decisions, honestly, we don't see anything specific at this stage. As you know, there are discussion, the parliamentary discussion both in many countries, in the U.K., in France as well, France on the PLF and the PLFSS. There are several amendments that are more or less linked to our activities. But most of them, if not all of them, have been rejected by the commission tenets. And it is, I think, too early to comment on that. But of course, we are monitoring this very, very closely.

And you have much more fiscal than regulation.

The next question comes from Sabrina Blanc from Bernstein.