ZEAL Network SE

Good morning everyone and welcome to SEALs earnings call. I hope you all have access to the presentation but if you don't it's accessible on our home page on the investor relations section as well. On this content slide we will talk about today's agenda and we will start off with a summary of the first six months of the year followed by a business and a financial update We will then reiterate our guidance for the year before we are finishing off with the key takeaways. After the presentation, we will give you the opportunity to ask questions. I will now hand over to our CEO, Helmut Becker.

Good morning and welcome. On the summary page for the first half of 2023, we're going to go through some highlights. We continue to grow the business, and we do that by using opportunities for efficient growth investments. As a result, we've been able to significantly increase our billings volumes by 15% compared to last year. We do this in line with our marketing strategy. And what I mean by that is that we are accelerated. We have accelerated customer acquisition, particularly during a high jackpot phase in June. That was a Euro jackpot jackpot phase. And on top of that, another significant highlight for the first six months of the year was the long awaited receipt of the license for virtual slot machine games in Germany that we received from the national regulator. We were well prepared and launched our offering very quickly with an initial portfolio in June. We will now step by step expand our games portfolio. And The final highlight for the third time this year, one of our customers won a very large jackpot that happened very recently in August. And we are very excited to have so many of our customers win big jackpots. I actually have the privilege to talk to these customers. And that's always a highlight for me. And often, there's a great story that we can tell the world. Jonas? Oh, no, I think I'm continuing. And now we are talking about a particular new business that we've launched. That's the games business. As I mentioned before, we were able to launch our games business in a very short period of time after receiving the license already in June. With our brands, we are a front runner in the lottery segment. To date, no state lottery company has launched a comparable games business. We launched our first six games in the first half of the year, and since then, we've actually launched 12 more games in two phases, so we're now at 18 games. And we expect to continuously expand our games portfolio in the second half of the year. having a lot of games in 2024 on top, and constantly refreshing our games portfolio. The business is ramping up nicely. But for the first half of the year, we've only had two weeks of data and only six games live initially. And so it's a bit premature to already draw detailed conclusions or forecast this business for the rest of the year. Jonas, over to you.

Thank you, Helmut. Let's go to the next page, and I will start describing the jackpot situation for the year because it has such an impact on our performance. So on this slide, you can see the jackpot development for our two main products, Lotto 6049 on top and Eurojackpot below. For Lotto 6049, the jackpot situation has been significantly weaker than comparable time last year. Average jackpot is slightly lower, but more importantly is that we only had one peak jackpot in the period versus four last year. This has, of course, an impact on both customer position and billings number for the period. For Euro jackpot, it was the other way around. The average price is similar, but we had 220 million draws in June, fueling our growth, while last year we had none. So what does that tell us? In summary, slightly better jackpot compared with last year, but still below the statistical average. Let's now move into the income statement that you will find on next slide. Thanks to the strong performance, and especially in June, we grow revenues by 11%. Due to the intensive marketing investment, total cost increased by around 20%, but let me break this down for you. Personal costs are in line with the year, despite a slightly larger workforce. Marketing expenses. This is where we made significant investment to capture as many customers as possible, especially in June. In total, for the first six months, we have spent 20 million, which is a step up from last year by 44%. As we've explained before, the marketing investment is short-term suppressing our EBITDA, but long-term highly value created for the company. Direct operating expenses only grow by 9%, while the volume grow by 15%. This is due that we were able to make savings in, for example, age verification costs that helps offsetting the general increase that would normally come from a transaction volume increase. Similar to what I explained in the first quarter, indirect operating expenses are driven by more consultancy and other external costs linked to the projects that we are currently running. And as I just said, the additional market investment has short-term suppressed EBITDA for the first six months and is standing at close to 14 million for the period. This equals to 25% EBITDA margin for the period, which is lower than what we normally have, but fully explained by this exception investment we made in the period. And finally, EBIT is at 9.3 million and net profit close to 6 million. Both are down from last year, which was the same reason for EBITDA, the increased marketing investment. In the coming three slides, we will look closer at some KPIs. So let's go to slide 10. Our billings grow by 50% to 412 million for the period. This is an impressive growth, fueled by the peak jackpot, especially the one we had in June. Gross margin of 12.5% is slightly down versus last year, and it's driven by the product mix. Last year, we had a comparable more sales of charity products with a higher margin than this year. But this is nothing that is worrying me since the product mix is always changing over the course of the year. On the next slide, we've highlighted net cash and new registered customers. Let's first talk about net cash, which is down 34%, fully reflected the large dividend payment we made in June of close to 80 million to our shareholders. And we still have a healthy net cash of 23 million, even after this dividend payment. And as you can see from the chart, we have made a fantastic acquisition numbers by bumping up newly registered customers by almost 20%, resulting in us acquiring 349,000 new customers for the year so far. Moving on to slide 12, here you'll find some additional KPIs. The general increase in media cost and more intensive online advertising by our competitors, pushing up the bidding price for keywords in combination with our strong push in the customer acquisition, resulted in higher cost per lead. The cost for the first half of the year is 45 euros and 9 cents, an increase by 20% versus last year. The MAO, the monthly active users, are up 9% for the first six months, and standing now at 1.1 million monthly users on average. And finally, average billing per user is continuing to increase and now at 61 euro, 5% up from last year. This is indeed very satisfactory, but I don't expect this to go further up until the games are fully ramped up. But we do expect high level of cannibalization with our lottery product with what the customer spent on games. Let me now reiterate the outlook for the years that you will find on slide 14. So the guidance that we reiterate for the year is that we continue, believe, to have billings around 800 to 830 million euros, revenues of around 110 to 120, and EBITDA of around 30 to 35 million euros, mostly depending on how much we ultimately invest in marketing. And we are planning a step change, as you saw from the first six months, and have assumed marketing spend in the range of 34 to 39 million for the year. For the games business, we have assumed a low single-digit EBITDA impact for the 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 jackpot for the rest of the year. Over to you, Helmut, to bring us home.

