ZEAL Network SE

Thank you so much and good morning everyone and welcome to SEED's earnings calls. I hope you all have access and can see the presentation on the webcast, but if not, it's also accessible on our homepage under the investor relations section. So on the content slide, you will find today's agenda, and we will start off with a summary of the first three months of the year, followed by a financial update. We will then reiterate our guidance for the year before we're finishing off with the key takeaways. After the presentation, we will give you the opportunity, as always, to ask questions. I will now hand over to our CEO, Helmut Becker.

Thanks, Jonas. Good morning. So first of all, we're happy that we've received the GAINS license from the German regulator. I will touch on the GAINS business plan in a second. We've also made a good start in 2023 with double digit top line growth. We have increased our EBITDA compared to previous year. Furthermore, the World Lottery Association, the WLA, has accepted Ziel as a member. This is a great signal towards our key stakeholders, our partners, and potential partners in the industry. As the German market leader for our lotteries, we take our responsibility in the areas of compliance, security, and risk management very seriously, and attach great importance to social commitments as well. So we are pleased to be part of that important organization. Two days ago, Deal was able to hold again a physical general meeting in Germany, first time after nine years. Among other things, the dividend proposal of €3.60 was approved.

The payment of the dividend will start next week on May 17th. So page five, let me give you an update on regulation.

As you know, we are now operating under the new Glücksspielstaatsvertrag, and we've already talked about the extension of our broker permission until 2029. Let me go straight to the games license or virtual slot machine license, which is probably the most interesting for you. As I already mentioned, at the beginning of April, we received the permission to operate virtual slot games. This is an important milestone in our business strategy. The permit is valid for five years. After that, we have to apply again for the continuation of that permit, which should most certainly be an administrative act.

I've now jumped to slide six to tell you a little bit more about the games business.

We expect our games business to go live in May or June this year. However, with a smaller number of games than originally expected, as the regulator simply cannot keep up with the flood of games submitted by all providers that require approval. Nevertheless, we will be the front runner in the lottery segment with our brands. In the second half of the year, we expect a rapid expansion of our games portfolio, adding a lot of games in 2024 and constantly refreshing the games portfolio. Let us now go to slide seven. Looking at other markets, that already offer virtual instant win games, it becomes clear what a great potential our new business field offers in terms of potential and perspective going forward. In other markets, instant win games already account for almost half of total lottery revenues. By the way, this is also very much the case for our on-the-business in Spain. Therefore, the German market has a lot of catch-up potential in this area, in combination with a significantly higher gross margin than our brokerage business. However, there are regulatory limiting factors that make it difficult to predict the speed of the ramp-up and probably will limit the total size of the potential somewhat compared to the leading markets. Back to you, Jan.

Thanks, Helmut. Let's now go to the next page, and we will start describing the jackpot situation for the year. And I'm now on slide 9. As you can see, this is the jackpot development for our two main products. 6 out of 49 is on top, and your jackpot graph is below. For the 6 out of 49, the jackpot situation has been weaker than a comparable time last year. The average jackpot is slightly lower, but more importantly is that we did not have a single peak jackpot in this quarter. But as you can see, we at least got close at the end of March. And this, to compare with last year, we actually had two peaks. And this had, of course, an impact on both customer acquisition and billing number for the period. For Eurojackpot, it was in par with last year. average jackpot was a bit higher, but no peer did experience any peak jackpot. But at least we got close with 104 million euros in late January. So in summary, a slightly weaker jackpot compared to last year, and also to mention is the lack of true peak jackpot for the quarter, which is actually below the historical statistical average. Let's now move to the income statement that you will find on the next slide. We grow revenues by 6% despite a lack of good jackpot development. The revenue growth is somewhat lower than the corresponding billings growth that I will talk about in a moment, but basically it's due to less payroll product mix in the quarter. Total cost followed the revenues and increased by 7%. Personal costs have increased as a result of higher provisions for our long-term incentive schemes. We also had four more headcounts in the company, but that has lesser impact. Marketing expenses are slightly down versus last year and in line with the Jackpot situation. Direct operating expenses are in line with the increase in the transaction volumes, the 11%. Indirect operating expenses are up 7%, with the main driver being more consultancy costs for the quarters. Combined, this has led to an EBITDA that is 4% higher than last year and now at 9.3 million euros. This equals to a 35% EBITDA margin for the period. And finally, EBIT is up by 5% while profit after tax is 12% lower due to more tax charges. The latter is explained by the reversal of deferred tax assets that has an impact on the tax charge for the quarter. In the coming three slides, we'll look closer at some KPIs. So let's go to slide 11. Our business grow by to 201 million euros or by 11%. This growth is supported by the strong customer position as of last year. Gross margin of 12.4% is down versus last year, but due to a less favorable product mix, as I just mentioned. This is, however, nothing that worries me, since the product mix is always changing over the course of the year. On the next slide, we have highlighted net cash and new registered customers. Let's first talk about net cash, which is up 45% since last year and now standing at 100 million euros. This is mainly due to the strong operating profit in combination with the inclusion of the 56 million VAT received offset by the last year dividend payment of 48 million. Regarding acquisition of new customers, we're 7% below last year, which is explained by the higher acquisition number we have in the beginning of 2022, when 649 reaches peak two draws in a row. Moving on to slide 13, here you will find some additional KPIs. The CPL, or cost per lead, is reduced by 3%. The main explanation is that we had some special campaign last year, which have increased the number for those periods. Besides this, nothing material has changed, but of course, happy with the lower CPL. The MAO, or monthly active users, are up 6% for the quarter, and now at 1.1 million monthly users. And finally, average billing per user is still very high and up by 5% to 61 euros. This is indeed very satisfactory, but I don't expect this to go further up until games are launched, which could have a positive effect, but we do also expect high level of cannibalization with this product. Let me now reiterate on the outlook for this year that you will find on slide 15. So our guidance for the year is that we expect the billings of around 800 to 830 million euros, revenues of around 110 to 120 million, and EBITDA of around 30 to 35 million, mostly depending on how much we ultimately invest in marketing. We are indeed planning a step change and have assumed 34 to 39 million in marketing investment for the year. For the games business, we have assumed a low single-digit EBITDA impact of this year. Obviously, the business is expected to continue to grow in the coming years. And the above numbers indicate a double-digit revenue growth, which is also our expectation for the midterm. And as always, this is based on the average output for the rest of the year. With this, I hand back to you, Helmut.

