Zeal Network SE — Earnings Release 2019

Nov 13, 2019

ZEAL Network SE & Lotto24 AG

Investor Call, Quarterly Release as of 30/09/19 13 November 2019

Content

1. ZEAL

• 2. Lotto24
• 3. Guidance 2019
• 4. Key take-aways
• 5. Appendix

ZEAL: Important events in the first nine months of 2019

• ➢ Successful completion of the acquisition of Lotto24 AG
• ➢ Lotto24 fully consolidated*
• ➢ Solid billings performance but high jackpot pay-out negatively impacted EBITDA
• ➢ Additional cost synergies realised
• ➢ Reduction of employees from 350 to 203
• ➢ ZEAL returned its former Tipp24 secondary lottery business to German brokerage
• ➢ Relocation of the company's registered office back to Hamburg

ZEAL: 9M 2019 –

Fully consolidating Lotto24 since 14 May 2019

			9M 2019	9M 2018	Change in %
	Billings		332,649	212,354	+56.6
	Revenue		93,178	111,202	(16.2)
	Total operating performance (TOP)		101,166	114,129	(11.4)
t	Personnel expenses		(17,166)	(22,374)	(23.3)
n e m e at	Other operating expenses		(55,973)	(62,382)	(10.3)
	Marketing expenses		(16,089)	(13,896)	+15.8
St e m	Direct costs of operations		(26,798)	(32,122)	(16.6)
o c n	Other costs of operations		(13,086)	(16,364)	(20.0)
I	EBITDA		28,253	29,977	(5.8)
	Amortisation and depreciation		(5,404)	(880)	+514.1
	Exceptional items		(9,995)	-	n/a
	EBIT		12,854	29,097	(55.8)
	Profit after tax		10,816	20,102	(46.2)

	Comments
➢ ➢	Billings: − Acquisition of Lotto24 contributed €124.7m − Relevant jackpots only partially supported growth TOP: − Mainly driven due to the large jackpot pay-out which was partially offset by contributions from
➢	Lotto24 Personnel expenses & other operating expenses: − Reduced by almost €12m despite absorbing Lotto24 costs of €11m
	➢ Personnel expenses: − Reduction of employees from 350 to 203
	➢ Direct costs: − Decrease in hedging costs and non deductible VAT
	➢ Other costs of operations: − Decrease mainly driven by legal & advisory, rental costs and travel costs
➢	EBITDA: − Negatively impacted by significant jackpot win in August

ZEAL: Other performance indicators

1) Including Lotto24 2) Lottery betting and brokerage segment

ZEAL: Reunification with Lotto24

7

Lotto24: Important events in the first nine months of 2019

• ➢ Lotto24 is a member of the ZEAL Group
• ➢ Lotto24 with strong third quarter
• ➢ Billings above previous year
• ➢ Revenues slightly below previous year
• ➢ Profitability improved
• ➢ Supervisory Board enlarged from three to six members
• ➢ Contracts governing the future cooperation between ZEAL and Lotto24 signed

Lotto24: 9M 2019

		9M 2019	9M 2018	Change in %	Comments
	Billings	240,516	235,896	+2.0	➢ Billings:
	Revenues	27,537	28,104	(2.0)	− Up by 2%
	Total performance	27,590	28,326	(2.6)	➢ Revenues: − Decreased due to jackpot-related lower share of
t n	Personnel expenses	(5,930)	(6,341)	(6.5)	lotto clubs
e m	Other operating expenses	(15,924)	(18,505)	(14.0)	➢ Personnel expenses:
e at	Marketing expenses	(8,048)	(11,968)	(32.8)	− Fell due to the decrease in headcount ➢ Marketing expenses:
St e	Direct operating expenses	(1,995)	(2,260)	(11.7)	− Activities reduced due to weak jackpot trend
m o c	Indirect operating expenses	(5,881)	(4,277)	+37.5	➢ Indirect operating expenses:
n I	EBITDA	5,273	3,045	+73.2	− Increase in the use of external IT management and consultancy services and increase in legal and
	EBIT before one-off expenses	4,122	2,165	+90.4	consultancy fees
	One-off expenses	(1,345)	-	-	➢ EBIT before one-off expenses: − Doubled mainly due to controlled lower marketing
	EBIT	2,777	2,165	+28.3	activities
	Profit	3,401	7,827	(56.5)

