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Edited Transcript of FDJ.PA earnings conference call or presentation 29-Jul-20 10:59am GMT

Half Year 2020 La Francaise des Jeux SA Earnings Call

Aug 20, 2020 (Thomson StreetEvents) -- Edited Transcript of La Francaise des Jeux SA earnings conference call or presentation Wednesday, July 29, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Pascal Chaffard

La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy

* Stephane Pallez

La Française des Jeux Société anonyme - Chairman, President & CEO

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Conference Call Participants

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* Alexandre Gérard

CIC Market Solutions (ESN), Research Division - Research Analyst

* Daria Fomina

Goldman Sachs Group, Inc., Research Division - Equity Analyst

* Jaafar Mestari

Exane BNP Paribas, Research Division - Analyst

* James Robert Garforth Ainley

Citigroup Inc., Research Division - Director & European Hotels and Leisure Analyst

* Marco Baccaglio

Kepler Cheuvreux, Research Division - Deputy Head of Research, Italy

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for joining us for the FDJ Conference Call. I'll now hand over to Madam Stephane Pallez, Chairwoman and CEO. Madam, please go ahead.

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [2]

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Thank you very much. So hello, everyone. Welcome to FDJ H1 2020 Results Conference Call. So I'm with Pascal Chaffard, Executive Vice President, Finance, Performance and Strategy. You have certainly already seen the press release that we published at 6:00 today after market close. We'll also post on our website our slide show, I don't know whether it's already posted.

So what I'm going to do is give you a high-level introduction about those results and the main messages. And after that, Pascal will walk you through the slide to describe the different elements of our communication.

So I want to start, of course, by stating, as you know, that this H1 semester has been risen by the COVID-19 pandemic. It's been -- overall, the result is a drop in stakes, which is limited, I think, we can say in this context to minus 18%. But actually, this 18% is the result of 3 very different moments during this semester that you have -- that we have commented all along in our different communication since mid-March.

So we had, of course -- it's far away now. It's very far away, but we had a very good start at the beginning of 2020 up until mid-March stakes were up 5% in line with expectations. Then starting with the French lockdown decision and starting March 16 to May 11. Of course, the lockdown caused a significant decline in activity. Due to a very severe shortage of sporting events and the closing of bars, which accounts for about 20% of our point of sales. And we also decided, as you know, to stop offering our Amigo game on March 19.

And on this basis, during this period, as we described previously, the stakes declined by around 60%, with lottery stakes down by more than 40%, excluding Amigo, and sports betting stakes down nearly 95% due to the very limited offer linked to sports event. So this is, as a reminder, you remember that this lockdown period of nearly 2 months mechanically closed a revenue loss of around EUR 200 million. And an EBITDA loss of around EUR 100 million for those 2 months.

Since the end of the lockdown in France, mid-May, we have seen a gradual recovery which has accelerated in the last period, particularly since mid-June with the gradual resumption of sporting events, particularly for European football as well as with the reopening of bars and the relaunch of Amigo. So really very, very, very differentiated period. The last one being, of course, the most positive but still short, of course, in terms of impact on the semester.

I think the good news also is how we protected our EBITDA because you have certainly noted that our EBITDA margin has been maintained at above 20% during this first half, which is good news, maybe surprising news. I think one element is, of course, very much linked to the action that we've been taking, and particularly, the cost reduction plan that we initiated at the onset of the pandemic and, as Pascal will comment, has been deployed very quickly and is for 2/3 on this semester.

But it's also due to low payout ratios within our sports betting business. And there, of course, you have an element, which is less in our hands, and which is, of course, not easy to reproduce when we will have normal sporting offer.

So just one word on the cost-reduction plan. This cost-reduction plan, which has been launched at a level over EUR 80 million has been designed to cover the entire spectrum of fixed cost that we budgeted for 2020. It's 10% of our -- of those fixed costs for the year. And as I said, 2/3 of this plan have been deployed at the end of June 2020. Because, of course, it's absolutely logical since our activity was low. We saved as much all the marketing advertising expenses that are linked to our normal activity, not only to save this, but also to keep some margin of maneuver for the reinitiating of our activity that we are now right in the middle.

Regarding the sports betting play of payout ratio. So as I said, it stands at a very low level, 73.1% versus 77.7% in H1 2019. And of course, the 73% is a level that is, I think, not consistent with normal sports betting activity in which you invest, of course, you invest in the payout ratio to attract you and retain your customers.

The last comments I will make is that, as I said, since mid-June, FDJ's activity has been back around a level that we've seen in 2019. So it's, of course, very good news, but it's limited news in terms of weeks. And so given the uncertainties that we are surrounded for the -- for this second semester, we have been -- we have decided not -- to not communicate at this point a new financial target or guidance for 2020 as a whole. Even though, again, we have this positive sign that we expect, of course, to confirm, but we are definitely dependent of the environment and government, as we all know, is very volatile in terms of sanitary conditions and with repercussions of these sanitary conditions to the overall, I would say, social and economic activity in our country and in any country, I would say.

