ZEAL Network SE

Thank you very much and good morning everyone and welcome to SEALs earnings call for the first quarter. I hope you have received the email including the presentation and if you haven't it's also of course accessible on our web page in the investor relations section. If we go to slide two you will find the content slide and there we have outlined today's agenda. What we will do is to start off with a summary of the first three months. We'll be followed by a financial update And after that, we'll move on to our guidance and plan dividends for the year before we're finishing off with the key takeaways. After the presentation, we'll give you the opportunity, as always, to ask questions. I will now hand over to our CEO, Helmut Becker.

Thanks, Jonas, and good morning, everybody. Let me summarize our first quarter. We grew our business. Billings and revenue are up 11% year-on-year. Our profitability continues to rise due to scale effects in our business model and good cost control. And we've launched our second charity lottery product, the German Greenhouse Lottery or Deutsche Traumhaus Lottery. It's early days, but we hope to attract a slightly younger, slightly more female target group with this product. Now, on the next page, let me go straight to the two licenses that we are expecting to receive in Q2. The first one is a games license or virtual slot machines license. The regulator has issued the first and so far only GAINS license on May 5th. That is good news because we know that they have started to issue licenses. We expect them to now swiftly work through the other license applications. We're confident to receive our GAINS license in future. We will offer GAINS that are tailored to the needs of our customers And we know from past experience, as well as from international luxury markets, that this is a good growth opportunity for us. The second license is an extension of our brokerage permission. We expect to receive the extension of our brokerage permission also in Q2 this year.

So back to you, Jonas.

