ZEAL Network SE: 2019 was an exciting and successful year for ZEAL

Feb 19, 2020 7:30 AM

DGAP-News: ZEAL Network SE / Key word(s): Preliminary Results
19.02.2020 / 07:30
The issuer is solely responsible for the content of this announcement.

2019 was an exciting and successful year for ZEAL

  • Rise in billings
  • Significant cost savings realised
  • Adjusted EBITDA in line with guidance
  • Market share expanded
  • Outlook 2020

(Hamburg, 19 February 2020) For ZEAL Network SE (Lotto24.de, Tipp24.com), Germany's leading online provider of state lottery products, the 2019 financial year was a very special year: the Company succeeded in successfully integrating Lotto24 AG, changing its business model to lottery brokerage and relocating its registered office back to Hamburg. Thanks to the Lotto24 takeover, ZEAL was also able to increase billings by 58% to €466.7m (2018: €296.3m) according to preliminary calculations. This was despite the fundamental organisational changes and the considerably weaker EuroJackpot development compared to the previous year. At EUR 113.5 million, preliminary revenues were down on the previous year's figure (2018: EUR 154.8 million), due in particular to a prize pay-out of EUR 26.3 million from the former secondary lottery business and the announced revenue dis-synergies caused by the business model change. As a result of the business model change, such strong fluctuations brought about by jackpot-related prize pay-outs will no longer occur in the future.

Significant cost savings realised

According to preliminary estimates, ZEAL Group has also succeeded in further reducing its cost base as announced: Although the Lotto24 takeover resulted in additional costs of EUR 22.0 million, 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 excl. 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 EUR 2.4 million increase in marketing costs for both brands (Lotto24, Tipp24) - by a preliminary EUR 14.2 million to EUR 69.5 million (2018: EUR 83.7 million). This reflects the synergy measures planned to reduce direct operating expenses - including the costs of covering the bookmaking risk and non-deductible VAT within the myLotto24 subgroup. These only began to take effect on the transition of our German business from a secondary lottery model to the online lottery brokerage business and will have a full year effect in 2020.

Against this background, ZEAL confirms the planned annual cost synergies of at least EUR 57.0 million, of which 80% is to be achieved after the first year and 100% after the second year following the completion of the Lotto24 takeover. Overall, the company continues to expect total costs to realise the planned cost synergies in the targeted range of between EUR 15.0 million and EUR 20.0 million. Provisionally, costs of EUR 14.9 million have been incurred for this purpose until the end of 2019. ZEAL expects further costs of around EUR 2.0 million for fiscal year 2020.

In its German business, ZEAL Group gained around 274 thousand registered new customers in 2019 - this figure only includes new Lotto24 customers since the takeover on 14 May 2019 and new Tipp24 customers since the business model change on 15 October 2019 - at marketing costs per registered new customer ("cost per lead, CPL") of a provisional EUR 32.50.

Adjusted EBITDA in line with guidance

As a result of the revenue dis-synergies and the last high prize pay-out, adjusted EBITDA (result from operating activities before amortisation, depreciation and one-off expenses) of EUR 28.8 million was, as expected, down on the previous year's figure of EUR 47.7 million according to preliminary estimates, but in line with the recently raised guidance of between EUR 27 million and EUR 30 million. After deducting increased depreciation and amortisation charges mainly resulting from the takeover of around EUR 8.8 million (2018: EUR 1.1 million) and additional one-off expenses of EUR 11.1 million (2018: EUR 8.3 million), EBIT fell to a provisional EUR 8.8 million (2018: EUR 38.3 million). The one-off expenses mainly related to activities for restructuring the ZEAL Group as part of the business model change (EUR 9.1 million) and the takeover of Lotto24 (EUR 2.0 million).