I want also maybe to refresh our confidence in the strength of the FDJ's business model in this environment. I think we have seen during this crisis, that we have several very key strengths that we can count on -- that we've been counting on and that we can count on for the future. Of course, the resilience of our lottery business unit, particularly in its draw games part its -- in its point of sales in a way. Of course, some were closed. But again, we had some activity even in the context of the lockdown.

And we also saw something that we know is very interesting and positive for the future, which is the growth -- the strong growth potential of our online activity, of course, the online lottery, in this case because, again, the online sports betting activity was not possible given the level of sporting events that we had.

We also, I think, showed the benefits of the investment in technology that we did during the last 5 years in our IT and digital, and we definitely showed it to the fact that the company has been able to be managed on a remote basis for 97% of its employees. And we also, of course, saw the benefit in the capacity of our online gaming activity, online lottery activity to accelerate during this period.

So we are -- we think that this period has validated overall, our strategic initiatives for 2025. The fact that we want to continue to strengthen our co-activities, namely lottery and sports betting with sustained digital development effort and deeper client knowledge. Also, the idea that incremental resilience will be also obtained through the development of more adjacent activities, such as payment and services that we've been talking about for some time. And we've not only been talking about it, but we actually deployed during this period. We deployed our services for what we call proximity payments linked to the tender that we won with the tobacconist confederation to deploy this proximity payment for taxes but also a number of small payments in our point of sales. And we announced this week that the generalization of this service, the complete rollout is now happening. So this service is actually accessible in -- on the whole French territory in more than 5,000 point of sale.

We also -- I think so that the strong benefits of our financial structure with readily available cash of more than EUR 800 million, and our capacity to manage this cash generation even in a period where our activity has been low and where there were some tensions with our retailers that we actually manage with them. So I think that's also a very good and positive lesson.

And on this base, clearly, we intend to maintain our investment. I want to stress that the cost savings plan that we did, as I say, has protected our capacity to continue to invest in our development, our marketing development, particularly for this second half and also in our CapEx, because our CapEx in H1 2020 have actually increased year-on-year over EUR 11 million. So we definitely protected also our capacity to invest, not only in this semester, but for the future.

We've been very close to our retailers during this period And I think this also was very positive. So of course, we have invested a lot in this network. And I think we've been managing the crisis with them. And I think we saw that this was positive and actually is very positive today in the way in their capacity to come back and accelerate the business in the last week. And of course, we are looking very closely at the potential change in the consumption trends and patterns for French customers and particularly in our sector to draw the lesson of this, particularly the fact that, of course, dematerialization, digitalization, electronic payments have been a very important feature during this period, and of course, this -- some things on which we want to base our future development and investment also.

And lastly, I want to stress that during our general assembly on the 18th of -- June 18, we had our shareholders vote to include our raison d’être, purpose in English, in our bylaws. This was voted as a very, very large majority. It's the conclusion of the work that has been started to elaborate this purpose for over 18 months. And of course, it is now the beginning of the concrete implementation of the commitments that we see in this purpose.

It is very much, again, in line with what we stated during our IPO. And what we think is the good business model for FDJ, which is not only financial performance but also capacity to show the benefits of this model to our stakeholders. So we think it's an important step. That has been actually -- that has been happening during this first half. So that's why I wanted to mention it, and we are going to, again, to deploy a number of initiatives to implement this now in the second half.

I will now let Pascal Chaffard present you the main features of this H1 and come back for -- I will come back for the Q&A. Thank you.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [3]

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Thank you, Stephane. Before diving into H1 figures, it is worth mentioning that 2019 data and related year-on-year changes have been restated on a comparable basis to consider mainly the new tax regime that's come into force on the 1st of January this year and, more anecdotally, sporting group data presented as is consolidated from start of 2019.

So now we are on the Slide 4 with the H1 key figures. I will cover those key highlights before reviewing the results of the first half of the year in more detail. As Stephane said, stakes totaled EUR 6.9 billion, down 18% year-on-year. So given the lockdown and restricted population movements for several months, activity in point of sales suffered more with a 21% drop as digital lottery increased by 50%. I will come to that a little bit later.

The decline in stakes reflected -- is reflected in revenue, but to a lesser extent. And Stephane has explained why. It's because of the player payout ratio that have been less higher than expected.

And EBITDA, defined in our case as the recurring operating income adjusted for depreciation and amortization, fell by 16.4% to EUR 174 million and a margin maintained at over 20%, to be precise 20.5%, in the first half of 2020 versus 20.9% in the first half of 2019, and 20.6% full year 2019, always on a comparable basis.

