LA FRANCAISE DES JEUX (FDJU) Q2 2026 Earnings Call Transcript

Welcome to the FDJ United Half-Year 2026 Revenue Conference Call. For the first part of the conference call, the participants will be in listen-only mode. The slides presented in the call are already available on the FDJ United website. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to Stephane Pallas, Chairwoman and CEO, and Dan Levy, CFO and Performance Leader. Please go ahead.

Thank you very much. So this is Stephane Pallas, so good afternoon, not good evening, depending on your time zone.

Thank you for joining this presentation.

So I'm pleased to welcome my son Dan Levy, who has been our new CFO since mid-May, because As you know, Peslel Shaffa is now CEO of the OBG business unit and transformation leader. So I will start by commenting the key highlights of the first semester before handing over to Dan to give you more details on financial results. And of course, I will conclude with guidance and perspectives, and we'll, of course, have a Q&A session. So my message today will be straightforward. While the first half of this year was affected by a more demanding environment, we remain focused on restoring profitable growth. We are acting with discipline, and we are assisting selectively to come back to better trends. So let me start with the main highlights of the first half by underlying the fact that this period was shaped by three factors. One, of course, was already anticipated, i.e. the impact of gaming tax increase across several markets but which is quite significant in this first half as you know but it was combined with a softer lottery performance in france particularly in the second quarter and contrasted but broadly expected performance in obg online betting and gaming at the same time of course we continued to execute our performance plan. We launched targeted action to support growth, and we advanced important initiatives on topics that are key for our business, such as AI transformation, digital lottery, and responsible game. So turning to the key highlights of H1, Well, the figures are quite clear, so TGR was done by 1.3% at 4.3 billion and revenue was done by 4.5% at 1.782 million. This revenue performance includes, as I said, an impact of around 300 basis points or 52 million from calendar gaming tax increase i remind you in france uk netherlands and romania in the french lottery and retail sports betting business we will give you more detail about that luxury performance was affected by inherent gaming risk such as fewer and lower high jackpot cycles in EuroMillions, compared with the very high base of last year, but also by more, I would say, difficult-to-predict factors in our environment, such as exceptional heatwaves, which have been impacting our point-of-sale traffic, particularly at the end of this semester. In online betting and gaming, Q2 was broadly in high with our expectations. France migration was successfully completed, the Dutch market is recovering, and we are implementing turnaround measures and allocating resources to priority markets. So to get deeper into our results, I will talk about EBITDA. ABDA was $404 million, representing a 20.7% margin. It reflects our cost discipline, which has been remaining strong. Variable costs, of course, decrease in line with the activity. And fixed costs, we are down 2.8%, confirming that our performance plant is delivering. We are, to get back to a better growth trajectory, we are putting in place several significant dedicated initiatives for the second half of this year and, of course, looking beyond to 2027. So, the second half, we'll see a strong commercial action plan, the French lottery business, and in preparation of a major renewal of our lottery game portfolio in 2027 with strong focus on innovation particularly for the digital lottery but I will come back to that later and of course we'll continue to work on the turnaround of OBG. We will also accelerate the implementation of AI as a transformation level for our business, both to support growth and to improve performance. And we have also launched a review of our markets, a portfolio of markets in OBG, and a review of non-core assets, particularly within the payment and services business units so turning to the French lottery and retail sports betting I will I will give you some more details so for the the DGR of this business unit has decreased by 2% and revenue decreased by 3.9% including a 28 million impact from calendar gaming tax increase. Lottery DGR was down to 2.1% and revenue by 4%. Actually, when you exclude your million long cycles, which had a very significant impact in terms of comparison with last year, Lottery DGR increased by 1% and iLottery DGR by 6%. So, we believe that this reflects the strength of our underlying business and the potential of the digital channel, and we'll come back to that later. In retail sports betting, GGR was down 1.1% and revenue 2.9%. Actually, this reflects an overall performance which improved in Q2, supported by a more attractive sports calendar including Champions League final stage and of course beginning of the World Cup. The BU is requiring a PTA which 423 million with a margin of 34.1 percent. Then we come back to that later. So in terms of initiatives that we have already launched and we'll have a concrete impact in H2 2026 and looking further in 2027. We are actively managing our game portfolio with the objective to reinforce the attractiveness of our portfolio to stimulate play engagement while, of course, maintaining our responsible gaming standards. In the second half, we will activate the lottery portfolio with a specific plan of dedicated advertising and promotion and to support particularly the events that we have in mind, which is the relaunch of the cash five-year-old scratch game and additional events such as attractive jackpot for a million and super lotto and your dream event so a lot of events in the second half to sustain our goals with advertising and promotion support we are also preparing very actively our plans for 2027 which will be a major year for renewal of the lottery offer with the relaunch of your million in March including a new 300 million jackpot cap a new instant game 10 euro instant game in June and the relaunch of little in October of the same year so big year with a big relaunch of major games that are both important for our point-of-sale business and of course for our digital channel. For the digital channel, we have also launched a new plan to sustain the growth of the digital lottery. This