ZEAL Network SE

Good morning, everyone, and welcome to this call. I hope you have the access to the presentation, and if you don't, it's also accessible on our homepage under the investor relations section. If you go to the content slide, you will find today's agenda, and we will start off with a summary of the first six months, followed by a financial update. We will then talk about our guidance for the year before we are finishing off with the key takeaways. After this, we will give you the opportunity to ask questions. So let me start by giving you a summary that you will find on slide four. The world is starting to recover from the pandemic and vaccination rates are ticking out in most European countries. Last year, a big part of the economy got digitalized in just under a year. We have probably never seen such a big change in user behavior the new IT solution that was quickly adopted. In our industry and in Germany alone, the online penetration went from 14% in 2019 to around 20% in 2020, a remarkable uplift last year. As Seale is only operating online, this shift was welcome for our business. Being an e-commerce company, we are set up to deal with remote work when so much work, so much is moved to the cloud, or at least accessible from wherever you are and still being able to serve a customer. Other external factors like the general economy in the first half of 2021 has been strong, but this has limited or no effect of our business. In fact, our business is very resilient to any change in the general economy, even in a very weak economy. Of all external factors, the biggest driver is the overall jackpot situation, which has indeed been quite weak in most part of this year. Despite this, we have still been able to grow the business, which pleases me immensely. Both billings, meaning the transaction volumes and revenues are up 6% and 2% respectively. Gross margin is lined with last year and the profitability of the company improved significantly. In the AGM, Annual General Meeting, all resolutions were adopted with a stable majority as expected. As you probably have seen, SEAL has also undertaken to make a delisting purchase offer to the remaining shareholders in Lot 24, and this process is ongoing with the aim of completing the delisting in mid-September. And last but not least, we have strengthened the management board by two senior members, Helmut, perhaps you want to comment on this before I take you through the financials.

Thanks, Jonas, and good morning, everybody. We're very happy that Paul Dingwitz and Sönke Martens have joined our management board. Paul has been in charge of technology at ZEAL for the last five years. Sönke has been with ZEAL for seven years, leading our marketing and product management. Both of them have made major contributions to the success we've had, the business model change, the tech and marketing integration, and also capturing the merger synergies to call out a few. But more importantly, as we focus on our future success and our growth ambition at Zeal, technology excellence and product capabilities, as well as marketing and customer acquisition, will be key drivers of our success. With Sönke and Paul, we have the right talent on board to take Zeal to the next level. So back to you, Jonas.

Thank you, Helmut. Let's now move to the financial update. As for the first quarter, we could compare like for likes, meaning quarters with the same business models. This is helping everyone to analyze the business performance in a much simpler way. Let's now look at the financial in greater detail, and they will be found on slide six. And here you see a summary of our income statement. We had a solid start of the year with revenues growing by 2% despite this low jackpot environment. And please remember that the second quarter of last year had an extremely strong jackpot situation, especially for Jira jackpot. And by the way, this product is up to 90 million in tomorrow's draw. which are going to be exciting for us. Staff costs fell by more than 8% due to fewer people and revaluation of the employee's long incentive plan to match the current share price. We have continued to invest in marketing, but temporary on a lower level to match this week's jackpot environment. This has led to fewer, but still with high customer lifetime values. Our job is to managing this marketing spend to create the most value, which usually is to invest more and select the most efficient channels in several times and invest less and potentially select other channels when the environment is poor. This is key to understand and also something we control and should and must be managed well. Regarding direct expenses, this is mostly driven by the high volume, so this should be seen as our variable cost. Indirect operating cost has been reduced by more than 2 million due to savings in service provider costs and external staff members. All this has led to one of our main KPIs, adjusted EBITDA, has gone through the roof with a 228% increase and now at 10.7 million euros. Net profit after tax are at 5.7 million, also this huge increase from last year. Let me now give you a bit more insight on some of the KPIs that you will find on the next slide, slide seven. Our billings grew by 6% to 333 million, which is very satisfying considering the low or poor jackpot situation we have experienced during this year. Gross margin, which is telling how much we keep or what turns into revenue, is in line with last year. But just to remind you that in QET we had a higher margin But then I told you that I expected to normalize around this happier number. If we move to the next slide, slide eight, we've highlighted net cash and new registered customers. Net cash is now at 58 million euros, up 90%, mostly thanks to the earnings made in the years. However, this is down for the first quarter since we have made a 20 million dividend payment just a month ago or two months ago. As I said, even if we're confident to ultimately win the VAT case, we've indicated to you the remaining VAT cash exposure, which is around 23 million. Let's now talk about acquisition on new customers. We continue to invest in marketing, but temporary at the lower level to match the current jacket situation. This has led to fewer, but still close to 300,000 new registered customers. This is not the level we want it to be, and we are always exploring new channels, but the main driver is the jackpot situation, especially if you compare with last year. That was pretty extreme. As I have said, it's a key activity management to scale up and down marketing and use different channel makes for every unique situation to create the maximum value of every marketing investment. On the next slide, slide nine, you will find further performance indicators. We have seen an increase in Google and Facebook-related acquisition costs, and as a consequence, driving up the CPL cost per lead. This has led to slightly lower efficiency, but the value this customer brings is typically higher since we acquire a customer that really wants to play the lottery and not only jackpot hunters. If you then look at the return of investment of this customer, still very high numbers what i said last year that tpl is an indicator indicator but not the guiding metric still holds true monthly active users just shy of 1 million and i expect this to be ticking up in line with more favorable jackpot situation average billing per user is very high at 57 euros which indicates that customers that do play they spend a lot every month Let's now talk about the outlook for the financial year, and you'll find that on slide 11. I can confirm that the guidance that we announced end of March is still our best estimate for the future. So allow me to reiterate the numbers. Billings of at least 700 million, revenues of at least 95 million, and adjusted EBITDA of at least 20 million. As you may recall, last year, we had a very favorable jacket situation, which drove activity. But for this guidance, we of course can only assume statistical average outcome for the future months. But of course, the outcome to date added to that. On slide, we talk about the dividend policy. And we have just paid out 20 million in June. And we are aiming for an 11% increase to one euro per share already next year. This means that we will return 22 million to shareholder in 2022. With this, over to you, Helmut.