Now we move to next Slide #5. Take a look at the breakdown of the stakes. The 18% drop in stakes in the first half can be broken down as follows: 39% fall for sports betting reflected -- reflecting the sharp reduction in the number of sports competition. I will not comment it more because you know that also very well. We have seen a rebound in betting since the end of the lockdown, reflecting a gradual resumption of competition notably European football. And from mid-June, we have recovered the level of activity comparable to the same weeks of 2019, though still well below the 2020 expectations. As the 2020 European football championship, due to be held in June, has been postponed to 2021.

On lottery, it's 13% decrease. Or we can also say 8% decrease when adjusted for the Amigo total shutdown. Amigo have been shut down for nearly 3 months. This performance clearly illustrates lottery resilience, and in particular draw games, with a limited minus 2% decrease, excluding Amigo thanks to a large base of players who remained loyal. In particular, Loto did very well.

The online lottery growth of plus 50% over the half year was remarkable. Digital stakes doubled during lockdown and growth remained strong since then. This is attributable to most -- almost equally the enrollment of new players as well as the existing players at the end of December customer base activation.

The strong online lottery momentum softened the overall decline in lottery stakes by over 3 percentage points. This is to be noted.

And finally, over the last few weeks, since mid-June and continuing to date, as Stephane told you, both lottery and sports betting have returned to the levels of the equivalent period in 2019.

If now we take a look at Slide 6. The 15% decline in revenue is smaller than the 18% decline in stakes because, as we said before, a lower player payout, which was 67.3% in 2020 versus 68.6% in the first half of 2019.

So overall, this decline reflects the change in the lottery sports betting mix as sports betting has structurally higher PPO -- PPO for player payout. Lottery revenue were down 12% versus stake down 13% because of the mix in the lottery game, more Loto and less Amigo, basically. For sports betting, the difference was very significant with a revenue drop of only 26% versus stake down 39%, and Stephane explained you the level of the player payout in the sports betting area in the first half.

In the first quarter, the player payout was low for FDJ but for the entire market. But I can just comment a little bit more the player payout in the second quarter of 2020, which reflects the scarcity of events with some exotic games and making it may be more difficult for players to exert their expertise. But this situation applies de facto, as I said, to the entire market, but it's important to note that compared with a regulatory annual player payout caps, this gives us great leeway to have higher PPOs in the second half of the year, and this will be the case for all operators who want to entice players back. So let's be cautious when you will think of the second half of the year, the level of the player payout should not be as low as it has been in the first half of the year.

So some more details on our cost reduction plan. This is on Slide 7. As Stephane said, very early on, at the end of March, we announced the implementation of a cost reduction plan amounting to over EUR 80 million, i.e. more than 10% of the group's annual fixed cost with more than 50% of planned savings related to advertising and promotion expenses, as it is shown on the graphic.

This EUR 80 million cost reduction plan is in relation to our 2020 budget, which considered an OpEx increase alongside business development. For example, the 2020 European football championship with advertisement, specifically for this event. Compared to 2019, the savings are, nevertheless, close to EUR 30 million. More than 2/3 of the savings were recorded in the first half, representing 15% of half yearly fixed cost, mainly the same thing as the whole year related to advertising and promotional expenses. This impact was very important on our EBITDA margin because it helped safeguarding this EBITDA margin by around 7 basis points.

So as a reminder, we define variable cost as cost that automatically adjust when stakes vary. And fixed costs, those which need management decision to vary, to be clear on what we call fixed and variable costs.

If now we move to the Slide #8 from the revenue to EBITDA. The drop in retailer commissions down 21%, reflects the drop in POS stakes, point-of-sale stakes, because point-of-sale stakes constitute the basis for retailer commission. The decrease in other cost of sales reflects a reduced number of promotional events and a decline in game support costs due to the reduction in activity overall.

Marketing and communication expenses mainly consists of advertising and promotion on one hand and game and service development on the other hand. On the first half, advertising and promotion expenses, the costs are down, sharply down as we stop all off-line product advertisement in March to restart only mid-June. But expenses related to the development of our offer, as Stephane said, which is, for example, product innovation, platform services. Apps digital are up sharply, which explain why marketing and communication expenses were down by only 3.2% overall. It's a strategic intent that our savings plan does not impact the group's future development. Therefore, development costs have remained in line with our initial budget, particularly on the digital front. And as you can see, administrative and general costs have been reduced following the implementation of the saving plan.

Now we move to the next Slide #9. Looking at our EBITDA margin, it is to be noted that we have been able, thanks to the cost saving plan and also to the low level of player payout on sports betting, to maintain an EBITDA margin at a comparable level with the one of 2019.