plan will be around investment and customer experience with a more premium, immersive, and interactive offering. It will also use AI-driven personalization and automation to automate customer operations. So this also will be a big change in terms of personation and performance. And with that, we intend not only to continue to grow the number of players in our digital channel, but to increase player value through a better, more relevant, and more engaging experience. Turning to OBG, as I said, OBG at the Q2, in fact, in line with expectations. It's still, of course, a situation of turnaround, as I said, but we were able to basically reach the type of objective that we had with this Q2, since TGR was broadly stable, down 0.2%, with revenue declined by 7.4%, mainly reflecting the impact of gaming tax increase, 24 million. And actually, when we look at our portfolio, we see that when you exclude UK and Netherlands, which are the most difficult markets, TGR increased by 6.6%. Revenue was up 0.6% with good performance in France and Scandinavia. The BU's recurring BGA reached $67 million with a margin that is at 15.5%, which is, of course, a low level of margin. But, again, the question of this portfolio is getting back to growth and, of course, sustain our cost optimization, too. And this is what we are doing today. So for OBG, it's really a contrasted performance across markets. We are very satisfied with the migration that we manage in France to migrate Paris & Sport en ligne and Unibet under the Unibet brand. We merged the player bases. This is a commitment that we made, but it's also important for the efficiency of this business. They are now operating under a single brand and a single proprietary platform. And this was, again, successfully completed at March end. This is a very important operational milestone. That was really our main milestone for this semester. On this basis, all gaming verticals were up in terms of activity, and cross-sell was very good. In the Netherlands, the markets remain challenging, but recovery is visible. PGR in Q2 was up more than 10% versus Q1, and the year-on-year decline narrow significantly, even if we stay in a negative trend, because we were at minus 15% in Q1, we are now at minus 4%. So we believe that we are on a positive trend in the Netherlands, although, of course, it's a business that we manage tightly. In the UK, as anticipated, the situation remains more difficult. The action plan for UK is underway and we expect to start seeing results by the end of 2026. So in OBG, globally speaking, we are implementing under the leadership of Pascal Jaffa, We've now established this new organization. We are implementing a global and complete plan with five priorities. One is a more strong shift to ROI-led marketing and generosity, Prioritizing market investments and optimizing our CRM. Second is, as I mentioned, the turnaround of UK and Netherlands. More advanced in Netherlands than in UK, definitely. But, of course, very, very key for this business. Third is unlocking player value through better player experience. working on the apps, navigation, and customer service, which we just started. Four is, of course, how to develop the sports betting proprietary platform that we want to get to at the end of 2027. We'll have decisions to make on this and to announce during this year, but we're working out on this. And, of course, finally, cost optimization, because we are beginning to see some effect of cost optimization, but we believe that we need to accelerate on this one. I also want to mention that we had a good FIFA World Cup. Of course, this will impact also the second half of the year. But we were able to use the World Cup as a positive driver for the group. Of course, you know that it was a larger event than the previous one, with more countries and matches. So, therefore, of course, the comparison is not on the same basis of business. But globally speaking, the stakes for the whole group were 700 million as a whole, with, of course, a high concentration of France. In France, we saw a slight decline in point-of-sale stakes, but online stakes were approximately twice as high for this World Cup. So very strong performance of our French business and very good performance of the whole European portfolio of OBG in this World Cup. GGR was at the end above 100 million. So we believe that it's a good sign of the strength of these betting brands in France and of also the advantage of having a diversity and geographical footprint. A word on AI, since I mentioned that this is part of the plan that we're putting in place to accelerate growth and performance, We are now aiming at having more, I would say, concrete impact on AI and with definitely more mature capacity to get results from it. It will be first on the growth side to help us know, understand, and engage our players through more personalized journeys and product innovation. We aim to have 80% of marketing campaigns automated by 2028, but it's starting now. On the performance side, AI will help drive operational experience by improving productivity, automating customer communication, and increasing service quality. 30% of OBG customer communication will be fully automated by 2027. And we're also building the foundation of this action plan by training all our employees. 100% of our group employees will be trained by the end of 2027. And we invest also on our tech with tech finance plans delivering on track already this year. And last but not least, we are, of course, maintaining our extra financial highlights and ambitions. We continue to support training and particularly training of young people on this gambling. We think it's very important and it has been particularly visible during the FIFA World up because of course the issue of young adults in gaming and also underage gambling is still something that is very watched by our regulators. Second, our ESG commitments were again recognized by independent third parties with our inclusion in the S&P Global Sustainability Yearbook and the highest A score that we had for the fifth year in the Verité 40 index. And finally, we continue to develop our impact on society, particularly through Mission Nature, which is the version of a dedicated game for heritage that we have now on biodiversity, and which will be dedicated in 2027 to forest, of course linked to the very large forest fires that we got this year with exceptional events that we will be having in the second half of this year. I will stop at this point and let Dan give you more details on this.

