FDJ United (FDJU) Earnings Call Transcript

Hello, and welcome to the FDJ Q3 2024 Revenue call. My name is George, I will be a coordinator for today's event. [Operator Instructions] Please note, this conference is being recorded. I'd like to hand the call over to your host today, Mr. Pascal Chaffard, Executive Vice President, in-charge of Finance, Performance and Strategy; to begin today's conference. Please go ahead, sir.

Hello. Good evening, everyone, and good morning for some of you probably. And with me today is the IR team, namely [ Helen Chaban and Mark Gilllum ]. You will have seen the press release we published at the closing of the market, and the presentation we are about to comment is online on the Investor pages of our corporate website. So as usual, this presentation of our revenue and news at the end of September will be also brief to allow a maximum time for questions. So if we move to the second slide, at the end of September, our revenue stood at EUR 2,097 million, up 12% and 6% at constant perimeter. As a reminder, in 2023, ZEturf was consolidated from September 29 and PLI from the third of November. The gaming revenue in France rose by 8% to EUR 1,907 million, with lottery revenue up 7% and even 9% excluding Amigo, and continued strong momentum in sports betting and online gaming open to competition with a revenue up 13%. The revenue at the point of sales increased by 9% and by almost 3% in France. The online revenue rose sharply by 39%, reflecting also the acquisition of PLI and ZEturf, and by nearly 25% if we take it at constant perimeter. The online activities now account for more than 15% of revenue compared to 12% at the end of September 2023. So on this basis and given our expectations for the Q4, we are adjusting upwards our guidance for 2024, and we now expect the revenue to grow by nearly 9% versus around 8% and by more than 5% for games in France versus around 5%. And the recurring EBITDA margin is expected to be around 25% versus around 24.5%. You will, no doubt, have read our communication of October 3 announcing the success of the takeover bid for Kindred. I will give you some more details in a few moments on this topic. And we are also -- you are also familiar with FDJ's business model in which the financial and the extra financial performance are inextricably linked. In this respect, we are very proud of the confirmation of our very good rating by Moody's Sustainalytics, and I will comment that on the next slide. The 71 out of 100 rating awarded by Moody's Sustainalytics once again ranked us first in the hotel, leisure and services sector, which is made up of 39 companies and includes gambling players. The company ranked second at a score of [ 50 ] out of 100, which give us -- give you an idea of our absolute leadership, 71 for us and [ 50 ] for the second. The group also ranked 31st out of more than 4,500 companies worldwide tracked by Moody's. So it's, again, a very good FDJ's ESG score, confirms the relevance of the company's CSR policy and also its good extra financial performance. So if we move to the next slide, we will give -- I will give you some details of the revenue by activity, both to the end of September and also for Q3, as it's Q3 only. I'll be commenting in detail on the lottery and sports betting and online gaming open to competition on the following slides. The other activities, which I will not come back in detail, international and payment and services posted revenue of EUR 190 million compared to EUR 108 million to end September 2023, which is an increase, notably attributable to the integration of PLI, which resulted in a good performance, driven notably by EuroDreams and instant games. So now if we do, on the next slide, a zoom on the lottery, the revenue in France rose by 8% to EUR 1,907 million. The lottery revenue rose by 6.6% to EUR 1,500 million. This growth was driven by instant games and draw games, the two. Revenue from instant games was up 7.8%, boosted by the success of animation in the games portfolio, including the launch of Ticket d'Or, a EUR 5 game, in early January and the phygital game, Maxi Black Jack, in May. But really, all the launches have been successful this year. The revenue from draw games was up 4.7% and 9.9% excluding Amigo. This performance was driven in particular by EuroDreams and by more attractive Euromillions jackpots than in 2023, if you may say, 2024 is a normal year and if you remember, 2023 was not -- was with a very low number of high jackpots, if I give you some figures, 25 compared to 19 at the end of September 2023. And Amigo, since we lapped the relaunch in last June, has returned to growth since this date since the beginning of June. Online activity remains, on the lottery, very dynamic with a growth of 23.9%, taking the lotteries online penetration to 14% compared to 12% at end September 2023. If we now talk about sports betting, in the sports betting and online gaming open to competition, the revenue came to EUR 407 -- yes, EUR 407 million, up 13.3% and up 5% at constant perimeter. So after the Euro, sports betting also benefited from the Paris 2024 Olympic Games, which, although a smaller event on the scale of sport betting, nonetheless, boosted the offering with twice the figures of Rugby World Cup. The operator's margin was, as expected, lower than it was in the first half of the year, which have benefited from exceptionally favorable sports results for the operator, obviously, and we have commented that quite precisely during our H1 communication. The online activity continues on sports betting and online gaming to enjoy sustained growth, up 28.4% at constant perimeter. This performance reflects the intrinsic dynamism of ParionsSport en ligne and also benefiting from the attractiveness of poker with a high level of cross-selling. The beautiful story is continuing. So