Looking now at EBITDA itself rather than the EBITDA margin we see that the lottery contribution margin is falling, but we will see on the next slide that the margin rate has nevertheless been maintained on the lottery business. The sports betting contribution margin was maintained despite the sharp decline in activity, thanks to the combined impact of, as we said before, the lower player payout and also the savings on advertisement and promotions. We will see in the dedicated slide that the PPO effects translate into an improvement in the margin rate for this H1, not necessarily for the -- all the year. And at the holding company level, cost control was driven by the saving plan.

Just one word on Slide 9 to say that standing at 32%, close to the level of the first half of 2019, the contribution margin rate of lottery has been broadly maintained despite the 12% drop in revenue. And this is globally the level that we had on the total 2019 year at this 32%.

If we move now directly to Slide 11, Sports betting saw its contribution margin increase sharply, up 7 points to more than 31%. We have already explained why. But I think it's important to draw your attention to following points with regard to the second half of the year. We should go back to a normative level or even see an increase in advertising and promotional expenses to entice back players for us, but also for the rest of the market, we expect a more competitive market this second half of the year. And the PPO should increase reflected an expected increase in competitive pressure with operators wishing to gain or regain market share. So we have to be cautious on the player payout of the second half of the year.

Now we move to Slide 12 to go in detail for the bridge from EBITDA to the net income. Depreciation and amortization are at a comparable level to H1 2019. The EUR 7 million increase is related to the amortization of exclusive rights over a full half year in 2020 compared to 1 month only in H1 2019.

Nonrecurring income mainly corresponds to an impairment of Sporting Group sports betting business in the United States -- in United Kingdom, not the United States, for EUR 26 million. It's a goodwill impairment. This subsidiary, you have to keep in mind, it's 100% sports betting and has been particularly touched by the crisis with the remaining level of uncertainty on the recovery rhythm.

Our net financial income reflects the new loan of EUR 300 million and EUR 800 million for the payment of exclusive rights to the French State but also the mark-to-market adjustments of our financial investments in the context of a deteriorated financial market. After corporate tax, the group's net income for the first half of the year was EUR 50 million.

Now if we go to the Slide #13, at June 13, 2020, net cash surplus was close to 300 million, an increase of more than EUR 200 million compared to December 31, 2019. This change is marked by a positive working capital impact induced, in particular, by this change in the payment schedule for the public levies following the tax legislation. We pay now our public levy on a monthly basis, and we paid it last year on a weekly basis as well as the unclaimed winnings that we will pay back to the State at the end of the year.

This upward variation were partly offset by the payment of dividend for the 2019 financial year and CapEx. We have to remind you that the level of this net cash surplus at the end of June cannot be extrapolated to the end of December, due to significant calendar effects on the payment of public levies, including an advance that we will have to pay in December -- for the month of December. So we will not have this effect -- this calendar effect that we have seen at the end of June by December.

Last slide, I wanted to stress on is we have communicated several times during the first half of the year about our short-term available cash of more than EUR 800 million. And Stephane told you that some minutes ago. Again, it stands at EUR 853 million precisely at the end of June. And we, therefore, thought it might be useful to present the bridge between this EUR 853 million, the net cash surplus of EUR 298 million I have just commented before and the amount of cash and cash equivalent as per our balance sheet of EUR 476 million precisely.

As you can see on the slide, available cash includes EUR 476 million of cash and cash equivalents, plus EUR 449 million of term deposits in order to close the gap with the net cash surplus position, you add other financial investments and then deduct, first, the EuroMillions funds that are [illustrated] in a trust in Great Britain; the gross financial debt, mainly the loans related to the exclusive right to the acquisition of Sporting Group and to the acquisition of our head office building; and the last part of the funds to be retroceded to the State as per tax legislation.

I've ended with this presentation. So thank you for your attention. And now, Stephane and I will be happy to answer all your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have one first question from Mr. Jaafar Mestari from Exane BNP Paribas.

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Jaafar Mestari, Exane BNP Paribas, Research Division - Analyst [2]

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I've got 3 questions, if that's okay. So firstly, today, you're saying that activity levels have recovered and have been comparable to 2019 since mid-June. So in this context, could you help us understand what you meant when you gave an interview in the press on 18 June saying that you expected the recovery to take 18 months. Is it just that everything particularly accelerated in the days that followed? Or do you still have any major reservations around the shape of the recovery? That's my first question.

Secondly, just on online lottery. So stakes up 50% in H1. I think as of your Q1, you were saying a run rate of plus 40%, so really, really strong momentum again. Did that slow down markedly since mid-June as customers go back in point of sales? Or do you think you made any permanent online mix gains?

And lastly, just a generic question on your regulator. I appreciate that the President of the ANJ has only started 4 weeks ago. But could you share your initial experience working with her and with the ANJ in their new shape? How easy is it to discuss new product? How easy is it to tweak player payouts? When you had hiccups like the sports betting player fraud, how stringent have they been with you? And do you think it's going to be a regulator that's going to be easy to work with on innovation?