Thank you very much, Stéphane. Hello, everyone. This is my first results presentation. I just want to share with you all that I'm very delighted to have joined FDG a little bit more than two months ago. So Stéphane has set out the strategic context, so let me now focus on the financial performance. H1, as was passed by Stefan, has been marked by identified headwinds, which led to a decrease of 1.3 percent in GGR. Given the gaming tax increases, revenue is down by 4.5 percent, and as we said before, we are investing and taking short-term and medium-term measures to resume with profitable growth. The recurring EBDA stands at 404 million in H1, which is a 22.7% EBDA margin. I think it's important to dwell on the fact that despite the headwinds we had on the top line, we delivered a solid profitability level by keeping street control on our cost base and by deploying our performance plan, which is delivering exactly as planned. So let's move to the details. Next slide is the slide on GGR. So starting with GGR, the group delivered more than 4.3 billion in the first half, which is down by 1.3 percent compared to last year. Then obviously, as said before, we have a significant impact of gaming tax increases. Public levies on games increased by 120 basis points to 60.6 percent of GGR. and this is particularly the case in France, the UK, Netherlands, and Romania, and this represents 52 million increase in tax in H1, with obviously a direct impact on our revenue, and obviously as well on our recurring EBDA. As a consequence, as you can see on the chart, NGR is down by 4.1%, which is a sharper decline than GGR. Turning now to revenue, group revenue stands at $1.78 billion in H1, which is down by 4.5% on a year-on-year basis. In LSF, revenue is down by $50 million, which reflects, as explained by Stéphane, the lower lottery activity, and on top of that, an extra $28 million taxes. And in OBG, the revenue is down by 7.4%. As explained before, on OPG, the gross gaining revenue is broadly stable, but obviously tax increases reduced the reported revenue by around $24 million. International Lottery is doing well. Revenue stands at $81 million, up 1.4%, supported particularly by our Lottery in Ireland, Premier Lottery's Ireland, and particularly across digital channels. And to finish with this one, payments and services generated 30 million revenue in the first half. Looking now at the rest of the P&L, I think we have spoken quite a lot about revenue. Cost of sales stands at 760 million euros, which is down 3.8%, basically in line with activity, because it's mainly a viable cost. This mainly reflects for LSS lower retailer remuneration, as well as the benefits of the full internalization of commercial forces, which is now completed. And for OBG, the reduced remuneration of third-party game supplier, as well as lower banking commissions. Marketing costs are up to 160 million euros. If you strip out the effects of additional advertising tax in France of $8 million, this marketing costs are slightly down by 1.4%. We spent this half of the year $91 million in IT services, which is up by 2.6% as we continue to invest in our technology operations and in our platform capabilities. and personal expenses stand at $288 million. They are down by 4.8%, but if you strip out the effects of the employee share ownership plan costs, which happened last year in 2025, the personal expenses are probably stable compared to last year. And finally, we have done some savings on GNA. GNA costs are down 13.2%, mainly driven by lower consulting fees and by a lower expense on real estates as well. So overall, I think the cost base shows clear evidence of the impact of our performance plan, which helps to mitigate the revenue decline impact on profitability. Costs globally are down 3.3% in the first half of the year. Viable costs minus 3.8%, fixed costs minus 2.8%. And this cost discipline at the end of the day help delivering a recurring EBITDA margin of 22.7%. I'm going to be quick on the next slide on performance plan and not comment it in all detail. I'm just to say basically that execution of our performance plan is making progress, as I said before, and is fully on track with what we expected. We expect 100 million savings for this year, 2026, and we are also expecting, as announced before, more than $100 million in 2028. Turning now to the rest of the P&L, so below the ADA, depreciation and fortification amount to $175 million. Non-recurring attempts are negative $142 million, may due to impairment of tangible assets in OG for $135 million, which is directly linked to the challenge activity in the UK and in New Orleans. The financial results is negative by 34 million, a slight improvement compared to last year, H1. Income tax stands at 69 million euros, reflecting partly the impact of exceptional corporate tax in France for 20 million. And at the end of the day, the reported net income is negative 16 million. mainly linked to the OBG asset impairments that I mentioned before. All in all, the adjusted net income stands at $180 million, which will be the reference number for our dividend policy. This adjusted net income is down 19% compared to last year. And let me finish with the balance sheet, which obviously remains one of the group's key strengths. Net financial debt stands at 1.96 billion at the end of June 2026. Our debt maturity profile as you can see on the chart is well spread and secure with no short-term concentration risk and obviously no liquidity risk. And a few weeks ago Moody's confirmed FDG BAA1 investment grade rating with a stable outlook and this is clearly an important external recognition of the group's financial strengths. All of this gives us obviously the flexibility to keep in investing in our growth while maintaining a disciplined resources allocation. I thank you very much for your attention and now I hand over to Stéphane to take you through the outlook.