now if we move on the next slide, in global, the online revenue rose sharply, as I said in introduction, by 39.3%, including the acquisition of PLI and ZEturf, and by almost 25% at constant perimeter. This performance continues to be largely attributable to the increase in the number of players, which is good on a sustainability level. This growth was driven both by sports betting and online gaming open to competition and by the online lottery, which benefited from EuroDreams, very high rate of digitalization, as well as the attractiveness of instant games and the exclusive online offer, on which we have made very good progress. As a result, the share of online revenue has risen to 15.2% compared to 12.2% at end of September 2023. The point-of-sale revenue increased by 8.6%, mainly due to the integration of PLI. If we look only at the situation in France, the point-of-sale revenue was up by almost 3%. So let's look now on the next slide at our adjusted objectives for the full year. We had announced 2024 targets, including revenue growth, of around 8%, as I said in introduction, and around 5% in France, with a recurring EBITDA margin of around 24.5%. And given the level of activity at the end of September and also our expectations for the fourth quarter, we are adjusting these targets upwards, and we now expect a revenue growth of nearly 9%, with growth in France exceeding 5%, and a recurring EBITDA margin of around 25%. So in Q4, we expect almost a stable overlay revenue, something like 1%, and for two main reasons. The first reason is a perimeter one, we will lap in Q4 the consolidation last year of the ZEturf since end of Q3 and PLI since the beginning of November. And the second reason is activity. First, we will lap, beginning of November, the launch in 2023 of EuroDreams. Second, we had an exceptional EUR 200 million, Euromillion jackpot in December 2023 that had a great success last year, and we don't have that kind of event this year. And third, regarding sports betting margin, that was exceptionally high last year in Q4. We have commented a lot and very much details at that time this event. And we cannot think and we cannot count on the fact that we would have such high sports betting margin in the Q4 this year. So as a result, in the Q4, we can expect a quite low growth in the lottery revenue and a decrease in revenue of sports betting and online gaming open to competition due to the elements -- only due to the elements that I've commented just before. So now we can move to the next topic, the success of the FDJ's tender offer for Kindred. FDJ holds now 91.77% of Kindred since October 11. We consolidate Kindred from that date. And in the very near future, end of 2024 or beginning of 2025, we will own 100% following the extension of the offer period to the 18th of October and finally, the squeeze out that we will be initiating and that will take place between the end of the year and the very beginning of next year. With regards to the commitments that we made when announcing the acquisition in Jan -- in last January, we can tell you that Kindred's Board of Director that we have changed. We have taken the control over this Board, decided on October 14 to cease rapidly by the end of the year, operating its activities in markets that are not regulated locally or that are not in the process of being regulated, i.e., exits of the dot-com market, with Norway at the top of list. And as a reminder, we will keep Finland as there is a clear path to regulation in Finland. On the next slide, we present to you how the 2 groups combine. We have already presented the figures for the full year 2023, we will remind it to you. And we have presented the figures also during our H1. So for Kindred, these figures that we are presenting are only considering activities in markets that are locally regulated or in process of being regulated. It means in the perimeter that we will keep. And the FDG Group estimates that it would have recorded. As a reminder, as I said, we have already communicated on that in 2024, if the acquisition of Kindred had occurred on January 1, 2023, sorry, combined revenue of around EUR 3.5 billion and a combined recurring EBITDA of around EUR 840 million for the full year 2023, i.e., margin of around 24%. And in 2024, the Kindred being acquired on January 1, 2024, the combined revenue would have been EUR 1.9 billion and combined recurring EBITDA of around EUR 490 million for the first half of 2024, giving a margin of around 26%. And now the combined revenue would have been EUR 2.8 billion at the end of September 2024. Kindred had, this morning, released its Q3 revenue and also confirmed its guidance for the full year. So if we move to the last slide regarding Kindred, we have tried to figure out because we thought this question would have been on your lips, including Kindred from October 11 and based only on these activities retained by FDJ, the FDJ Group reported revenue growth for 2024 would be around plus 16% compared with the 9% revenue growth for FDJ on a stand-alone basis, as I said earlier, and with a recurring EBITDA margin of around 25%, identical to that of FDJ. So maybe just to end this presentation, some words on how we will finance this acquisition. So to finance the acquisition of Kindred shares of almost 2.5 billion FDJ are the [ recourses ] to EUR 2 billion bridge loan, which has drawn down on October 7. The group wishes to refinance this loan on attractive terms, notably through a bond issue, with the aim of achieving an investment-grade rating. And just to give you some flavor of our cash position, at the end of September, the group also had available cash of more than EUR 900 million and a net cash surplus of more than EUR 630 million. So thank you for your attention. And now with Mark and [ Helen ], we are ready to answer your questions.

