ZEAL Network SE

I hope you all have access to the presentation. If not, it's also accessible on our homepage on the investor relations section. On this content slide, you'll find today's agenda. And we will start off with a summary of the first three months, followed by a financial update, our guidance, and the upcoming AGM before we're finishing off with the key takeaways. after this you will have the opportunity to ask questions let me start with a summary so let's move directly to slide four the world continues to suffer from corona even if there is hope in sight with the ongoing vaccination as discussed before being an e-commerce company we are set up to deal with the remote work when so much is moved to the cloud or at least accessible from wherever you are. Other external factors like the general economy has been strong, but this has limited or actually no effect on our business. Our business is very resilient to any changes up and down in the general economy. Of all external factors, the biggest driver is the overall jackpot situation, which has indeed been weak for both our main products throughout the first quarter and actually continued to be weak also in the month of April. But we have still been able to grow the business, which actually pleases me. Both billings, meaning the transaction volume and revenues are up 17 and 19% respectively. Gross margin increased and as a result, also the profitability of the company improved significantly. And we are now in the Google Play Store, which is something we and the entire industry have strived for since many years. This allows us to have our brand visible in the Google Play Store, and we can use this as a good acquisition tool. And we'll come back more to this at the end of the presentation. Speaking about financial updates, We can now for the first time compare like for like meaning a quarter in 2020 where we operated as a broker with a quarter in 2021 where we also of course operating as a broker. This is helping everyone now to analyze our business performance in a much simpler way. Let's now look at the financial and greater details which will be found on slide six. This is our income statement, a condensed version. This year has started off very nicely with revenue growth of 19% despite the low jackpot environment. This is slightly better than the billings growth, which is then supported by a more favorable product mix, meaning more premium products sold. Staff costs are mostly in line with last year since the majority of the people synergies were already included in last year numbers. We have continued investing in marketing even in this low jackpot environment. This has led to fewer but still with high customer lifetime values. Regarding direct operating expenses, this is mostly driven by the higher volume that is to be seen as a variable cost and then some one-offs related to a switch in payment service provider. The latter will allow us to have more efficient process, lower fraud and better charges going forward. All this has led to our main KPI adjusted EBITDA has risen 61% to 4.6 million and net profit after taxes are now at 2.5 billion. Let me now give you a bit more insight some of the KPIs that you will find on slide 7. As I said, our billings grow by 17% to 163 million, which is very satisfying considering, as I also said earlier, the jackpot situation we have experienced in the first quarter. Gross margin, which is telling us how much we keep, what turns into revenue, have improved the margin to 12.7%. which, as I said, is driven by the higher share of premium products. I do expect this to normalize on a slightly lower level, though, when the draw products, the normal lottery products, get a higher share of the total volume. On slide eight, we have highlighted net cash and new registered customers. Net cash is now at 68 million, up 4%, mostly thanks to the earnings we made in the quarter. We have a healthy net cash situation, which is why we afford to pay an attractive dividend to you, which I will come back to shortly. As I said before, even if we're confident to ultimately win the VAT case, we have indicated the remaining VAT cash exposure, which is approximately 22, 23 million. Let me now talk about acquisition of new customers. We continue to invest in marketing. and we have acquired close to 160,000 registered customers despite the jackpot situation. We clearly want this to be higher, especially when comparing to last year when we had record in new customer. But as we know, it's always easier in a more favorable environment. On slide nine, you will find further performance indicators. In this quarter, we have continued investing in marketing And this has led to lower efficiency and higher CPL, cost per lead. But the value these customer brings is typically higher since we acquire customer that really want to play the lottery and not only to jackpot hunters. If you then look at the return on investment of these customer, it's still very high number. So what I said last year that cost per lead is an indicator, but not the guiding metric holds true. Monthly active users increased to close to 970,000, and the 1 million mark is clearly what we want to have, which I expect will happen in a better environment. Average billing per user is very high at 56 euros, which indicates that the customers that do play spend a lot every month. Let's now move to the outlook and the guidance that you will find on slide 11. I can confirm that the guidance that we did announce end of March is still management's best estimate for the future. Let me reiterate the numbers. Billings of at least 700 million, revenues of at least 95 million, and an adjusted EBITDA of at least 20 million. As you may recall, we last year had a very favorable jackpot situation, which drove activity. But for this guidance, we of course can only assume statistical average outcome for the future months, plus the outcome that we have to date. And we also expect to continue investing in marketing, grow our market share. The planned marketing spend for the year is similar to last year of more than 30 million. On slide 12 we talk about the dividend policy and I'm just confirming what we have already told you about and what is actually going to the AGM for approval. We are proposing to pay out 20.2 million this year which is 12 percent more than last year and more than doubled what we paid out the year before that. This corresponds to 90 euro cent per share and our intention is to increase to one euro per share in 2002, leading then to payout of approximately 22 million. Let me now briefly talk about the upcoming AGM, Annual General Meeting. On June the 1st, we will hold our AGM virtually, also this year. The invitations with the registration documents were sent out at the beginning of this week to our shareholders. in addition to our usual items on the agenda of this AGM this also have a special item which you will see as number six with a small arrow to it and I would like to explain this in a little bit more detail according to our latest annual financial statement SEAL has a restricted capital reserve in the amount of 259 million We, the management board and the supervisory board, propose to convert the majority of this restricted capital into free capital reserve. With this technical step, and I underline this is a technical step, we want to enable an efficient equity management in line with capital market requirements, and in particular, create conditions for a much more flexible dividend policy going forward. We would therefore be pleased and encourage you to register and vote as a shareholder at our upcoming AGM. Now I will hand over to Helmut that will take you through the key takeaways.