Thank you, thank you Donna. So quickly to conclude with the So as Dan said, the context is that with a difficult first half, we want and we have the capacity to invest in our goals for the second half and 2027. and in that context we will of course be financially disciplined in terms of allocation of our resources. In this context our guidance is of course to take into account this first half by adjusting our guidance on revenue so we now guide on stable GGR for the year and low single-digit decline in revenue. However, we maintain our guidance on EBITDA margin between 23% and 24% because as Dan explained, we believe we are definitely at the capacity to to reach this level of EBTA margin at the point we are today with the perspective of the second half. This guidance, of course, includes, to remind, $70 million of gaming tax increase for the year with approximately $30 million in LSF and $40 million in OBT. And, of course, we confirm our dividend policy guidance, no change, with a year-on-year increase based on the pay-off ratio of at least 75% of assisted net income. So, to conclude, we believe that we have many strong assets, unique position, diversified business, lottery, gaming, and betting, strong bands, And of course, we want to use those assets to, again, get back to a more attractive growth First half of the year, we're demanding, but we have already been taking strong actions with selective priorities to sustain our growth trajectory for the future. and we remain confident in our capacity to return to profitable growth. Thank you for your attention. And we are, of course, now happy to answer your questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Estelle Weingrad from JPM.

Please go ahead.

hi good evening and thanks for taking my questions i've got three please um the first one you mentioned a review of obg markets and an action plan in the uk can you elaborate a bit more on both i mean first is there a country you're contemplating exiting within obg and then what's the action plan for the uk also one question on the netherlands um can you give us more color on the underlying trend in the market i guess comes are getting easier going forwards either return to gdr growth year on year likely in h2 and just last one is a short one one question on your medium medium-term guidance is it still standing i mean you have not mentioned it in the last releases so

just wanted to check on this one thank you very much okay uh well first on the on the review of of the key markets at this point it's really aimed at investing our money where we think we can to good return in terms of profitable growth so it's no there is no not any decision or potential decision on exit it's really investing where we believe that again there is there is a good return. We are, however, of course, looking at all assets, not fixing anything. There is no decision on exit. I think I'm not sure I can give you more details about the action in the UK to, well, first, of course, to continue to improve the quality of our platform in sports betting. The UK has been impacted by, at the beginning, the low performance of KSD in this market, and we've been already improving that, so that's one fundamental element second element is really again to to be more selective in terms of market investment because we don't want to spend money if it's not useful and on this basis we will assess at the end of this year where we are in terms of results and see how we can can look forward. On Netherlands, I'm not sure I have more elements to give you than the one that I already mentioned in terms of improvement of the situation. So what we what we see giving confidence is the fact that we are now coming from the negative point that we hit within probably a certain stabilization of the market and we expect this to be to continue in terms of improvement till the end of this year. And for the midterm guidance, we have not changed it. We will, of course, comment at the end of this year how we see our trends going forward, but we have not changed our midterm guidance. That's why we did not mention any new elements. Thank you. Okay, thank you.

