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ZEAL Network SE: 2019 was an Exciting and Successful Year for ZEAL

February 22, 2020 | Vendor News

HAMBURG, Germany  — For ZEAL Network SE ( Lotto24.de , Tipp24.com), the leading German provider of state lottery products on the Internet, the financial year 2019 was a very special year: The company successfully integrated Lotto24 AG and carried out the business model change to the lottery brokerage business and the relocation back to Hamburg. Thanks to the Lotto24 takeover, ZEAL was able to increase the transaction volume by 58% to EUR 466.7 million (2018: EUR 296.3 million) despite the serious organizational changes and the significantly weaker Euro Jackpot development compared to the previous year. Euro). Preliminary sales were in particular due to a profit payment owed to the former second lottery business in the amount of 26.3 million. Euros and the announced sales dissynergies from the change in business model of € 113.5 million below the previous year’s figure (2018: € 154.8 million). As a result of the change in business model, such pronounced fluctuations due to jackpot-related profit payments will be excluded in the future.

Significant cost savings realized

Against this background, ZEAL confirms the planned annual cost synergies of at least EUR 57.0 million, of which 80% are to be realized after the first year and 100% after the second year after the completion of the Lotto24 takeover. Overall, the company continues to expect total costs for realizing the planned cost synergies in the targeted range between EUR 15.0 million and EUR 20.0 million. By the end of 2019, costs of EUR 14.9 million had been incurred for this. ZEAL expects additional costs of around EUR 2.0 million for the 2020 financial year.According to the preliminary assessment, as announced, the ZEAL Group has also succeeded in further reducing the cost base: Although additional costs of EUR 22.0 million were incurred as part of the Lotto24 takeover, the total costs fell by EUR 20.0 million to EUR 92.5 million (2018: EUR 112.5 million). The reduction in the number of employees to 190 (2018: 228 excluding Lotto24) and the associated reduction in personnel expenses by around EUR 5.9 million to EUR 23.0 million (2018: EUR 28.8 million) contributed to this. Other operating expenses in particular fell – despite the 2.4 million euros increase in marketing costs for both brands (Lotto24, Tipp24) – provisionally by EUR 14.2 million to EUR 69.5 million (2018: EUR 83.7 million). This reflects the synergy measures to reduce the direct costs of doing business – including the costs for covering the tour operator risk – as well as the non-deductible sales tax within the myLotto24 subgroup, which only became apparent when our German business was switched from the second lottery to the online lottery brokerage business have become effective and will have an impact all year round in 2020.

In the German business, the ZEAL Group gained around 274 thousand registered customers in 2019 with marketing costs per registered customer (“Cost per Lead, CPL”) of provisional EUR 32.50 – this only includes the Lotto24 new customers since the takeover on May 14 2019 and the number of new Tipp24 customers since the change of business model on October 15, 2019.

Adjusted EBITDA as part of the forecast

Due to the sales dissynergies and the last high profit payment, the adjusted EBITDA (operating result before depreciation and one-off expenses) was, according to preliminary estimates, at EUR 28.8 million, as expected, below the previous year’s figure of EUR 47.7 million, but within the scope of the most recent raised forecast between 27 million euros and 30 million euros. After the increase in depreciation and amortization of around EUR 8.8 million (2018: EUR 1.1 million) and additional one-time expenses of EUR 11.1 million (2018: EUR 8.3 million) fell EBIT to provisional EUR 8.8 million (2018: EUR 38.3 million). The one-time expenses mainly related to activities to restructure the ZEAL Group as part of the preparations for the change of business model (EUR 9.1 million) and the takeover of Lotto24 (EUR 2.0 million).

Market shares expanded

According to information from the German Lotto and Totoblocks (DLTB) and the German Lotto Association (DLV), online sales of the 16 state lottery companies and authorized private lottery brokers rose to 1,035 million euros in fiscal year 2019 (previous year: 937 million euros). This corresponds to a slightly increased online share of 14% (previous year: 13%).