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [3]

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Okay. I will answer to the first one and to the third one about the regulator, and Pascal will complement me, particularly on the -- and answer the second one.

On your first question about what we say today compared to what I have been saying in my interview around the general assembly. Actually, what we see today is positive. Again, as we said, it's positive for -- since mid-June, we have come back to level of activities that are comparable to 2019.

However, when I was saying that I expect to come back to the level of business that we had at the end of 2019, I was talking about coming back to the absolute figures that we reached at the end of 2019, particularly, for instance, in terms of level of stakes. So one thing is to come back to level in the second half if everything goes well that are comparable to 2019. But it does not compensate. So you do not find at the end of this year the compensation for what you have lost in terms of activity in the first half.

So I've been -- it's true that I've been cautious when I was saying that. And at the moment, I was -- I've been making this interview, we did not add the positive -- the first positive sign that we had since mid-June because it was just before that, in a way. I've been saying that I expect to reach -- to come back to the level of activity that we had at the end of 2019 before -- at the latest at the end of 2021 and before if we're able to do so. So I'm still completely consistent with that statement.

Of course, the key question is how the level of activity is going to be in the second half, whether it's going to continue to grow over the next months. And this will, of course, give us a very, very strong indication of where we are compared to this medium-term perspective.

Pascal might give you some more colors on that, but roughly speaking, that's how I can answer. On the regulator, you have rightly said that the regulator is actually in place since roughly -- well, a little more than a month, officially speaking. So we've been mostly working with the regulator and with a very good dialogue about how to work together, how to implement the data exchange that we -- that they want to put in place on all our online activity. And how they're going to structure the way they will examine our next requirement.

So actually, we did not have any -- we didn't have any discussion or dialogue about concrete decisions at this point because they are not ready to do that. But of course, we have anticipated that since our regulator before the ANJ has given us all the authorization that we need to have to pursue the activity of the company at this point.

So really, the key test is going to be in the fall because in the fall, we will go to the ANJ with a number of authorization for new games. For instance, they will also have produced a number of frameworks that are not published yet. So we're really in the preparation of the framework for our relation, and in this context, I can say having been directly in contact with the chairwoman of the ANJ that they are -- of course, they want to set up a very -- I would say, not -- a very serious regulator. Serious in the way that they want to really -- to have data to take the decision, and they want to have a good legal framework to take those decisions. But with a very good dialogue about what are the constraints of the company.

Pascal?

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [4]

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Okay. Just to complement, maybe one figure to explain one thing about the 2019 figures and 2020 figures. In 2019, H2 was 11% growth versus 2018, H2. So when we are just now at the level of 2019 -- to continue to be at the level of 2019, we have to do as good as we did last year, which was 11% growth compared to 2018 just to have this complement of color to see that it's not done yet.

Second thing, to answer your question about digital -- lottery digital. Yes, we have plus 50% on H1. And what we said during the lockdown is that we were 40% ahead of our expectations. This is totally true. And what I can say about that is that we have kept a significant part of the activity we had during the lockdown. We have not kept 100% of this activity. But it's true to say that we are in advance on our plan on the digitalization, and we have maybe gained 6 months, 1 year, thanks to this lockdown period.

So we will not lose everything, everything we have gained during the lockdown in H2. We want, in the contrary, to build on this momentum to continue to animate this digital lottery and to continue to have a strong growth in digital lottery.

Maybe last thing about that. In H1, we have doubled the number of new players compared to H1 2019. This is a little bit more color to understand what we're talking about.

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Operator [5]

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Next question is from Mr. [Reuben La Luche] from [Orchard] & Co.

Next question is from Madam Daria Fomina from Goldman Sachs.

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Daria Fomina, Goldman Sachs Group, Inc., Research Division - Equity Analyst [6]

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I have a few questions, if I may. The first one, I guess I'm going to follow up on Jaafar's question. On your very positive comment that for mid-June, you returned to an overall level of activity. Can I ask a little bit more data around it? If you can comment a bit about the traffic in the shops and the stakes per customer just to make sure that we're on the same page that you basically said that in the last few days -- weeks rather, the state levels were in line with the 2019. Keeping in mind that obviously, annualizing that, that would be too aggressive given that the second quarter was very weak, just in terms of the last few weeks of June and July.

And my second question on your marketing expense. Can you provide a little bit more color on the marketing cost pickup that you're expecting in the second half of the year, maybe relative to the levels you delivered in 2019? When I look at your Slide 7, to me, that actually implies that you're still expecting a $10 million reduction in advertising costs to come in the second half of the year. Can you marry those two together, if possible?

And my last question is on regulation. We saw a number of countries introducing limits on deposits or max losses in the last few months, in response to user spending or players, sorry, spending more on gambling activity. Can you provide a little bit more color if you are worried or expecting anything to happen in France? Has there been any discussions at all?