Lotto24: Other performance indicators

Lotto24: Guidance 20191)

• ➢ Stable billings and revenues at prior-year level (stand-alone)
• ➢ Including positive effects from also brokering tickets via Tipp24.de and Tipp.com since 15 October 2019, billings and revenues above prior-year figures
• ➢ Gross margin slightly below the prior year level
• ➢ Fall in number of new customers (excluding Tipp24 customers added as a result of the ZEAL business model change)
• ➢ Higher CPL than previous year
• ➢ EBIT well above the break-even mark 2)
• ➢ Exact financial implications can only be predicted more accurately when the Tipp24 customer migration has been more advanced

1) Depending on external conditions – especially the jackpot trend – and marketing investments to attract new customers 2) Without consideration of any transaction costs incurred during the takeover

ZEAL: Consolidated Guidance 2019

• ➢ Dependent on a number of key factors:
• − Future jackpot development for major lottery products
• − Effects on the customer base that cannot be conclusively assessed
• ➢ Negative effects on revenue and profitability in the fourth quarter 2019
• − Since more profitable secondary lottery business will be converted to brokerage business permitted in Germany
• ➢ TOP anticipated significantly below previous year (2018: €160m)
• ➢ EBITDA expected to reach €18m €21m
• ➢ Due to relocation to Germany interim dividends will no longer be paid
• ➢ Proposal on the appropriation of profits and a new dividend policy will be published in our 2019 financial statements in March 2020 at the latest

Majority of implementation cost spent

Implementation of cost synergies well on track

Tipp24 returned to German lottery brokerage

Headquarter relocated back to Hamburg

Disclaimer

This presentation has been jointly prepared by ZEAL Network SE and Lotto24 (together the "Companies") solely in connection with the analyst and investor call on 13 November 2019. The information contained herein must not be relied upon for any purpose and may not be redistributed, reproduced, published, or passed on to any other person or used in whole or in part for any other purpose.

This document contains certain forward-looking statements relating to the businesses, financial performance and results of the Companies and/or the industry in which the Companies operate. Such forward-looking statements, including assumptions, opinions and views of the Companies and statements from third parties, are uncertain and subject to risks. A multitude of factors can cause actual events to differ significantly from any anticipated development. The Companies do not guarantee that the assumptions underlying such forward-looking statements are free from errors, nor do they 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 Companies or any of their subsidiary undertakings or any of such person's officers, employees or advisors accepts any liability whatsoever arising directly or indirectly from the use of this document.

By accepting this presentation, you acknowledge that you will be solely responsible for your own assessment of the market and the market position of each of the Companies and that you will conduct your own analysis and be solely responsible for forming your own view of the potential future performance of each of the Companies' businesses.

This presentation is for information only and shall not constitute investment advice. It is not intended for solicitation purposes but only for use as general information..

This presentation is dated 13 November 2019. Neither the delivery of this presentation nor any further discussions of any of the Companies with any of the recipients, shall, under any circumstances, create any implication that there has been no change in the affairs of any of the Companiessince such date.