[Operator Instructions] Our first question today is coming from Jaafar Mestari calling from BNP Paribas.

I have a handful if that's okay. So maybe just two very quick sort of factual ones. On the bridge financing, can you share with us what's the rates you're paying on this with the interest cost? And then, should we assume it improves when you refinance with the bond issue? And then also fairly factual, you mentioned a number of elements that explain stable like-for-like revenue, I think you expect for Q4. I just wanted to confirm that. If you could recap those elements again? I'm sorry, I haven't picked up on all of them, especially in sports betting. And is Amigo lapping its regulatory impact, not something that will actually be meaningful in accelerating in Q4?

Yes. Thank you, Jaafar, for those questions. So on the bridge financing, I don't know if I will share the exact amount, but I can say that yes, the spread is something like 0.5, 0.6 points. And it's better conditions than the one we can aim when refinancing. But as you know, those bridge loans, we will have a progressive interest rate, so for the first month, it will be better than the refinancing. And then over time, it will be less interesting. So in the -- what is important to have in mind is that in the short term, the interest rate is lower than the one that we will probably get from the refinancing.

Slightly below the 5% that we have mentioned to you once we come on this acquisition in January this year.

Yes, slightly below. Second point was to recap the factors that lead us to tell you that the Q4 will be not totally flat, but with a low growth. So what I said is that we have a quite important perimeter effect, as we have communicated all the year with figures, including the activity of the [ debt ] on one side and the PLI on the other side. As we have integrated the [ ZEturf ] bet end of September, we will guess on the Q4 the intrinsic growth of the [ ZEturf ] bet, but not anymore the perimeter effect. And this would be the same for PLI that we had integrated very beginning of November. So there is -- it's a pure perimeter effect, this first one. The second type of effect is linked to the cyclicity of the activity in the year. And last year, we have this beautiful EuroDreams to launch that has taken place end of October, very beginning of November, and we had quite a huge success on this game on the 2 months in 2023. So we cannot expect to have another effect linked to that because we have -- we will have comparison basis, taking into account EuroDreams since the end of October. And the second element linked to activity that I mentioned is a very important jackpot of EUR 200 million that we organized last year, and it has rolled out -- rolled up -- rolled down, but it increased to our -- first, 2020 and then to 2040, with quite a huge success last year in December. And we will have maybe some high jackpots in Euromillions, but normal, light jackpots just not the one that we are creating. So we cannot expect to have this massive effect that we had last year. And the third element was linked to very low price payout and a very high margin on the sports betting, not only for FDJ, but for all the operators in France and maybe in Europe. If you recall last year on Q4, November -- especially in November and a part of December, we had a really very high margin. And we commented that on our annual results, saying that it has boosted our EBITDA margin for the year 2023 and also boosted our growth at the end of the year. And maybe we'll have another experience of lower -- of high margin, but we don't know. So what we do when we do our forecast is we take the average margin that we have for [ sport betting ], and it's always like that. For example, in Q2, we had a very high margin on sport betting. And as we communicated