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [7]

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Pascal, maybe you can take the first one. The first 2 questions, and I will do the third one.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [8]

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Yes, yes. Yes, the first 2 questions. So first question, if I have well understood, you want to have more color about what we call the normal level of activity. I can comment it differently talking about lottery and talking about sports betting. When we talk about lottery, mainly, we talk about retail lottery because normal level of activity -- we are ahead of this normal on the night we talk about retail lottery.

What we can say? We don't have a perfect knowledge of our customers. It's very hard to say if the number of customer is the same that it has been before. We know that we are in the process to make some surveys to dig this point. But we know that the -- really a major part of our point-of-sale are opened. And they have quite a normal number of people visiting them. So we can assume that we have -- maybe not the same level of players. It's impossible to tell you at this stage, but an important number of players that are back to our point of sale.

On the sports betting activity, it's more -- it's harder to talk about normal because nothing is really very comparable when you compare 2019 to 2020. In 2019, end of June and beginning of July, most of the football offer was -- there was no football offer because all of the championship has been terminated in 2019. And this year, in July, we have most of the European football championships that are making business. And on the contrary, we don't have anything. So it's quite difficult to really have a good base of comparison. But still, if we look at the figures as they are, they are at the level or a little bit higher than they were last year at the same period.

You have to understand also that this is not significant. Yes, because it's some weeks. But usually, those weeks for sports betting are low weeks. So we are comparing to relatively low weeks of 2019. We will see a better. That's why it is difficult to make sure a forecast for the older 2020 year. We will see things better in September when all the championships will have returned to normal, when we will have an -- when we will have tennis and the level of activity will be really higher than it is today. So we'll see if really we can continue to say at this time that we have a level of activity comparable to 2019 or even a little bit higher. We will see that. I hope it answers your first question.

On your second question, you talked about marketing expense. And you referred to page...

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [9]

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7.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [10]

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To page 7. What I can say is that we have -- the saving has been done on the marketing on the Q1 and -- Q1 and Q2, sorry, H1. But we have saved quite important amount of money, to be able to support our activity in the Q4. And our activity in Q4 will be extremely high in a number of new games, a number of new things that we will propose to the market.

In September, we have another version of the heritage products. Then we have major launches of products in October, in November, in December. We will have a strong activity, marketing activity, and we kept a large part of our marketing budget to spend in Q4 to be sure that we will be able to make the activity grow in Q4 because as I said a few minutes ago for sports betting, July is usually a low period for our activity.

What is important for us is to make the activity grow for September, October, which are important and more -- month with an activity higher than we usually have during the summer.

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [11]

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Okay. And just on your third question about regulation, which as I understand it is -- globally speaking, are there any risk or intention to have -- coming from the regulator new limits on stakes or on deposits that can be made. There is no such intention has been expressed. So there is no current debate about that type of limits. That's a fact.

I think it is -- it has to be understood that the French market is, I think, in quite a different shape in terms of development and way the operators have been developing the market when you compare it, for instance, to the U.K. market. I'm talking about sports betting. So the regulation has been definitely stricter. The market is still less developed. So that I think is element of context to understand that we don't have the same debate.

However, since you asked the question, I think it's worth mentioning that there was a study published by the observatoire des jeux, so the gaming observatory, which -- a study that is made -- that has been made in 2019. No such study has been made since the last 5 years. And this study points out -- underlines that the main, I would say, contribution to the intensification of gaming, although this intensification is still, I think, quite at low level in the French market from the sports betting activity. So this certainly has put some focus on that. But I would say there is no very lively debate on this at this point. So no risk identified at this point.

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Daria Fomina, Goldman Sachs Group, Inc., Research Division - Equity Analyst [12]

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That's very helpful. Can I ask just to clarify on advertising, did you want to imply that those -- again, referencing to Slide 7, those EUR 40 million roughly annual target saving and advertising is going to be spent in Q4. Is that what you're saying that, that will be reinvested?

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [13]

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I want -- I don't know if I want to answer really this question, but you can assume that we will have an important advertisement plan in Q4. I think I will stay with it.

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Operator [14]

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We have one last question from Mr. James Ainley from Citi.

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James Robert Garforth Ainley, Citigroup Inc., Research Division - Director & European Hotels and Leisure Analyst [15]

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So 3 questions, please. First, could you talk about whether you've seen any closures or distress across your point-of-sale network during the crisis, whether you're seeing any closures, whether you left any bad debts from struggling point-of-sale owners?

Second, can you talk about maybe how you think your competitors have fared through the crisis? And are you seeing any greater M&A opportunities as a result?

And then the third question, there was clearly some political pressure around paying dividends earlier in the year, and you reduced your payout. Can you confirm that you're not planning to make any changes to the dividend policy and that you haven't received any government support during the crisis?