Thanks, Jonas.

Let me summarize the key takeaways. We have good billings and revenue development despite a poor jackpot situation. We significantly increased our profitability We have the new German state treaty, the new regulation, gambling regulation that came into force on the 1st of July. That was a lot of work for us to get prepared for it. We've done this. Now we can focus on other things. And we have strengthened our management board. So thank you very much.

And let's now open up the floor for questions.

If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is disabled to allow your signal to reach our equipment. Once again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We can now take the first question from Marius Feuerberg from Warburg Research.

Yeah, hi, and thanks for taking the questions. Actually, we have two currently. The first one would be in connection with the delisting of Lotto24 and the offer you made. Do you expect any further extraordinary costs of that, or is it rather insignificant? And the second one would be on the Glucose Results Attract and also the Instant Win Gain. How's the progress going for applying for this license? Do you already have any feedback from the State Department or is this still ongoing and you're still waiting for any feedback there?

Maybe I can start with the first question, and then Helmut will take the second on the games question. So the D-Least offer, I'm not sure I heard the entire question, but it was about our offer. So our offer to the lot, the official offer that we go out, will go out to the shareholders very shortly. You have seen on the 21st of July the intention to issue this offering, and we will, of course, carry on with this one. uh the uptake rate is quite difficult to assess uh we think it's a very fair uh offer from seal it's based on on on the law the six months volume weighted average price but like i said the uptake and how many uh will tender the shares is for us very difficult to assess we hope as many as possible uh accept this one because it's a good offer and and i think they will benefit from it but it's in the end up to them

Let me take the second question on the games. So we've done our homework. Our application has been submitted. I think we are one of the first batch, part of the first batch that submitted the applications. And the authorities are working or started to work on the applications, but we have not received any feedback yet. So, um, we are hoping to receive feedback, um, uh, during the second half of this year, and then hopefully we can start the business. We are ready. Um, technically we are ready to start the business.

Okay. And this one, and actually you would probably like to start still in, in H2, um, already, right?

We would like to, we are ready to do that, but unfortunately this is not in our hands, right? It's the authority taking the decision and we don't have a timeline and they don't publish a timeline. So we are in their hands, so to say.

Sure, okay, thanks. As a reminder, please press snare one to ask a question.

We can now take the next question from Marie Theresa Grubner from H&A Investment Banking.

Yes, good morning, gentlemen. Thank you for taking my question. First of all, I would like to know if it is at all possible to give us a range of the cash outlay we can expect for the lot of 24 minorities take out. Secondly, in terms of the licenses, I was curious to know if any of the instant win games or any other products that you will be able to offer once your license has been approved, if any of that is in your current 2021 guidance at all. And thirdly, if you could give us a bit of a trading update regarding Q3. Of course, the 90 million euro jackpot is certainly very helpful to activity. And I was wondering if we could get at least first assessment of how Q3 is looking like. Thank you very much.

Okay, so let me start.

So the cash outlay is really depending on the uptake rate, as you know. We have a price of approximately 3.18 euros per share. So assuming that all shareholders of LotA24 would tender their shares, it will be somewhere between 40 and 45 million euros. And for that, we have secured financing, as I'm sure you have seen from our half-year report. So the financing is fully secured. And then it's a question, and I can't really speculate how many of the shareholders that will attend it, but we have obviously secured financing for the full amount, whether that will come up to that amount or a lower amount. I can't estimate. Trading update for the Q3 is also something that I would like to avoid. And the reason being it's very volatile with the jackpot. So now on Friday, super happy that we have a 90 million euro jackpot. Whether that will be one or not, nobody knows. So it's very difficult. What I can say is that for the full year, our guidance is still our best estimate. So no quarterly breakdown on this one. But like I said, I'm happy that we have a good jackpot situation, at least this coming week. And then I think you said something about the license and the games. Clearly, in all our forecasts, we are assuming a very conservative approach on this. We don't know when the license, like Helmut said, will be granted. So, of course, we take a very conservative approach how much we can actually achieve this year. But clearly, our aim is to fully scale up during the next year and be fully up to speed. But this year, It's really out of our hands when the regulator will provide the license so we can start offering these products to our customers.

All right. All right. Thank you very much.

Thank you. Once again, if you would like to ask a question, please press star 1 now. We can now take the next question from Marius Fueberg from Warburg Research.

Yeah, hi. For me, on the question regarding the guidance and the inter-win games, you said that you took a very conservative approach there. Does it mean that you included a very low million-digit amount in revenues or billings from inter-win games, or does that mean that you did not reflect inter-win games for the current year at all?

We have a very small part of the revenue and EBITDA impact of this year included in our guidance. So just a small one. But we still have something here.

Okay, that's good. Thanks. And once again, that is star one to ask a question. It appears there are no further questions at this time.

I'd like to now turn the call back over to today's host for any additional or closing remarks.

So maybe I can summarize. Thank you very much for taking the time. This has been, like we said, a solid first six months. Despite the jacked environment, we're still growing the business. We are fairly positive and satisfied with the performance of the company. for this first six months. And obviously we're looking forward for the coming six months and report back to you the numbers both for Q3 and Q4. So I hope you stay interested and feel free to reach out to any one of us or our investor relation department. We're happy to serve you with the kind of information you may need. But thanks for taking the time and have a great day.