Zeal Network SE — Earnings Release 2023

Mar 20, 2024

EARNINGS CALL

Full Year Results 2023

20 March 2024

Tipp24 ZEAL BERIA ZEAL INSTANT ZEAL

CONTENT CONTENT CONTENT CONTENT CONTENT

• Summary
• Business Update
• Financial Update
• Guidance 2024
• Squeeze out LOTTO24
• Key Take-Aways

SUMMARY

SUMMARY FY 2023

SUCCESSFUL EXECUTION OF STRATEGIC PLAN

• Financial objectives achieved in a challenging jackpot $\chi$ environment - revenue and EBITDA in upper half of guidance
• Customer engagement increased: higher MAU and $\bigoplus$ increased billings per active customer
• Successful launch of games offering $\phi$
• Online lottery market share increased $\bigoplus$
• Increase in brand awareness through $\chi$ advertising campaign and introduction of above-the-line marketing into mix
• $\Leftrightarrow$ Continued disciplined capital management: attractive special dividend paid out to shareholders in May 2023

BUSINESS UPDATE

GUIDANCE 2023: MET AND OVERACHIEVED

$24$

In $\epsilon$ m	2023 ACTUAL	2023 GUIDANCE
Billings (excl. Games)	843.3	$800 - 830$
Revenue	116.1	$110 - 120$
EBITDA	32.9	$30 - 35$

• Revenue and EBITDA landed in upper half of guidance - even in challenging jackpot environment (see next slide)
• Billings (excl. Games) slightly ahead of upper end of guidance
• Marketing expenses of €36.0m in lower half $\bullet$ of guided range of €34 - 39m
• ZEAL invested into future growth through start of successful brand management campaign and launch of new Games business
• Games contributed $E3.0m$ in revenue and €1.4m in EBITDA to 2023 results

CHALLENGING JACKPOT ENVIRONMENT - 5 PEAKS IN 2023 VS. 7 PEAKS IN 2022

ZEAL

ZEAL INCOME STATEMENT FY 2023 - CONDENSED

INCOME STATEMENT	FY 2023 $(in \in k)$	FY 2022 $(in \in k)$	CHANGE (in %)
REVENUE	116,050	105,201	$+10.3$
- Lotteries	105,652	98,221	+7.6
- Games	3,040
TOTAL COSTS OF OPERATIONS	$-84, 419$	$-75,851$	$+11.3$
Personnel expenses	$-22,555$	$-18,892$	$+19.4$
Other operating expenses	$-61,979$	$-56,965$	$+8.8$
Marketing expenses	$-36,016$	$-34,126$	$+5.5$
Direct operating expenses	$-12,011$	$-10,652$	$+12.8$
Indirect operating expenses	$-13,952$	$-12,187$	$+14.4$
EBITDA	32,905	31,659	$+3.9$
Amortisation and depreciation	$-9,256$	$-8,730$	$+6.0$
EBIT	23,649	22,928	$+3.1$
NET PROFIT AFTER TAX	13,721	16,572	$-17.2$

REVENUE

Revenue increased by 10% due to the strong growth of lottery billings and launch of games business

TOTAL COSTS OF OPERATIONS

Total costs of operations increased by 17% compared to previous year Personnel expenses:

Personnel expenses increased by 19% due to an increase in the average number of employees from 161 to 172 (+7%) and higher variable compensation Personnel expenses also include €639K of non-recurring costs in connection with the departure of two C-level executives and €463K in costs related to prior years

Marketing expenses:

Marketing expenses increased by 6% as marketing activities were stepping up during periods of high jackpots such as June and September and investment into brand building

Direct operating expenses:

Direct operating expenses increased by 13% driven by 11% higher lottery billings and launch of games business

Indirect operating expenses:

ZEAL

Indirect operating expenses were up by 14%, mainly due to costs for strategic technical projects for our Spanish ONCE business, costs for consulting and increased software costs This was partially offset by a decrease of insurance premiums for our charity lotteries.

They also include €250K in one-off costs for the search for a new CFO.