Thank you, Helmut. Let's now move to page six, and I will start describing the jackpot situation for the first quarter, since it has such an impact on our business performance. On this slide, you will see the development for our two main products, 6049 and Turo Jackpot. So the development has been better than last year, but more in line with what we expect for a normal year. Comparing with last year, we see that the average jackpot for Lotto 6049 is actually 3.5 times higher and we had two peak jackpots in the beginning of this year. And as I have explained before, it's in the peaks we acquire the most customers and where the billings are outperforming the predictions. Regarding Euro jackpot, it's actually slightly worse than last year with no peak jackpots. So in summary, Slightly better jackpot than last year, but more in line with an average year so far. And just to repeat what I've explained before, high jackpot is attracting new customers and acquisition becomes easier with increased volume as an outcome, which then leads to higher future growth rates. The old customers, but also the new ones, they all start to spend or spend more those weeks when the jackpot is high and our billings increases as a consequence. The opposite is, of course, true for low jackpots. Let's now move to the income statement that you will find on next slide, slide seven. As Helmut already said, we grew revenue by 11%, which was a consequence of the higher billings that was boosted by the higher jackpot situation versus the terrible last year. At the same time, we have continued to be very careful with our spending and total costs are down by 20%. Even if this may not reflect the full year, I'm satisfied with what we have been able to manage the cost side so well, despite the situation with inflation and where we are in. Personal cost is down 20% or 1 million in the quarter. But this is mostly driven by the low share price, which is the base when accounting for employee long-term incentive plans. Marketing expenses are slightly higher, and it was in the late January we did a big push when Lotto had its peak. Direct operating expenses are positively impacted by the lower credit losses and efficiency in the entire payment processes. Indirect expenses are also down by 15% thanks to lower consultancy fees and the use of external staff. Combined, this has led to an EBITDA that is double versus last year and is now at 8.9 million euros. This equals to a 35% EBITDA margin. You may note that we have removed the word adjusted simply because we have no more adjustments and we don't foresee any adjustments in the near future. And finally, EBIT is up almost 200% and net profit after tax is now at 5 million, twice as much as last year. So quite successful first quarter. In the coming three slides, we'll look closer at some of the KPIs. So let's move to slide eight. Our billings grew to 181 million or by 11%, which is by the way, the same as our revenues. To me, this shows that we successfully can grow our business in a situation where we either have a normal or a good jackpot situation. The 11% is also in the range where we aspire to be, namely a double-digit growth company. Gross margin has also improved thanks to more sales of high-margin products, meaning a more favorable product mix in the quarter. On the next slide, we have highlighted net cash and new registered customers. Net cash is up by 15% and now stands at 78 million. This increase is mainly coming from the strong operating performance in the quarter. We have no news about the pending VAT case, but as I said before, we are confident to ultimately win the VAT case. But in line with previous quarter, we continue to report a contingent liability of 23 million. Let's now talk about acquisition of new customers. With approximately the same amount of spendings, we acquired the same amount of new registered customers, 154,000. This is indeed good. Not great, but still good. But with improved peak jackpots, we should be able to increase this further. Moving on to slide 10, you will find some additional KPIs. The CPL is showing five years increase, but you should not worry about this. The increase is fully attributable to a Friar Plus campaign that we have to expand, but we will reap the effect in the coming months. So if you exclude this campaign, which you should when you calculate in the CPL, it's on last year's level. Still, we do see increasing pricing, especially in social media and search, but our business model is quite tolerant since our customer loyalty is still remarkably high, and we will expect better margins over time. Hence, we could, in fact, easily swallow this effect. Whether this price increases lasting price effect, this is too early to tell, but I can say that the whole online industry reports similar dynamics. DMAO, the monthly active users, have improved and are now north of 1 million. The drive is the better jackpot situation, especially the peak jackpot in Lotte that we had in late January. Average billing per user is still very high, and then further increased by two euros in the quarter to more than 58 euros in the average spent per customer. And don't forget, this is the average, so a lot of our customers spend significantly more than this 58 euros per month. Allow me to reiterate the dividend proposal for this year, which you will find on slide 12. We presented this with a full year's number, but let me remind us what would we propose and why. As you may know, I'm keen to optimize the capital structure, and with this proposal, we have taken further steps to improve it. We're planning to shift out even more cash, in fact, more than double versus the year before. The reason is to reduce excess cash of the company, but without harming the growth initiatives. So we're proposing to dividend one euro as a basic dividend and on top one point euro ten as a special dividend. This will lead to two euros ten cents per share or 47 million that is returned to our shareholders. Of course, management undertakes to constantly review its dividend policy in line with the financial performance. And we will talk about this in the coming quarters and we'll give you a 2023 policy later this year. Let me also confirm the outlook for the years that you will find on slide 40. As you can see on this slide, we're quite optimistic about the future, and you see double-digit growth. The guidance for this year, as we explained in the full year, is that the billings of at least 750 million, which is at least 14% increase versus previous year, revenues of at least 105 million, which then is at least 21% increase versus last year. And EBITDA of at least 30 million, which is then equivalent to an 8% increase. However, if you would normalize for one-offs and the underspending and marketing that we had last year, this would actually equal to 60% increase versus last year. And then you see the economy of scales effect also taking part of this number. All of this is based on the average output for the rest of the year and marketing investments around 30 million.

With this, over to you, Helmut, to bring this home. Thanks, Jonas.

So what are the key takeaways? We continue to grow profitability. In fact, we've doubled our profitability compared to the first quarter last year. We're going to pay back to shareholders 47 or pay out to shareholders 47 million euros in dividend. And we've launched a new lottery product, a charity lottery product, the German Dreamhouse Lottery.

Thank you. Now we can start with the Q&A session, please.

Thank you. Ladies and gentlemen, to ask a question today, please signal by pressing star 1 on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, to ask a question today, please signal by pressing star 1 on your telephone keypad. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question now from Marius Furberg from Warburg Research. Please go ahead.