Thank you, Jonas. Let me summarize the first six months of the year. We continue to grow the business. We have successfully launched our games business already in June, and we are now step by step expanding the games portfolio. And we've successfully accelerated our customer acquisition with significant marketing investments particularly in high jackpot phases. Thank you very much. And we can now move on to questions and answers.

Ladies and gentlemen, if you would like to ask a question, please press 9 followed by the star key on your telephone keypad. If you wish to cancel your question, please press 9 followed by the star key again. So now you can already press 9 and start to state your question. And we already have two questions. So the first one is from Henry Wenders from New Ways. You can ask your question now.

Hello. Good morning, everybody. Thank you so much for your presentation. I have a couple of questions. First, shall we do them all at once or shall we do one question and then you answer and then the next question? as as you prefer so just take the questions and we will take them in the in the order we choose all right okay so first one um on the uh average billing per user it was this was up a little bit above my expectation and i would like to know is um do you see there an impact of the strong q2 jackpot especially the euro jackpot or would you say that is a general increase in user spending that you can see that is independent of the jackpot environment that you are facing? And the second question is on the marketing expense, which is also above my expectation. So it was probably your most expensive marketing quarter so far. I would like to know if there are any one-time expenses concerning your newly launched TV commercial. Or is it just that you generally really push marketing and then, as you said before, the cost per lead are also up. So that's explaining the high marketing expenses. And then the third and fourth question on the instant win game rollout. Now you're online for the instant win games for about one month so far. And obviously the contribution for Q3 is not very high. But do you see or are you satisfied so far with how instant win is going so far and is it according to your expectations and then the follow-up questions on that is uh you said so far you're at 18 games and if i understand it correctly you expect 200 games by the end of the year or within the first year so by first of july 2024 um That would be my question. So if it's by the end of this year, the end of 23, you would need nine to 10 games on average per week to be launched to reach that goal. And I would like to know if you're comfortable with that.

Thank you so much for the questions. And I think we will be able, I will take the first two questions and Helmut can cover the games question. So the average billing per users, as we talked about the increase now to 61 euro, 5% up, it's a very nice number. I expect this to be not continuing up that much. I think the driver or the driver is the high jackpot phases where people were spending more. So I would say to your point, it's a jackpot driven increase in the average billing per user. And we cannot expect that even if it would be nice for the future. So that is average billing per user. The marketing expenses is predominantly the push for the acquisition of customers. We have some media costs, as you say, but it's mostly preparatory, preparing the TV launch and so forth. But we are talking rather hundreds of thousands than millions. So the majority of the marketing spend is for performance marketing, meaning acquiring new customers. So with this, we take the gains to helmet.

Let me tackle the remaining two questions. So we launched with an initial portfolio of gains, which was six gains. That's a very, very small portfolio. Since then, we have expanded the portfolio step by step. We went to 12 gains as of yesterday. And as of today, we stand at 18 games, which is still a very, very small portfolio. So we're looking forward to further expanding the games portfolio. The performance of those games is as expected. But of course, it's very early days and the real impact of the games business, we will only see once the portfolio is significantly grown and also Some of the initiatives, further initiatives for growth, we will only start when the portfolio is a bit bigger than it is today. So it's a step-by-step process. The 200 gains is a rough target number. The size of the portfolio is important. The refreshment of the portfolio is important. And of course, the right mix of games is important going forward. And so we are improving that step by step and also, you know, dependent on the regulator approving our games, which is also happening step by step and takes some time. The 200 as a rough target number is a number for the first 12 months. So it's probably not the number we will achieve by the end of the year, but it is a number that we aim to achieve within the first 12 months.

All right, thank you. I somehow got the mix that it's the end of this year, so that really helps assessing the situation. Thank you, and have a good day.

Next question comes from Marius Vorberg from Warburg Research. You can ask your question now.

Yeah, hi. Thanks for taking my question. Basically, just one left. With regard to your marketing, especially the TV campaign, remind me, correct me if I'm wrong, but I think that you started the TV campaign some years ago already and that was of yeah mediocre success to put it this way um and that you in the past mentioned that tv is not the best way to to for marketing for you um and so my question is what makes you confident with the with this current campaign that is of more success than it was in the past and that it should help you gaining market shares especially given the rather high cpl that uh it creates in your P&L.

Thank you for the question, Marius. I think it's fair. The campaign we did a couple of years ago was mediocre, as you say. We have completely redone the strategy behind this, and we are also doing what we call a full-fledged marketing campaign, which means that it's not only TV. TV is in combination with direct to consumer, out of home. You have maybe seen in Hamburg, we have had a lot of advertisement on bus stops, et cetera, et cetera. This could also be internet. It could be radio. So trying to reach a much wider audience in combination with the performance marketing. Also, we have made learnings over the years. So we are pretty bullish that this will be value-creative and highly value accretive, I would say. Every time we run our internal numbers, we see this is a very highly accretive investment that we're doing. So I'm pretty optimistic that this will pay off in the medium term.

Okay, thank you very much.

So at the moment, there seem to be no further questions. If you have any additional questions, please press 9 and the star key now. So Mr. Madsen, there are no further questions coming in.

If there is no further questions, I would like to thank everyone on the call for taking the time and listening to us. As you know, we have also shared our full document that you should have access to. And should you have any further questions, please reach out to Frank Hoffman or myself and we're more than willing to jump on a call or answer any kind of questions you may have. So thank you so much and have a wonderful day. Thank you.