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [16]

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So maybe to start with the last question. So as you as you saw, I think we definitely reiterate our guidance for dividend. In fact, at the time the general assembly, so it's 80% of our net results. And there was no interference or no interest for the government, which is, of course, only a minority shareholder of Française des Jeux.

But no, clearly, this guidance has been reiterated. We can buy 30% dividend for -- that was distributed this year. Again, in order to be cautious in terms of difficult times and to be prudent of the financial situation of the company, but we really -- this was the decision that was made at the Board level. And I think that was well understood by our environment.

So to come back to your 2 other questions. For the point of sale, we've been -- of course, we've been watching and monitoring closely what has been happening in our point of sales. We've been actually managing with them their liquidity situation, for instance, by deciding not to make any cash call from point of sale that we have closed. So we did that on a voluntary basis because we thought there was -- it was not -- it could not be very smart from us to accelerate the failures of those point of sale if they can reopen and get back to that business after the crisis.

This has been, I think, this has worked very well because we started to make those regular cash calls in the last weeks. And actually, we've been -- we're having already very low level of bad debt.

Pascal might give you the number.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [17]

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Yes, yes. If I can just complete, we have accounted nothing for bad debts in our H1 accounts, which means that we are quite not sure, is not...

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [18]

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Confident.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [19]

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Confident on the fact that we will be able to recuperate everything. And if I think I can give these figures, we had EUR 11 million in our point of sales, and we have already recuperated EUR 9 million in some weeks. So it's really -- we did -- I can say that we did a great job on this matter because we gave some flexibility to the point of sales that they needed. And as the business has now restarted as we spoke before, we have been able to recuperate the major partner, and we will recuperate in H2, the rest of the (inaudible).

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [20]

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On this question also, I think it's interesting to say that we are, of course -- we continue to watch closely what happens to them, given the shock that they had. We don't see a major trend in failures, which is good news. Actually, the number of points of sale at the end of H1 is still very close to 30,000. So it's -- this is good news. It's -- and it's good news because, of course, on the other hand, it's been quite difficult for us to create new points of sales during this period. And we will, of course, restart to do that now for the second half.

So we don't see a major negative trend in the number of point of sales, but we'll continue to watch this very closely because this might, of course, it is a risk that can materialize later in the year. We have also -- but we'll communicate when it's ready. We are thinking about the type of mechanism that we could support if we think their situation is sound in the medium term to support them if they have short-term difficulties.

But at this point, it is not necessary. And I think that's a very good deal. I think the best thing that we can do with them is relaunch and stimulate their activity, and this is what we've been able to do in the last weeks, and this is also good news for retailers.

On your second question, which was about our competitors have been going through the crisis. Well, it's -- as you know, it's a question that I can have different type of answers regarding different type of -- who are our competitors.

In the French market, of course, I'm not going to talk about the activity where we don't have competitors because we are monopoly. The -- on this -- on the online market and sports betting, particularly, it's fair to say -- well, first, we don't have numbers because they don't publish anything. So we give much more information than them. But it is fair to say that we know that some of them, and particularly, the ones that are strong in poker have been using online poker to compensate for the drop of their stakes on sports betting and to animate and even retain and attract new customers.

So we don't know the exact numbers. We will have more indication at the beginning of fall because the regulator will publish some figures about the market. But it seems to -- what we know seems to indicate that they had a shock, but some of them and probably Winamax, for instance, has been able to compensate partly this shock with poker.

So we don't see -- I would say, we don't see people that are really in a difficult or distressed situation on the market, at least in the big players. The smaller players, I don't know. But frankly speaking, I don't think it's really the issue. So I think the big players will have the shock, but manage through the crisis, but we don't see anybody in distress. And so I don't think there is, I would say, direct consequence in terms of M&A that you could draw from that. But of course, it does not change our medium-term point of view, which is that the online sports betting market is due to consolidate, and we will want to be part of it.

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Operator [21]

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Next question is from Mr. Alexandre Gérard from CIC.

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Alexandre Gérard, CIC Market Solutions (ESN), Research Division - Research Analyst [22]

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I have just 1 question on what you just said regarding poker. I mean if there is no M&A opportunity, would you be ready to diversify your value in poker, but through -- I mean, going in that category organically? So this is my first question.

And my second set of questions are related to some of the numbers in your P&L and balance sheet, more for Pascal. The first one is on the depreciation charge, which seems to me to be just a bit high compared to what you guided at the time of the IPO. Can we count on the double for the full year? This is my first question.

Second thing is on the income tax rate also, which is slightly high on the first half of the year. What is the normative level for the full year. And my last question is on the net cash, which is shown on Page 14 of the presentation, how do we reconcile that net cash with the one which is shown on the balance sheet, which is on Page 18 of the presentation.