Market share expanded

According to information published by the German Association of State Lottery Companies (DLTB) and the German Lottery Association (DLV), online revenue of the 16 state lottery companies and private lottery brokers with permits rose to EUR 1,035 million in the fiscal year 2019 (2018: EUR 937 million). This corresponds to a slightly increased online share of 14% (2018: 13%).
Whereas stakes generated online by all state-owned companies together grew by 11.6% to EUR 651 million (prior year: EUR 583 million), ZEAL Group - taking into account the official online lottery brokerage business, which consists of the full year Lotto24 billings as well as Tipp24 billings only since the business model change on 15 October 2019 - grew by 13.8% to EUR 366 million. Consequently, ZEAL was able to expand its online market leadership with the Lotto24 and Tipp24 brands and a market share of 35% (2018: 34%). This does not include the billings of the Tipp24 brand from 1 January to 15 October 2019.

Outlook 2020

ZEAL plans to further expand its market leadership as an online provider of state lottery products with the Lotto24 and Tipp24 brands in fiscal year 2020. Aware that the comparative figures for the previous year are difficult to compare with those forecast for 2020 due to the Lotto24 takeover in May 2019 and the business model change from a secondary lottery to an online lottery broker in Germany in October 2019, ZEAL Group expects billings of between EUR 550 million and EUR 570 million. This includes for the first time the full year billings of Lotto24 and the discontinuation of the international products as part of the termination of the secondary lottery business. Based on the expected dis-synergies as a result of the business model change, ZEAL anticipates revenue of between EUR 70 million and EUR 73 million in the fiscal year 2020. As the gross margin in the online lottery brokerage business is naturally lower than in the riskier secondary lottery business, the company expects a gross margin of around 12% - a comparable level to Lotto24 in recent years. Depending on the general conditions, in particular the jackpot development, the timing of the implementation of the planned synergy effects and the marketing investments for the acquisition of new customers, 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 ZEAL Group to nearly double the number of new customers in 2020 with a lower CPL compared to the previous year.

  2020 2019*
  Guidance Actual
Billings (€ million) 550-570 466.7
Revenue (€ million) 70-73 113.5
Gross margin (%) Approx 12 24.3
Adjusted EBITDA (€ million) ** 5-8 28.8
CPL (German business, €) Lower than previous year 32.50
New registered customers (German business, thousand) *** Nearly twice as many new customers 274

* Including Lotto24 since 14 May 2019, German secondary lottery business up to 15 October 2019 and Tipp24 online lottery brokerage business beginning with 15 October 2019
** Result from operating activities before amortisation, depreciation, impairment and non-recurring expenses
*** Related to the Germany business of the ZEAL Group;
2019: incl. Lotto24 since 14 May 2019 and Tipp24 only since the business model change on 15 October 2019

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

"We are aware that we could only reach the latest milestones in the history of ZEAL Group with the support of our customers, employees and shareholders," says Jonas Mattsson, CFO of ZEAL Network SE. "After leaving behind a long period of legal uncertainties and significantly improving our risk profile with the end of the secondary lottery business as the leading online provider of state lottery products, we can now fully focus on the continuously growing and socially valuable German online lottery business with two strong brands. Knowing the great value and high loyalty of our customers, we look forward to setting out on this exciting journey".

About ZEAL Network SE: ZEAL Network SE, Germany's leading online provider of state-licensed lottery products, is a Hamburg based Group which mainly brokers customers' tickets to the state lottery companies through the brands Lotto24.de and Tipp24.com, for which it receives a commission. The offerings include among others »Lotto 6aus49«, »Spiel 77«, »Super 6«, »EuroJackpot«, »GlücksSpirale«, lotto clubs, »Keno« and the »Deutsche Fernsehlotterie«. Founded in Germany in 1999, it was initially set up as a lottery broker. In 2005, it was floated on the Frankfurt Stock Exchange (Prime Standard) and became one of the most successful initial public offerings (IPOs) in Germany at the time. In 2009, the Group changed its focus from lottery brokerage to the secondary lottery business. It moved its registered office to London and was renamed as ZEAL Network SE in November 2014. In May 2019, ZEAL completed the takeover of Lotto24 AG, returned its Tipp24 secondary lottery to the German brokerage business in October 2019 and relocated its registered office back to Germany in the same month.

Frank Hoffmann
Investor Relations Manager
T: +49 (0)40 808 141-123

19.02.2020 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

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