Yeah, hi. I hope you can hear me well. A couple of questions from my side. The first one with regard to the Triad Plus campaign you started in Q1. What would be or what is your assumption on the revenue effect for upcoming quarters out of this? second one with regards to the euro jackpot systematics that were changed end of march although it does not really affect q1 but what is your observation of april at least and a little bit of may so how does or did this affect your revenue generation out of the euro jackpot lottery And the third one on your guidance or on your spendings more specifically, you guided for or you still guide for 30 million of EBITDA and also your marketing investments are 30 million are roughly in line with what we saw in Q1. However, Q1 had quite a good EBITDA and multiplying this by four would probably be too easy. But yeah, where do you see the difference in the cost? Is it that you expect more personal cost or what is your assumption on this?

I think I can jump in here and take some of the questions. So the FIAT Plus campaign is a campaign that we think we will reap the benefits in the coming couple of months. I can't give you a precise revenue forecast on those. But typically, the cost for acquiring customers that this will be included in will be slightly higher than normal. But because that's what we do when we acquire customers into 5+, they come slightly higher because the margin is so much higher. So they are quite beneficial. But I don't have any precise revenue numbers for this one. And on the Eurojackpot impact, the entire industry has always said that the second row will add a 20% volume increase. And we think that is believable, and we see similar numbers. The question is, does this cannibalize any other product? We haven't seen any material cannibalization, so we have seen uplift. And obviously, since this has been known for a long period of time, this has been part of our guidance, of course. We would argue this is good for the industry. This is good for the product because it builds up the jackpot situation much quicker. And we see now we are about 80 million in jackpot. So I think this is good for the industry. And to your third question about the guidance of spending, you're absolutely right. Would you take 9 million times four? That will be the 36 million. If you go into your P&L, what you can see that the personnel cost is quite low, and this is share price related. So every month or every quarter, we adjust our provision for long-term incentive plans in line with the share price, and the share price has gone down. If that is flat, then you will not have this positive effect in the future months. You could actually have the opposite one. In addition, we have fewer consultancy costs that I think will happen in later quarter. So I think this quarter was a super strong quarter. Don't get me wrong, but maybe the cost side was better than the average quarter. That's why we still keep the guidance of plus 30 million.

Yeah. Okay. Got it.

Nevertheless, I think keeping in mind your scalability of the business model. Yeah. However, we will see the remainder of the year. One follow-up, if I may. Could you remind us real quick how the split in billing between Eurojackpot and Dotto6 out of 49 was? Which one?

In Q1, I don't have the exact number in front of me right now. I can give it to you later. Lotto is the bigger product, and especially this quarter, it was even bigger because we had the peak in the end of January, and Eurojackpot has suffered, as I explained. So I think the product split is clearly favorable to 6 out of 49 this quarter.

Okay, thank you very much.

Thank you. We'll now go to our next question from Henrik Paganetti from Jefferies. Please go ahead.

Yes, thanks for taking my question. So my question is also on the cost side. So you reduce personal costs by 20%, direct operating costs by 11%, and indirect operating expenses by 15%. Could you just say that again, like how much of that is sustainable and for what kind of expenses we should see a bounce back in the other quarters. If you could like elaborate on that a bit, that would be super helpful.

So let's start talking about the personal expenses. As you see, it's coming down with roughly a million for the first quarter, and that is predominantly driven by the lower share price. So there are some inflation and of course, and they are slightly fewer headcounts. So we have realized even further synergies, but the majority of this is coming from the share price. So I would say that the personal case expenses will jump up in the coming quarter, assuming a constant share price. For the other one, it's minor, but if you take everything into account, it's probably a couple of hundred thousand that we have spent less this quarter that is planned to come in the other quarters. Of course, if we can reduce a consultancy fee, freelancer cost even further. We will continue doing this one. But I would say a normalized cost structure is probably 500,000 to a million higher.

Super helpful. Thank you very much.

Thank you. As a reminder, ladies and gentlemen, to ask a question today, please signal by pressing star 1 on your telephone keypad.

That's star 1 to ask a question. It appears we have no further questions at the moment.

Okay, then I want to thank everyone that participated in our earnings call. And if you have any further questions, please reach out to us. We're more than happy to help you with any further answers. And thank you so much and have a great day.