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [23]

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Okay. So on your first question about poker, it is a good question. And of course, we have -- I think we have identified this question. We are not ready to answer it yet. I think the question for us is really is there a way to go into poker at, I would say, quick and good economic conditions. And we are, I would say, dealing with this question, but we have not come to an answer. But we don't rule out the question as you understand.

I will hand over to Pascal for answering about depreciation.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [24]

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About depreciation -- I can help you a little bit about depreciation. I remember we had a specific call last year to guide you correctly about depreciation. Look, if you take the number that you have in the first half, which is EUR 50 million in my remembrance. You have to more than double it to have the number of the full year. But not by an important factor, double it and a little bit will be great. So this is for the depreciation charge.

For the income tax rate, the reason why you think it is quite very high is that our noncurrent charges were nontax deductible. And if you deduct this thing, you will see that our tax rate is normative -- tax rate -- French income tax rate.

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Alexandre Gérard, CIC Market Solutions (ESN), Research Division - Research Analyst [25]

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But shouldn't we be below 30% for the normative tax rate and going down to 28% in 2 years' time?

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [26]

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Yes, yes. We take the level of tax rate that is written in the low or is set by the government, and we take nothing else. So you have to do your assumption with what the government has said for the tax rate. But we will globally follow the French income tax rate.

And for the net cash. So you want to reconcile page if you can help me, Page 18, the cash and cash equivalent. We showed that, EUR 476 million. And I have done this Page 14, to make this reconciliation. And we begin the Page 14 with the EUR 476 million, which are the cash and cash equivalents in our balance sheet. This is the exact number of the balance sheet. And then we add those term deposits that are available within 32 days. But on the IFRS way to count it, it is not counted as cash and cash equivalent. It is counted as noncurrent assets, financial assets. So this is why we add this amount.

And we deduct a part of our cash that is in cash and cash equivalents, but is not available for us because it's the cash that is only used for EuroMillions, and it is in a trust, and we cannot use it as we want. So we add the term deposit, and we deduct what we cannot use in our cash, which is the EuroMillions cash. And then you have this 859 -- EUR 853 million.

Apart from that, we have other investments. But more long-term investment, which are amounted EUR 224 million. You have some financial debt with our 3 loans, I commented earlier, for more than EUR 300 million. And the cash -- the amount that have to be paid to the state, the regulatory funds before the end of 2022, which makes you the complete bridge to the net cash surplus. I hope I have answered your question. I am very happy to have made this bridge because I knew that it was something that you wanted to have.

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Operator [27]

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We have 1 last question from Mr. Marco Baccaglio from Kepler Cheuvreux.

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Marco Baccaglio, Kepler Cheuvreux, Research Division - Deputy Head of Research, Italy [28]

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Yes. I will be very quick as many things have been clarified. One is, can you be a bit more precise about what part of this roughly EUR 200 million working capital push you had in H1 on your net financial position will disappear in the full year? Is it still going to be a positive net working capital? Or it will go away in total?

And secondly, is it correct to assume that the lower payout ratio in sports betting in H1 was pushing your results by about EUR 20 million, EUR 25 million as a forecast?

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [29]

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Yes. On the first question of working capital, it will not disappear totally at the end of the year. But what is true is that you cannot assume that we will have working capital valuation of more than EUR 200 million at the end of the year because we will have in December, we will pay the public levies of November as it is every month. Every month, we pay the public levies of month, last one, at 24 of the month. But in December, we will pay the public levies of November and an account on public levies of December.

So basically, we will normalize this cash -- this variation of working capital. This is the reason why I haven't said that before, but it's important, maybe interesting to say that. This is why we don't present our EBITDA to cash conversion on a semestrial basis because it has no interest. It means nothing. So we will keep as we had in mind at the beginning of the year a part of this working capital variation, but not all the amount than you can see here.

Sorry, I forgot your second question. It was on -- yes, on the H1, you -- could you repeat the question?

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Marco Baccaglio, Kepler Cheuvreux, Research Division - Deputy Head of Research, Italy [30]

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Yes. The low payout in sports bet it was giving you what -- my calculation was about EUR 25 million improvement in your results contribution, is correct?

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [31]

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Yes, the assumption is correct. Yes. Great. EUR 24 million, if you want to be totally precise.

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Operator [32]

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We have no other questions.

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [33]

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We have no other questions?

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [34]

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Yes. No further questions.

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [35]

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Okay. Thank you very much.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [36]

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Thank you.

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [37]

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Thank you. So thank you for your questions. And of course, we look forward to continue this dialogue, and particularly, of course, in Q3.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [38]

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In Q3, and the figure will be reported 14th of October after market.

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Stephane Pallez, La Française des Jeux Société anonyme - Chairman, President & CEO [39]

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Bye-bye. Good evening.

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Pascal Chaffard, La Française des Jeux Société anonyme - Deputy Director General of Finance, Performance & Strategy [40]

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Good evening.

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Operator [41]

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Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.