German online lottery products provider ZEAL Network SE has published its 2020 Annual Report, confirming the preliminary figures for the financial year which were announced back in January.
With a growth of 40%, the group’s billings rose to €652.8m in 2020 (2019: €466.7m). Primary drivers included the first full consolidation of LOTTO24, a positive jackpot development and the associated acquisition of new customers. For contractual reasons, the billings of the ONCE business in Spain are not included in the total.
Revenue decreased by 23% year-on-year to €87.0m (2019: €113.5m) due to the expected dis-synergies arising from a change in the firm’s business model. The gross margin in the Germany segment was above the previous year’s level at 12.3% (2019: 11.7%).
ZEAL was also able to acquire 918,000 new registered customers in the Germany segment (2019: 274,000) at acquisition costs per newly registered customer (cost per lead, CPL) of €27.79 (2019: €33.64). The average number of monthly active users (MAU) and average billings per user (ABPU) also increased in the segment to 986,000 and €55.07 respectively (2019: 640,000 and €48.99).
Adjusted EBITDA of €12.7m was below the previous year’s figure (2019: €29.4m), as expected due to the revenue dis-synergies associated with business model change and increased marketing investment, but above the already raised guidance. At €5.4m, EBIT was also down on the previous year (2019: €9.1m).
Due to the €3.4m increase in the financial result and the €6.6m reduction in tax charges, net profit of €7.9m was well above the prior-year figure (2019: €1.7m).
The group also succeeded in further reducing its cost base, as personnel expenses and other operating expenses together fell by €13.8m to €78.2m in 2020 (2019: €91.9m). This happened despite an increase in marketing expenses of €10.5m to €32.2m to take advantage of the favourable market and jackpot environment (2019: €21.7m).
Planned annual synergies of at least €57m played a major role in achieving these cost savings. The aim was to reach 80% of cost synergies within one year and 100% within two years of completing the LOTTO24 takeover, by May 2020 and May 2021.
Due to the strict implementation of the planned measures, it achieved its target much earlier than planned. In May 2020, it had already generated 91% of the targeted cost synergies and realised 100% in the fourth quarter of 2020. With total expenses incurred for achieving the planned cost synergies of €15m, the group was also at the lower end of the targeted range of €15.0m to €20m and expects no further relevant costs.
CFO Jonas Mattsson said: “We have delivered on our promises and already fully realised the planned cost synergies in the fourth quarter of 2020. At the same time we have grown our business and launched new products. We are delighted that all this is also reflected in our share price performance.”
Information published by the German Association of State Lottery Companies (DLTB) and the German Lottery Association (DLV) states that the online revenue of the 16 state lottery companies and private lottery brokers with permits rose to €1,587m in 2020 (2019: €1,035m). This corresponds to a significantly increased online share of the total lottery market of 20% (2019: 14%).
While stakes generated online by all state-owned companies together grew by 40% to €913m (2019: €651m), ZEAL’s online lottery brokerage business (including charity lotteries) with the brands LOTTO24 and the first full-year billings of Tipp24 increased by 78% to €652m (2019: €366m, full-year LOTTO24 billings and Tipp24 billings as of the Business Model Change on 15 October 2019). It was able to further expand its online market leadership with a market share of 41% (2019: 35%).
The company noted that according to a DLTB statement, approximately 40% of stakes are allocated to good causes. In 2020, over €3.1bn (2019: over €2.9bn) was transferred to the respective state budgets or the beneficiaries in the form of taxes and duties. This corresponds to over €8.6m per day for good causes throughout Germany.
In the case of charity lotteries, such as ‘Deutsche Fernsehlotterie‘ and ‘freiheit+‘, at least 47% of stakes are channelled to good causes via taxes and duties. In 2020, ZEAL provided a total of €246m for important social and community projects through its brokerage activities (2019: €94m).
The group said it will propose a total pay-out of €20.2m (2019: €17.9m) to the Annual General Meeting on June 1, 2021, due to its positive liquidity situation and the expected further increase in profitability, in reaction to a dividend of €0.90 per share for 2020 (2019: €0.80).
Depending on the economic development of the group, the company has set itself the target, in line with the published dividend policy, of proposing a dividend of €1 per share to the shareholders at the Annual General Meeting in 2022.
In 2021, ZEAL plans to further expand its market leadership as an online provider of the state lottery and other permitted lottery products. The company expects billings of at least €700m for the Germany segment, depending on general conditions such as jackpot development.
Following exceptionally strong jackpots in the previous year, ZEAL has assumed an average jackpot development, resulting in a lower growth rate than in the previous year. Moreover, the company expects revenue to be at least €95m in the fiscal year 2021. With similarly high marketing investments as in the previous year of around €32m to acquire new registered customers, adjusted EBITDA is expected to reach at least €20m.
CEO Dr Helmut Becker added: “With our combination of commercially sensible marketing investments, high new customer growth, powerful technology and exciting product innovations, we have set the course for a highly promising future.”