Thank you, Jonas. So in Q1, we had a poor jackpot situation, and yet we drove good billings. and also we've seen a good revenue development. We've been able to increase our profitability. We have seen that, as expected, the new gambling treaty in Germany has now been ratified in all 16 German states, so that's going ahead as expected. And we now have the Lotto24 app in the Google Play Store, which gives us an opportunity to acquire more customers. So that's the summary of Q1. And with that, I think we should go straight into Q&A.

Thank you. If you would like to ask a question on today's call, please press star 1 on your telephone keypad. That's star 1 to ask a question. We will pause for one moment to allow everyone to signal. Again, that's star 1. We can now take our first question from Maris Furberg from Warburg Research.

Yeah, thanks for letting me on. Actually, I have three questions. The first one is with regard to the product mix. You told us that you have obviously lots of more premium products in Q1. Could you guide us a little bit through how the development, especially for FriHat Plus was and how the billing's developed for this product. The second one is, are there any changes or any proceeds or any development in your or do you plan of establishing instant win games now with the notification of the . And the last one is, told us that you're confident with regards to the bat case. Any news of this, or is it still that you're not sure neither on the timing or the outcome?

Thank you. So let me start with the product mix and the VAT, and then I will hand over to Helmut to talk about our plans for the games and in light with the new QXP Starter Track. So the product mix is right to point it out. When I meant the premium product, I meant products like Fiat Plus that has been very successful. We don't typically talk about billings per product, but we can clearly say that our shares of Fiat Plus has been better than last year, which is thriving. And we are operating as an operator here. So obviously coming with a higher margin. So we have recently launched with our one-to-one partner site. we in last quarter last year we launched it on the lotto 24 brand and one year ago we launched it on the in March actually last year on the tip 24 brand so the big delta is really the prior plus but we also had a good development of lottery clubs etc in terms of VAT unfortunately I have no more information We are assuming that the case will be in the statistical average, so the lead time between the first court decision until the second and the highest court in terms of financial matters. So that times in 2022, but I'm only basing that on the statistical average lead time. There has been no discussion with the tax authority nor the court in the meantime, and I don't nothing to happen this year. But it's really just my speculation when they will have worked through all the cases that are before us in the queue. So, Helmut, maybe you can say a few things about games and the Glücksbistar track that is applicable from the second half.

Yes, so there will be a new regulation for games. The technical term in the law is virtuelle Automatspiele. And we are planning to launch instant win games on our sites going forward. However, we need to apply for a license first and then we need to get a license. The authorities have said that they are going to be ready to take applications on the 1st of July and then we don't know how long it will take them to work through those applications. We don't foresee any issues there. We should qualify for a license. And then the plan is to launch these instant win games once we have a license. Technically, we are ready to do this. And we are excited about this opportunity because we know from the past that games resonate well with our user base, especially when you launch, if you launch the right games for lottery players. And we know also from other markets that instant win games are a successful product category.

