Zeal Network SE — Audit Report / Information 2017

Mar 22, 2018

ZEAL Network SE

Investor Call Annual Report as of 31/12/17

London, 22 March 2018

Important Notice

This presentation has been produced by ZEAL Network SE (the "Company") and is furnished to you solely for your information and may not be reproduced or redistributed, in whole or in part, to any other person.

This document contains certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which the Company operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes", "expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. The forward-looking statements contained in this presentation, including assumptions, opinions and views of the Company or cited from third party sources, are solely opinions and forecasts, which are uncertain and subject to risks. A multitude of factors can cause actual events to differ significantly from any anticipated development. The Company does not guarantee that the assumptions underlying such forward-looking statements are free from errors, nor does it accept any responsibility for the future accuracy of the opinions expressed in this presentation or the actual occurrence of the forecasted developments.

No representation or warranty (express or implied) is made as to, and no reliance should be placed upon, any information, including projections, estimates, targets and opinions contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein, and, accordingly, none of the Company or any of its subsidiary undertakings or any of such person's officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document.

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Contents

• 1. ZEAL at a Glance
• 1. Business Unit Update
• Lottery Betting (B2C)
• Lottovate (B2B/B2G)
• Other Topics
• 1. Strategic Aims and Strategic Progress
• 1. Financial Update
• 1. 2018 Guidance
• 1. Appendix

ZEAL at a Glance

• ➢ ZEAL delivered strong financial results and made good progress against its strategy
• ➢ Powerball was ZEAL's most successful new product launch ever
• ➢ The Group has continued to invest in new customer acquisition, with 411,000 new customers for the Group and our partners in 2017. 31% up on prior year
• ➢ Lottovate in partnership with UNICEF Norway launched Norway's first digital-only national charity lottery
• ➢ The Group added to its lottery betting portfolio with the launch in Ireland & UK

Other Topics

ILS Optimisation of our hedging structure

Brexit Following the invocation of Article 50, the Company is making the necessary preparations to ensure that the impact will be minimal

German VAT

Case filed with the court. First court decision expected in Q2 2018. We remain confident that ultimately the outcome will be favourable for the Group

ZEAL Invented Hedging Structure for lottery betting and has now improved it

Contingency Layer - €27m

A-C Insurance Linked Securities Layers - €75m

Self-Retention of myLotto24 - €25m for FY 2018

Ticket Duplication starting with ROJP* of approximately €100M for EuroMillions and JP of \$400M for the US Lotteries

ALLOWING COVERAGE up to €127M

Hedging costs expected to be 20% cheaper

Achieved greater capital efficiency with self-retention down from €35m to €25m

Achieved a greater competitive advantage with ability to add new partners and lottery products at any time Strategic Aims

Stand on more than one leg

Be a growth company

Be THE disruptor in the lottery industry

Strategic Progress

• lottery betting business
• Two charity lotteries launched

• More to come

• Intensified investment in Marketing

• Product portfolio expansion
• Improved user experience

Development of Billings in million €

• Billings were stable despite exceptionally weak jackpot environment during the third quarter
• Strong Q4 Billings of €78.8m; up 21% on preceding quarter
• 411k new registered customers up 31% YoY

Development of TOP and Normalised Revenue in million €

1) Negatively impacted by high prize pay-outs

• Total Operating Performance in 2017 up on previous year despite weak jackpot environment in Q3 2017

• Strong Q4 performance up 33% on previous quarter and 14% on prior year

• 'Normalised' Revenue in 2017 up on previous year
• 'Normalised' Revenue increased by 14% from Q3 to Q4

Development of Expenses in million €

• Expenses increased by 14% in 2017 relative to the prior year:
• Increase in marketing investment of €4.3m which in part drove 411k new customers
• Increase in hedging costs of €10.6m due to rule changes in EuroMillions

Development of EBIT and Normalised EBIT in million €

• Statutory EBIT of €25.2m & 'Normalised' EBIT of €38.1m due to investment in growth and EM rule changes
• Net profit of €17.2m decreased by €8.8m compared to prior year due to EBIT reduction
• Earnings per share (EPS) of €2.05 (2016: €3.09). Effective Tax rate of 32% (in line with expectations)