EBITDA $\boldsymbol{\phi}$

ZEAL

EBITDA increased by 4% mainly as a result of the increase of revenues despite increased customer acquisition costs and brand investment. Excluding the one-off costs mentioned above the underlying EBITDA for 2023 was €34.257K

$\frac{1}{2}$

COST PER LEAD INCREASED IN Q2 AND Q3 BUT NORMALIZED IN Q4

In $\epsilon$	Q1	Q 2	Q 3	Q 4	Full Year
2023	36.77	50.83	50.39	37.11	45.52
2022	38.09	37.07	34.76	34.86	35.97

• Temporary increase in competitive pressure in online marketing during a high jackpot $Q₂$
• Launch of major advertising campaign for LOTTO24 to increase brand awareness Q 3
• $Q_4$
• Marketing campaign is already leading to positive contributions to new customer acquisition $\bullet$
• Disciplined and targeted acquisition activity in high media cost environment (Christmas)

LOTTERY BILLINGS GROW FASTER THAN MARKET DRIVEN BY GROWTH IN USER BASE AND HIGHER BILLINGS PER USER

STABLE LOTTERY GROSS MARGIN

NEW REGISTERED GROSS MARGIN CUSTOMERS PER COST PER LEAD, CPL JACKPOT PEAK (Lotteries) (Lotteries) $in %$ in $\epsilon$ (Lotteries) in thousands $+19%$ $-0.1$ pp. $+27%$ 119.4 45.52 12.9 $12.8$ 100.4 35.97 FY 2022 FY 2023 FY 2022 FY 2022 FY 2023 FY 2023 Increase driven by media cost inflation, Good level of customer Gross margin stable versus last intensified competition in online channels acquisition in challenging jackpot and expansion of brand investment $year¹$ environment in second and third quarter

ZEAL

ZEAL INSTANT

1) Excludes impact of two large wins in freiheit+ (none in 2022), incl. impact from wins gross margin was 12.5%

Tipp24

ZEAL BERIA

$\frac{1}{2}$

SUCCESSFUL LAUNCH OF GAMES BUSINESS WITH VERY GOOD EARLY TRACTION

Games business successfully launched

New Games offer is well received full business roll-out still in progress

$\bigoplus$ Continuous expansion of games portfolio

Currently 49 games online - more games will follow in the next weeks, but the authorities are still the bottle neck

$\overline{\Theta}$ Key customer engagement metrics developing well

Increasing overall pay-ins and billings as well as increasing billings and revenue per active user

$\Leftrightarrow$ Games business already profitable in 2023

EBITDA contribution of $£1.4m$

ZEAL

ZEAL INSTANT

BILLINGS

in $\epsilon$ millions

ZEAL BERIA

ARPU

$in \in$

$\frac{1}{2}$

Tinn24

ZEAL CONTINUES TO INCREASE ITS MARKET SHARE IN THE GROWING GERMAN ONLINE LOTTERIES MARKET

¹ Own estimate, based on figures of the German Association of State Lottery Companies (DLTB) 2023. The calculation of our market share also includes payments made by our customers for our own products (charity lotteries games) instead of for DLTB products brokered by us.

²⁾ Own estimate, based on information from the German Lotto and Totoblock (DLTB) 2023 (from the DLTB report dated January 4, 2024 from the website https://www.lottoindeutschland.de/presse#2024). When calculating our market share market share also takes into account the payments that our customers make into our customers made in our own products (charity lotteries and games) instead of the DLTB products we DLTB products brokered by us.

BUSINESS OUTLOOK AND GUIDANCE 2024

OVERVIEW OF STRATEGIC FOCUS AREAS FOR 2024

Improve billings margin in lottery brokerage business

Increase brand awareness, marketing efficiency and customer retention

Grow Games business

Launch new charity lottery

• Optimization of billings margin by increased share of high-margin products (e.g., lottery clubs) and expansion of service fees
• Measures are expected to increase billings margin for lotteries to more than 15% in H2 2024
• Continue successful brand campaigns for LOTTO24 and inter-link with performance marketing during high jackpot phases
• Increase marketing efficiency in brand and performance marketing
• Further improve customer retention through early engagement, higher subscription rates and expanded lottery club offerings
• Increase number of available games on our platform (bottleneck remains regulatory approval process)
• Broaden type of games to include instant-win-games (subject to regulatory approvals)
• More proactive offering of games on platform (within current confines of our license)
• With freiheit+ we already have a well-performing charity lottery product
• Charity lotteries enable product innovation to cater to unmet customer needs
• Attractive product margins, improved independence from high jackpots
• Launch will require investment in H2 2024 (marketing, product development, prizes, etc.)