Okay, thank you very much.

As a reminder, if you would like to ask a question, press star one. We can now take our next question from Marie-Therese Grubner from HAIB. Please go ahead.

Yes, good morning, gentlemen. I have, well, let's see, I didn't count them, but a few questions. When you say that the gross margin normalizes, of course, with the pickup and the more classical products, can you give us a kind of an idea where you want to land. I know you don't guide us, um, uh, specifically, but if you can give us a ballpark of where you would, you could land, uh, on a normalized or normalized level after the high level of gross margin, a very pleasing and high level of gross margin in the first quarter. Um, my second question, um, your DNA, uh, depression, amortization, uh, charge for the first quarter. Is it to be assumed that, um, You know, it's just a fourth of the full year number. And third and fourth are similarly the financial result line. Is it fair to assume that we just multiply this by four or any special effects to be expected on the tax level as well, please?

Okay, thank you. I think I can take those. So let's talk about the gross margin. So last quarter, which we compare with, we are at 12.1%. We were slightly higher, 12.3%, 12.5%. By the end of the year, depending on which month you're looking at, and now we're at 12.7%. This was fueled by especially the additional trial plus sales and the premium product. I think this will come down slightly. We don't guide on this. So this is not a guidance, but somewhere in the mid range of the 12%, so 12, 12 and a half, 12.3, 12.5%. I think that's a more realistic. So it's not a material decline, but I think we are on top. Obviously, our ambition is to grow this every month and every year, of course, by adding more premium products. But I think we need to be careful and we do this in steps. So slightly lower than the 12.7% would be my best estimate for the full year. Depreciation and amortization was your second question. And typically this is one quarter. So take this time for you come to very close to the full year numbers. In this year, we have returned of the subletting office in Hamburg and London. That's why we have a decline in this one, but I think it's fair to say that times four is not too different from the full year results. The third question, can you remind me about that?

Yes, it pertains to your financial results. I think last year, special effects from the interest on the tax.

uh payments um fueling some of the the interest income and this is why i'm asking if uh if the results we're seeing now um you know is something we can extrapolate i think you can extrapolate them we are obviously recording as a financial interest income we assuming we're going to win the vat case so the interest we will receive of this 54 million that we paid more than a year more than a year ago we are accruing that interest as we would have won the case. So that will increase in line with this quarter. So it's a fair assumption, yes.

Perfect. And then the tax rate, you know, also can we assume we can extrapolate that level for the full year?

I think the tax level, yes, I would say general, yes. The tax rate in Germany, you know, is... As I do, but we have loss carry forward. The tax rate is 32, 32.5%. But we have tax losses carry forward. There are minimum taxation rules. So I think the 600,000, sorry, that was the interest. I think the tax rate is probably one-fourth that you can see in this number, assuming the similar profits.

Okay, all right. Well, I think those are questions I have. Thank you very much.

Thank you.

We can now take our next question from Jack Cummings from Barenburg. Please go ahead.

Morning, everyone. Thanks for taking my question. Just the one from me. I know that you only launched the Lotto24 app towards the end of Q1 on the Google Play Store. I was just wondering if you could give any color or commentary on whether you've seen any trends since it's gone up onto the Google Play Store and whether there's a bit of a contract with the product, et cetera, or something along those lines.

Yeah, let me take that question. It's too early, really. We have very healthy... with our customer base anyway. And some of that is through the mobile website and some of it is through the apps. And of course, as we provide more apps in the app store, that part is growing. But what we really focus on is the acquisition opportunities. So what we are doing here is we are marketing and advertising the apps in the app store, in the Play Store. We are buying ads in tech networks. We're also using mobile advertising networks. Our goal is to drive installs and also find out new customers. It's too early to talk about how much we can scale because we are Right now, the process of scaling itself.

That makes sense. Thank you. Thanks very much.

There are no further questions on the line at this time. I would now like to turn the call back to the host for any additional or closing remarks.

So if there is no more questions, I would like to take the opportunity to thank you very much for taking the time, listening to this presentation and to be an investor in SEAL. And of course, if you have any further questions, we are at your disposal. So please just reach out to our innovation department and we'll be happy to guide you through your questions. Thank you very much and have a great day.