The next question comes from Richard Stuber from Deutsche Bank. Please go ahead.

Hi, good evening. Thanks for taking my questions. Just three, please, from me. First one in online France. I know you've had a new entrant. I think Bet365 entered the market just before the World Cup. Could you comment about the competitive intensity more generally in the French market and whether you're seeing them having much of an effect. The second one, again, it's going back to the UK online. It looks like your GGR is down about 25% in the second quarter as well. Can you just confirm again whether it is still profitable after the increase in gaming taxes in April? And the third question, I haven't spoken about it for a while, but international lotteries, I think there was a report that you may be looking at the Austrian lottery operator. Could you comment around that and more generally about the opportunities you find from extending your international lotteries from Ireland and from adding on to just Ireland?

Okay. Thank you very much. So on the first question, which is, did we see the impact of Bet365 arrival in the French market? At this stage, frankly, no significant impact. The competition during the World Cup was not, I think, very much impacted by Bet365. I think one has to stay on the future because they will certainly use their sponsoring of the Champions League in the second half. But at this stage, this was not really a significant element in the competition in the French market. I will answer to you afterwards. On International Lottery, first, as you saw, we had a very good performance on July. So it is small, but it's been actually quite positive. And on this basis, We think we have now, I would say, a good track record to look at other opportunities. So this is what we do in a very systematic way. So Austria is definitely a country where the situation could evolve and where there could be potential to be part of a competition in 2027. So we are watching carefully the situation. We have not, of course, taken any decision because we don't know all the details about how this will develop, but it's definitely part of the things that we have to consider in the context of developing our international lottery activity. I think that's the main situation that is clear today in the European context, so I don't have any other, I would say, current situation that I would need to mention at this point.

Yes, so on UK, you are right, we are down in the UK by roughly 20%, and this was the case already in Q1, so as we said before, no significant improvement, and again, we expect some improvement by the end of the year in the UK, but I confirm that we are profitable in the UK.

That's great. Thank you very much.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad the next question comes from sabrina blanc from bernstein please go ahead good evening stephan good evening evening dan and i have two questions from my part the first one is regarding uh the opportunities in austria i understand that you don't have all the details at this stage but do you assume that we the process we would have to take into account an appointment and my second question is regarding the IT platform migration to have an update on where you are now what we meant to do and how the World Cup was a good test regarding the platform I'm not sure I completely got your question on Austria because the sound was not great Sabrina so I'm you want more details on Austria sorry Frankly, it's too early to comment on that, and again, we are watching the situation,

but we have not made any decision at this point, so I won't go more into details. On the IT platform, what we saw on the French market where we had a very good performance during the World Cup is that actually the platform that we have in the French market has been completely consistent with our capacity to sustain our offer after the migration. So I think that's a strong contribution. In our vision of private platform migration, we might actually use the platform that we have in France and reinvest on it to use it in the future in France and even potentially in other countries. So in the rest of the market, as I said, we saw that we were able actually to sustain our offer on KSP in the countries where we have migrated on KSP. So we are considering these different elements to take decision in the second half to optimize our platform migration plan, but that's where we are today. So we'll talk more about this in the second half where we assess the different performance and we decide what is our medium-term plan to get to those appropriate platforms that we are aiming at for OBG business. So I think those are your two questions, right? Thank you. Exactly. Thank you, Stéphane. Thank you.

The next question comes from Johanna Jordan from Otto BHF. Please go ahead.

Just a quick one for me. Could you please share any view on your revenue trajectory for Q3 with the FIFA World Cup being a tailwind and also no more impact from French taxation, if I'm right. Thank you.

Yes, so maybe I will speak about GGR because obviously we want to speak out the kind of tax effect. So on GGR, we have guided for the whole year on the stable GGR. And as you saw, we are doing minus 1.3 in H1. So it means basically that the GGR is going to be up by something which is around 1.5 percent. So this is the pure impact. Then it is true that we do have a difficult comparison last year in Q3 particularly on LSF but actually Q4 is actually better comparative and on top of that as Stefan explained we have launched many commercial initiatives to make sure that we return to growth by the end of the year and that will have probably the most important impact in Q4. So you should be probably expecting a trajectory which is improving between Q3 and Q4, and Q4 being probably better than Q3.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much. Thank you for your questions. Of course, we remain ready to answer more if you have more in the in the days in the coming days thank you for your questions and listening to us and have a good evening and see you or talk to you soon thank you very much bye