in H1, it has a little bit been rebalanced in Q3. Now we are at a quite interesting, but a normal level of margin. And we'll see at the end of the year, but we cannot count on a very high margin in Q4. And regarding Amigo, we had suffered on H1 of the basis of comparison in 2023 with Amigo before relaunch and 2024 after relaunch. And we said at this moment that if we look at the situation -- intrinsic situation of the new Amigo, it was fine at a level that is lower than the previous Amigo, but fine and growing. And now you have the proof of that because in Q3, Amigo is growing, actually something like 7%, with a growth that is linked also to the number of point of sale in which the product is sold. So now, Amigo is not anymore having a negative impact on our activity, but having a more positive impact as it is growing again. Is it okay for you, Jaafar?

That's super helpful. And this suggests a stable or small growth in total revenue, including those deals annualizing. But if I try to do a quick like-for-like calculation, your guidance instead...

Yes. If we do the like-for-like, I can help you on like-for-like, it is 6% at the end of Q3. And we -- and when you do the calculation of all what I said, it's something like 4% at the end of the year.

Super clear. If I can move on to the slightly more subjective ones. On the European Commission investigation, no new developments that we can see. But there's an interesting footnote in the Kindred press release, where you state that you would expect any potential financial penalty to be between 0 and EUR 363 million. I just want to clarify whether you're saying as a fact that you understand that the EC has accepted the principle of the continuity of rights and they're working on the fair license [ costs ] within that range as used by the French state in '19? Or are you simply saying more as an opinion that any outcome outside of that range, you would deem unacceptable and you would appeal or attack or remedy?

Yes. It's a little bit of the two. It's clearly -- the second part is clearly -- you clearly understand what we mean. Outside of this range, it is unacceptable and we will challenge this decision. And the first part is that, in our opinion, what is probable because we think that the decision of the Council of State in France is quite a [ levy ] one, an important one and will have an impact on the decision of the European Commission. But it's more, in our opinion, we think more probable if we do probabilities, that the decision, whatever it is, will be within this range. And also what is -- what I said publicly, Stephane Pallez can also say it again, we think that there is quite a good probability that we get a decision before the new commission is in place. I know that we have said that since several months now. And obviously, we don't have yet a decision. But what we know is that the French State is working to go this way and that it is also the will of the European Commission to have solve this case before the new teams will begin to work. So it may come in the next weeks globally because we -- what we have understood is that the new teams are taking their job something like in November.

And very last one for me on the French budget law. In its current state, you would be subject if it's voted to the temporary corporate tax charge, but then there's nothing specific, nothing else on gambling duties. Now the newspaper that published the rumor initially has now sort of backpedaled. They say, yes, it's not in the project, but it will be introduced in Parliament. What's your understanding of the situation? Should we read the coalition government itself may increase gambling taxes as a bargaining chip at some point? Or should we read it that, of course, some minority [ MV ] in your opposition maybe can bring it up in parliament?