Net Cash in 2017 has increased by €25.8m, despite the following:

• €1.8m investment (outflow) in Omaze
• €12.9m of statistically higher pay-outs (outflow) in the year
• €8.4m dividend payments (outflow) to our shareholders
• Offset by €20.0m net cash through reduction in our cash reserve due to the improvement in our hedging structure

¹ Definition of Net Cash: Cash (without pledged cash) + Short-term financial assets + Other current assets and prepaid expenses, less Trade payables, Other liabilities, Income tax liabilities and a €30m hedging reserve

Total Operating Performance	€ 150 - 160m
EBIT	€ 33 - 43m
Dividend	€ 1.00 per share

Appendix

Consolidated Income Statement and Balance Sheet in €k

		31/12/17	31/12/16	Change in %
t n e	Revenue	134,295	112,935	+18.9
m e	Total operating performance	141,246	139,638	+1.1
at	Total costs of operations	(116,065)	(101,682)	+14.1
St e	EBITDA	26,436	41,224	(35.9)
m o	EBIT	25,181	37,956	(33.7)
c n I	Earnings before taxes	25,231	36,511	(30.9)
	Profit	17,178	25,951	(33.8)

et		31/12/17	31/12/16	Change in %
	Current assets	134,477	131,339	+2.3
e h	Non-current assets	6,634	4,677	+41.8
S e	ASSETS	141,111	136,016	+3.7
c n	Current liabilities	32,730	36,259	(9.7)
a al	Non-current liabilities	1,765	2,199	(19.7)
B	Equity	106,616	97,558	+9.3
	EQUITY & LIABILITIES	141,111	136,016	+3.7

	Lottery betting	Lottovate	Business unit total	Normalisation adjustments	Other adjustments	Statutory
Revenue	139,175	7,637	146,812	(12,725)	208	134,295
Other operating income	6,597	349	6,946	(190)	195	6,951
Total operating performance	145,772	7,986	153,758	(12,915)	403	141,246
EBITDA	48,975	(9,399)	39,576	(12,915)	(225)	26,436
Depreciation/amortisation	(956)	(299)	(1,255)	–	–	(1,255)
EBIT	48,019	(9,698)	38,321	(12,915)	(225)	25,181
Financial result	–	–	–	–	50	50
EBT	–	–	38,321	(12,915)	(175)	25,231
Income tax	–	–	–	–	(8,053)	(8,053)
Net Profit/loss	–	–	38,321	(12,915)	(8,228)	17,178

Statutory / Normalised Revenue & EBIT in €k

e		2017	2016	Variance
u n	Statutory	134,295	112,935	21,360
e v e	Normalised	147,020	145,515	1,505
R	Variance	(12,725)	(32,580)

		2017	2016	Variance
T BI	Statutory	25,181	37,956	(12,775)
E	Normalised	38,096	50,820	(12,724)
	Variance	(12,915)	(12,864)

Billings (in €m)	Q4 2016	Q1 2017	Q2 2017	Q3 2017	Q4 2017	2016	2017
	69.9	64.1	64.0	61.7	72.4	261.3	262.2
ABPU (in €)	Q4 2016	Q1 2017	Q2 2017	Q3 2017	Q4 2017	2016	2017
	57.9	54.4	56.2	60.3	59.7	58.0	57.6
MAU (in k)	Q4 2016	Q1 2017	Q2 2017	Q3 2017	Q4 2017	2016	2017
	403.9	392.6	379.9	341.1	404.7	375.7	379.8

Financial Calendar 2018

Publication of Annual Report 2017	22 March 2018
Publication of Q1 Report	4 May 2018
Annual General Meeting	1 June 2018
Publication of Q2 Report	2 August 2018
Publication of Q3 Report	1 November 2018

Frank Hoffmann, CEFA Investor Relations Manager

ZEAL 5 th Floor - One New Change London EC4M 9AF

T +44 (0) 203 739 7123 M +49 (0) 175 2673420 F +44 (0) 203 739 7099

frank.hoffmann@ZEAL-network.co.uk www.ZEAL-network.co.uk