GUIDANCE 2024: PROFITABLE GROWTH

In $\epsilon$ m	2024 GUIDANCE	2023 Actuals
Revenue 1)	140-150 $(+21 - 29%)$	116.1
EBITDA2) *****	38-42 $(+16 - 28%)$	32.9

¹⁾ Including income from jackpot insurance;

^D Excluding transaction costs in relation to planned squeeze-out transaction at Lotto24

• Guidance for FY 2024 based on a average jackpot environment
• Expected revenue growth of 21-29% and EBITDA growth of 16-28% versus 2023
• Acceleration of revenue growth in H2 2024 driven by $\bullet$ margin optimization measures
• ZEAL will continue to invest into marketing (c. €40-45m $\bullet$ for German brokerage business)
• Expected continued growth of games business $\bullet$
• Planned investment into launch of new charity lottery in $\bullet$ H₂ 2024
• Expected mid-term revenue growth in mid-to- $\bullet$ high teens (CAGR 2023-2026)

ZEAL

ZEAL RISTANT

ZEAL BERIA

DIVIDEND PROPOSAL 2023 AND DIVIDEND POLICY

DIVIDEND PROPOSAL 2024 AND DIVIDEND POLICY

Due to the positive result in 2023, the Supervisory Board will propose to the Annual General Meeting on 28 May 2024 the payment of a dividend of € 1.10 per share.

Since the business model change, we have paid out around €187m in dividends (including the dividend proposal for 2024) and have returned further €20m by buying back our own shares

Depending on the further economic development of the ZEAL Group we also intend to return annually increasing amounts of capital to shareholders over the next few years in the form of dividends and/or share buybacks

TOTAL DIVIDEND PAY-OUT P.A. in $\epsilon$ million

ZEAL

ZEAL BERIA

ZEAL

SQUEEZE OUT LOTT024

ZEAL NETWORK SE ANNOUNCES INTENTION TO LAUNCH SQUEEZE-OUT PROCEDURES FOR REMAINING MINORITY SHAREHOLDERS IN LOTTO24 AG

• ZEAL Network SE ("ZEAL") has today entered into legally binding agreements to acquire further shares in Lotto24 AG ("Lotto24") (the "Transactions")
• Following the settlement of the Transactions ZEAL will hold c. 95.45% of all shares of Lotto24
• ZEAL has today informed Lotto24 that it intends to initiate squeeze-out procedures according to §§ 327a 327f AktG (the "Squeeze-out") in relation to the remaining minority shareholders of Lotto24 after the Transactions have settled
• The reason for ZEAL to pursue the Squeeze-out now is that the remaining tax-loss carry-forwards at the level of Lotto24 have been fully consumed at the end of FY2023. Going forward it will be more tax efficient to have a tax consolidation between ZEAL and Lotto24 which will be facilitated by the Squeeze-out. Further, ZEAL expects that the Squeeze-out will lead to decreased complexity and some modest cost savings (excluding financing costs)
• ZEAL intends to finance the Squeeze-out by raising bank debt and has initiated conversations with a number of banks
• ZEAL has engaged KPMG to prepare an independent valuation of Lotto24 for purposes of determining the cash compensation per share to be paid to the minority shareholders. The appropriateness of the cash consideration will also be reviewed by a court-appointed auditor
• ZEAL expects that the squeeze-out will be resolved in the annual general meeting of Lotto24 to be held at the end of Q2/ $\bullet$ beginning of Q3

SIX REASONS TO INVEST

SIX REASONS TO INVEST IN ZEAL

• No. 1 in online lotteries in Germany 1.
• 1. Unique, highly cash generative business model
• 1. Outstanding customer loyalty
• High growth opportunities in an 4. underpenetrated market
• 1. Extension into Games and Charity Lotteries
• 1. Attractive dividend proposal