Yes, what is true and you have perfectly well understood it, it is not in the project of the government, clearly, as we said 1 week or 2 weeks ago -- 2 weeks ago, and it is the case. It's not project of government. We cannot prevent any deputies to propose amendments. But in our knowledge, it is not in the project of the government. And globally, what we can say about that, it is that this measure, if it would have existed, would have been totally counterproductive, to be clear. And we have also explained that. First, on the levies as this kind of measure would have had an impact on the GGR and eventually on the levies. So it doesn't work. And secondly, on the objective of the gaming regulation in French, which is to fight against illegal gambling and to protect the players. So it really -- it is not a project of the government. And it doesn't work because when you implement this kind of measure, you don't have the additional levies that you want to have, but you have not levies, but you have the problems instead. So really, we will see. But we will not prevent any deputy to try to push an amendment. But again, it's not in the interest, we think, of the government to go forward with these kind of measures.

We'll now move to Andrew Tam of Redburn.

I quickly ask a question about Page 11 of the presentation where you've got the update for your guidance and then the combined with Kindred. On my math, that kind of implies incremental EUR 184 million of revenue, probably EUR 46 million at the EBITDA line. If i annualize that, that's -- there's probably about EUR $700 million, EUR 730-odd-million revenues incrementally versus the EUR 900 million that you spoke about in January. And obviously, the EUR 184 million on an annualized basis looks a little soft versus the EUR 200 million. The margin -- EBITDA margin was a little higher at [ 25% ]. Can you just talk through the moving parts there, please?

Sorry, I didn't get your last sentence, talking about the EBITDA margin. So you say -- you're saying...

Yes, in January you said the EBITDA margin was about 23% to 24%. So now you're saying it's 25%. So just trying to understand, curious, what has changed since January.

Globally, nothing has changed in January. It's much more fine-tuning of the figure. Let's assume that no, we have, how can I say, broader and cleaner access to the data from Kindred. So we are really in a position to really fine-tune what is the contribution from the country or for the market we're going to exit and we have no much -- I would say, much more precise. So it's a good news that, in fact, at the end of the day, the EBITDA margin, we can expect, is slightly higher than the one we've initially expected at the early -- at the start of the year.

[Operator Instructions] We'll now move to Sabrina Blanc of Bernstein.

Yes. Sabrina Blanc speaking from Bernstein. I have two questions from my part. The first one is regarding the potential impact of increase of corporate taxes in France. As far as I understand, that concern companies which have more than EUR 1 billion of revenues, which is your case. And secondly is regarding the sport betting in Q3, could we have more color on the impact of the Olympics? I think that you said that it's twice the usual impact of Rugby. But just to understand, how the clear payout ratio has normalized in Q3 in parallel?

Okay. Thank you, Sabrina. On the corporate tax, the financing bill -- the budget bill -- the budget bill refers to, yes, an increase from 25% to 30% for the companies which revenue is between EUR 1 billion and EUR 3 billion. With Kindred, we will have, as a group, more than EUR 3 billion, but it has to be looked at the activity in France as it is for the French corporate tax. So we are in the range from EUR 1 billion to EUR 3 billion. And this will be for the fiscal year 2024, so impacting our net results of 2024. If you do the math, looking at the level of corporate tax that we paid in 2023, it is a little bit too early to talk about the 2024 full-year net results. So if we take this into account, it was EUR 140 million, something like that, corporate tax, so the impact should be something a little bit below EUR 30 million. And the next year, would be a lower impact if we believe what it's in the project of law today because the next year, it's not 30%, but 28%. So I didn't do the precise calculation, but should be over something like EUR 20 million. And that's it. What says is the project of law today is an exceptional contribution for 2 years, we will see. But today, it's what is mentioned in the project of law.

If I may, Pascal -- if I may come back on the corporate tax, that is only for the activities coming from the French market. So that should not impact the tax rate that you will have on Kindred?

No, it will not because it's not a -- tax integrated. It will have an impact on all the companies that are tax integrated in France, and Kindred will not be tax integrated interest in France as it's not a French company. So we will clearly be between EUR 1 billion and EUR 3 billion. And maybe one thing I didn't mention, this is the beauty of the tax within [ resi ], we will -- it will have a positive impact on our financial results as the interest rate that we will take for the refinancing of our debt will get the positive impact of this tax rate.