Appendix

ZEAL: Consolidated Income Statement and Balance Sheet in €k

		30/09/19	30/09/18	Change in %
t n e	Revenue	93,178	111,202	(16.2)
m e	Total operating performance	101,166	114,129	(11.4)
at	Total costs of operations	(88,312)	(85,032)	+3.9
St e	EBITDA	28,253	29,977	(5.8)
m o	EBIT	12,854	29,097	(55.8)
c n I	Earnings before taxes	12,815	28,848	(55.6)
	Profit	10,816	20,102	(46.2)

		30/09/19	31/12/18	Change in %
	Current assets	177,876	162,280	+9.6
et e h	Non-current assets	349,065	6,932	+4,935.6
S e c n a al B	ASSETS	526,941	169,212	+211.4
	Current liabilities	47,086	42,096	+11.9
	Non-current liabilities	64,867	3,918	+1,555.6
	Equity	414,988	123,198	+236.8
	EQUITY & LIABILITIES	526,941	169,212	+211.4

ZEAL: Business Unit Segment Reporting as of 30/09/19 in €k

	Lottery betting	Lottovate	Brokerage	Business unit total	Normalisation adjustments	Other adjustments	Statutory
Revenue from secondary lottery	78,815	–	–	78,815	(28,958)	134	49,991
Revenue from instant win games	8,548	–	–	8,548	3,746	–	12,294
Revenue from ticket sales and commission	12,691	3,928	14,274	30,893	–	–	30,893
Other operating income	2,317	249	60	2,626	4,785	577	7,988
Total operating performance	102,371	4,177	14,334	120,882	(20,427)	711	101,166
EBITDA	48,797	(3,100)	3,355	49,052	(20,427)	(372)	28,253
Depreciation/amortisation	–	–	–	(5,404)	–	–	(5,404)
Exceptional costs	–	–	–	(9,995)	–	–	(9,995)
EBIT	–	–	–	33,653	(20,427)	(372)	12,854
Financial result	–	–	–	–	–	(25)	(25)
EBT	–	–	–	33,653	(20,427)	(411)	12,815
Income tax	–	–	–	–	–	(1,999)	(1,999)
Net Profit/loss	–	–	–	33,653	(20,427)	(2,410)	10,816

Billings (in €m)	Q3 2017	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019
	61.7	72.4	68.3	65.5	67.8	77.7	67.2	69.7	195.7
ABPU (in €)	Q3 2017	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019
	60.3	59.7	58.0	53.3	58.0	60.4	57.5	60.5	57.3
MAU (in k)	Q3 2017	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019
	341	405	392	410	384	427	375*	365	917

Lotto24: Income Statement and Balance Sheet in €k

		30/09/19	30/09/18	Change in %
t n e	Billings	240,516	235,896	+2.0
m e	Revenues	27,537	28,104	(2.0)
at	Total costs of operations	(24,760)	(25,939)	(4.5)
St e	EBITDA	5,273	3,045	+73.2
m o	EBIT	2,777	2,165	+28.3
c n I	Net profit before taxes	2,678	1,262	+30.0
	Net Profit	3,401	1,843	(56.5)

		30/09/19	31/12/18	Change in %
	Current assets	21,900	17,093	+28.1
et e h	Non-current assets	36,534	33,294	+9.7
S e c n a al B	ASSETS	58,434	50,388	+16.0
	Current liabilities	19,867	16,324	+21.7
	Non-current liabilities	2,840	1,738	+63.4
	Equity	35,727	32,326	+10.5
	EQUITY & LIABILITIES	58,434	50,388	+16.0

ZEAL + Lotto24: Financial Calendar 2020

Publication of Annual Report 2019	26 March 2020
Publication of Q1 Report	14 May 2020
Annual General Meeting	17 June 2020
Publication of Q2 Report	13 August 2020
Publication of Q3 Report	12 November 2020

Vanina Hoffmann, CEFA Manager Investor & Public Relations

Lotto24

Straßenbahnring 11 20251 Hamburg

T +49 (0)40 8222 39 - 501 F +49 (0)40 8222 39 - 70

vanina.hoffmann@lotto24.de www.lotto24.de App: app.lotto24.de

Frank Hoffmann, CEFA Investor Relations Manager

ZEAL

Valentinskamp 70 20355 Hamburg

T +49 (0) 40 808 141 - 123 M +49 (0) 175 267 3420

frank.hoffmann@zealnetwork.de www.zealnetwork.de