Thanks, Jonas. So these are the key takeaways from our presentation today. We continue to grow the business. We have received our long-awaited gains permission. Despite the turbulent times, our business is remarkably resilient, and we continue to pursue our goal to continue growing the business and gaining market share. With our approved dividend for the 2022 financial year, we have now returned approximately 186 million euros to our shareholders in the form of dividends or share buybacks since the business model change. Thanks, everybody, for listening. We're now closing the presentation. I think I give it back to the operator to take questions.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. In case you wish to withdraw your question, please press 9 and star again. Please press 9 and star to register for a question. And first up, we have Henry Wendlish from New Ways. Over to you.

Hi, everybody. I hope you can hear me fine. Thank you so much for the presentation and congratulations on the good results. You briefly talked about average billing per user that it increased quite a lot and not my expectations actually. What was in particular if you want the driver for that, if you could elaborate on that would be really helpful. Also, I saw that the tax rate has increased to 30%. We also briefly touched it, but can we assume that kind of tax rate for the rest of the year? Those are my two questions. Thank you.

Thank you so much for your question. Let's start with the tax question. Yes, the future tax rate will be very normal. The tax expenses are mainly influenced by the reversal of deferred tax expenses. So going forward, you should, yes, the normal German tax rate and that will be approximately 32 percent. Obviously the paid tax is less but what we charge the income statement is more or less in line with the German tax rates. On the average billing for use, yes it continues going up and it has a impact when related to the jackpot situation and as i said games could actually positively impact that one but we also know that games a money spent on games maybe be a euro less spend on other products so we want to be a little bit careful that it will not continue too much but at least have a positive development over the years and if you go back a few years we were probably 10% lower than we are today. So it's a nice development we have had. I hope this explains the two questions.

Yes, perfect. Thank you.

Next up is Marius Furberg from Barbrook Research. The floor is yours.

Yeah, thanks. One question from my side. Could you give us an update regarding the progress of the buildings in the own lotteries? and how is your current strategy to increase those billings or are you actually in the progress of introducing new lotteries or so that would be helpful thanks

So when you say own lotteries, so let me try to explain it. So we have the majority of our billings or transaction volumes comes from the lotteries that we are broken, that officially are owned by the state lotteries, meaning 649 euro jackpot and so forth and so on. But we also have other lotteries that we ourselves operate and we have developed them like the Friar Plus. We have also the Tram House Lottery. So we are adding more lotteries to our portfolio. These are relatively new. 5 Plus was launched two years ago. The Tram House Lottery was last year. And we hope that these also will take effect and becoming an even bigger part of our portfolio because they come with a higher margin. So that's why we want to push these lottery products to our customers as well as continue brokering our standard products. On top of that, we have the games, as we talked about, where we develop some games and other games we do in-source from third-party suppliers. Was that answering your question?

Yeah, I was a little bit more pointing in the direction of how your current strategy looks like of convincing more people of paying those lotteries or do you spend especially a little bit of your marketing spend towards promoting those lotteries as they come with higher take rates?

Yeah, so we see potential to further grow these lotteries on our current customer base. We also are refining the products themselves and the value propositions of these lotteries, so we are learning. as we are going. And yes, you have a point there. We do plan to also invest into customer acquisition with these lotteries, but this is something where we also are in test and learn mode right now.

Okay, thank you.

At the moment, there are no further questions. If you would like to raise another question, please press 9 and the star key. and star if you have any further questions.

There are no further questions.

Okay, then I would like to say thank you for everyone that participated and took the time to listen to our presentation. As we said in the beginning, it was a very good start for Seal and the group companies in the first quarter, and we expect a nice future as well. So thank you so much for taking the time, and should you have any more questions, feel free to reach out to us directly. I'm happy to support you with any kind of explanation. Thank you so much.