ZEAL Network

Last modified by Asif Farooqui on 2020/02/24 07:48

Contents

History
Business
Outlook
References

History

ZEAL Network SE, (IBIS:TIMA) 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 as Tipp24 SE, 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. Shortly after this, 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.¹

ZEAL’s vision is to create a better world of lottery.

Over the past two decades, its commitment to its vision has enabled it to become one of the leading organisations in the online lottery world.

ZEAL Network has offices in London, Madrid and Hamburg, and its teams come from all around the world. However, the company maintain the fast pace and flexible approach of an enterprising start-up. The company share ideas. The company tap into new opportunities. And the company create new ways for its people and customers to dare to dream.

Business

Despite the organisational changes resulting from the takeover and the comparatively weak jackpot development, ZEAL delivered a solid billings performance in the nine-month period ended 30 September 2019. However, due to the large jackpot win of €26.3m in August 2019, revenue and Total Operating Performance (TOP') for the nine-month period ended 30 September 2019 ended up below previous year. In future, as a result of the transition of Tipp24 to the German brokerage business, the development of revenue and TOP will be more predictable as jackpot related winning pay-outs will no longer occur.

EBITDA slightly below previous year

Despite the high jackpot pay-out in August 2019, the EBITDA of the ZEAL Group at EUR 28.3 million was only slightly below the previous year (2018: EUR 30.0 million). At EUR 12.9 million (2018: EUR 29.1 million), EBIT was significantly lower than in the previous year (2018: EUR 0.9 million), in particular due to exceptional items of EUR 10.0 million (2018: EUR - million) as well as amortisation and depreciation, which increased to EUR 5.4 million (2018: EUR 0.9 million) as a result of the Lotto24 takeover and the application of IFRS 16. The exceptional items mainly related to activities to restructure the ZEAL Group in connection with preparations for the business model change (EUR 7.9 million) and the takeover of Lotto24 (EUR 2.0 million).²

Cost synergies

The run rate cost synergies of at least €57m will be achieved through platform efficiencies and significant reductions in personnel expenses and other operational costs.

Around 60% of the savings (as well as the expected dis-synergies in revenue) only began to take effect when its German business transformed from a secondary lotfery to a brokerage business on 15 October 2019 and therefore did not affect the first nine months of 2019. These savings will be comprised mainly of savings in direct costs of operations, including costs covering the bookmaking risks for Tipp24.com and the reduction of non-deductible VAT within the myLott024 Sub-Group.

The remaining 40% of the cost synergies, which are to be generated primarily by reductions in personnel and other operating expenses, have already been almost fully implemented and will thus show further positive effects in the coming quarters.

As ZEAL Network has previously stated, approximately 80% of the total cost synergies are expected to be achieved by the end of the first year following the completion of the transaction (in May 2020) and 100% by the end of the second year (in May 2021).

Jackpot Development

Jackpots are an essential driver for billings. The development of jackpots offered in the Lotto 6aus49 and EuroJackpot lotteries has differed significantly this year to date. The average Lotto jackpot in the first nine months of 2019 was €9.4m (2018: € 7.2m), and as a result billings and revenue from this product have held up well. However, EuroJackpot suffered in comparison with the exceptionally strong jackpot year 2018 — in the first nine months there were only two €90m jackpots (2018: nine) and the average jackpot amount reduced to €35.9m (2018: €47.2m).³

The average EuroMillions jackpot in the first nine months increased to € 73.3m (2018: €58.2m) but following the transformation of its core German business in October 2019 the company no longer offer EuroMillions.

Outlook

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.⁴