Outlook 2020While the online gaming stakes of all state companies together increased by 11.6% to EUR 651 million (previous year: EUR 583 million), the ZEAL Group grew – taking into account the official online lottery brokerage business, which results from the year-round Lotto24- Transaction volume and the Tipp24 transaction volume since the change in business model on October 15, 2019 – by 13.8% to EUR 366 million. Accordingly, ZEAL was able to expand its market leadership on the Internet with the Lotto24 and Tipp24 brands and a market share of 35% (previous year: 34%). This does not yet include the transaction volume of the Tipp24 brand from January 1 to October 15, 2019.

ZEAL plans to remain the market leader as an online provider of state lottery products with the Lotto24 and Tipp24 brands in the 2020 financial yearto expand further. Aware that the comparative figures from the previous year due to the takeover of Lotto24 in May 2019 and the change in business model from the second lottery to the online lottery broker in Germany in October 2019 are difficult to compare with the figures forecast for 2020, the ZEAL Group anticipates in the 2020 financial year a transaction volume between EUR 550 million and EUR 570 million. This includes for the first time the year-round transaction volume of Lotto24 as well as the discontinuation of international products as part of the termination of the second lottery business. Based on the expected dissynergies as a result of the change in business model, ZEAL anticipates sales of between EUR 70 million and EUR 73 million. Since the gross margin in the online lottery brokerage business is naturally lower than in the riskier second lottery business, the company expects a gross margin of around 12% – a level comparable to Lotto24 in recent years. Depending on the general conditions, in particular the jackpot development, the timing of the planned synergy effects and the marketing investments to acquire new customers, the EBITDA is expected to be between EUR 5 million and EUR 8 million. Due to the access to proven, more cost-effective marketing channels, the company expects the German business of the ZEAL Group to have almost twice as many new customers in 2020 with a CPL lower than in the previous year.

2020 2019 *
forecast is
Transaction volume (€ million)             550-570 466.7
Turnover (€ million) 70-73 113.5
Gross margin (%) Around 12 24.3
Adjusted EBITDA (€ million) ** 5-8 28.8
CPL (German business, €) Lower than last year 32.50
New customers (German business, thousand) *** Almost twice as many new customers 274

Including Lotto24 since May 14, 2019, the German Tipp24 second lottery business until October 15, 2019 and the online lottery brokerage business of Tipp24 from October 15, 2019

** Operating profit before depreciation, impairments and one-time expenses

*** Based on that German business of the ZEAL group:

2019: including Lotto24 since May 14, 2019 and Tipp24 only since the business model change on October 15, 2019

The company is expected to publish a profit appropriation proposal and a new dividend policy in the 2019 financial statements in March 2020.

“We are aware that we have only been able to achieve the latest milestones in the history of the ZEAL Group with the support of our customers, employees and shareholders,” said Jonas Mattsson, CFO of ZEAL Network SE. After we left a long time of legal uncertainties behind and were able to significantly improve our risk profile with the end of the second lottery business, we as the leading provider of state lottery products on the Internet will now focus entirely on the continuously growing and non-profit German online lottery business with two strong brands focus. With the knowledge of the great value and the high loyalty of our customers, we look forward to embarking on this exciting journey. “

About ZEAL Network SE:

ZEAL Network SE, the leading German provider of state lottery products on the Internet, is a group of companies based in Hamburg, which mainly operates under the brands Lotto24.de and Tipp24.comBrokered tickets from customers to the state state lottery companies and received a commission for this. The range includes Lotto 6aus49, Spiel 77, Super 6, EuroJackpot, GlücksSpirale, Spielgemeinschaften, Keno and the German TV Lottery. Founded in Germany in 1999, ZEAL started out as a lottery broker. In 2005, Tipp24 AG was one of the most successful IPOs in Germany at the time on the Frankfurt Stock Exchange (Prime Standard). In 2009 the group changed its focus from lottery brokerage to the second lottery business and the company headquarters to London. In November 2014 the group was renamed ZEAL Network SE. In May 2019 ZEAL took over Lotto24 AG.

CONTACT: Frank Hoffmann, Investor Relations Manager, T: +49 (0) 40 808141-123, E: frank.hoffmann@zealnetwork .de.

SOURCE: ZEAL Network SE.

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