Questions

Answers

CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET IN €K

INCOME STATEMENT	FY 2023 $(in \in k)$	FY 2022 $(in \in k)$	CHANGE (in %)	BALANCE SHEET	31/12/23 $(in \in)$	31/12/22 $(in \in)$	CHANGE (in %)
Revenue	116,050	105,201	$+10.3$	Current assets	92,634	139,538	$-33.6$
Total costs of operations	$-84,419$	$-75,851$	$+11.3$	Non-current assets	302,016	320,197	$-5.7$
EBITDA	32,905	31,659	$+3.9$	ASSETS	394,653	459,736	$-14.2$
EBIT	23,649	22,928	$+3.1$	Current liabilities	57,997	44,562	$+30.1$
Profit before taxes	22,322	22,810	$-2.1$	Non-current liabilities	71,897	81,137	$-11.4$
Income taxes	$-8,601$	$-6,238$	$+37.9$	Equity	264,758	334,037	$-20.7$
Net Profit	13,721	16,572	$-17.2$	EQUITY & LIABILITIES	394,653	459,736	$-14.2$

ZEAL

ZEAL INSTANT

24

BUSINESS UNIT SEGMENT REPORTING AS OF 31/12/23 IN €K

	GERMANY	OTHER	TOTAL
Revenue	110,677	5,373	116,050
Other operating income	1,273	O	1,274
EBITDA	31,565	1.340	32,905
Depreciation/amortisation			$-9,256$
EBIT ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,			23,649
Financial result ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,			$-1,347$
Share of loss from associates			20
E 3		.	22,322
Income tax			$-8,601$
NET PROFIT/LOSS			13,721

ZEAL

25

KPIS (LOTTERIES)

	Q1 2020	Q2 2020	Q 3 2020	Q 4 2020	Q1 2021	Q2 2021	Q 3 2021	Q 4 2021	Q1 2022	Q2 2022	Q 3 2022	Q 4 2022	Q1 2023	Q2 2023	Q 3 2023	Q 4 2023
Pay-in (in $\epsilon$ m)	110.1	138.0	120.6	140.8	121.4	128.4	125.9	128.0	142.5	140.2	147.7	171.3	158.8	167.3	177.0	168.7
BILLINGS (in $\epsilon$ m)	140.0	174.4	157.3	181.0	163.3	169.5	160.3	163.4	181.2	177.1	186.1	214.1	201.2	209.9	222.1	210.1
ABPU (in $\epsilon$ )	49.46	54.48	54.90	61.30	56.36	58.40	54.40	58.00	58.31	58.18	58.90	60.73	60.99	61.42	60.73	62.31
ARPU (in $\epsilon$ )	6.00	6.89	6.60	7.51	7.16	7.00	6.55	6.99	7.57	7.41	7.39	8.07	7.55	7.73	7.67	7,78
$MAU$ (in k)	942	1,065	954	984	966	968	982	938	1,036	1,015	1,053	1,175	1,100	1,142	1,217	1,124
CPL (in $\epsilon$ )	26.00	27.77	28.96	28.79	33.48	32.12	17.65	29.61	38.09	37.07	34.76	34.86	36.77	50.83	50.40	37.11

ZEAL

KPIS (GAMES)

		Q2 2023* Q3 2023 Q4 2024
Pay-in (in $\epsilon$ m)	0.1	3.3	5.1
BILLINGS (in €m)	0.6	16.2	24.9
ABPU (in $\epsilon$ )	58.74	306.14	449.1
ARPU (in $\epsilon$ )	5.49	22.02	32.89
$MAU$ (in $k$ )	9	18	18

* Games business started in June 2023.

ZEAL

ZEAL INSTANT

FINANCIAL CALENDAR 2024

	2024									2025
	Feb. Jan.		Mar. Apr. May		Jun.	Jul.	Aug.	Sep.			Oct. Nov. Dec.	Jan.	Feb.	Mar. Apr.		May	Jun.
Publication of Annual Report 2023					20 March 2024
Publication of Q1 Quarterly Statement					8 May 2024
Annual General Meeting						28 May 2024
Publication of Half-Year Report									7 August 2024
Publication of Q3 Quarterly Statement												6 November 2024

Contact

Frank Hoffmann, CEFA

Senior Investor Relations Manager

$T + 49(0)40809036 - 042$ M +49 (0)175 267 3420 frank.hoffmann@zealnetwork.de www.zealnetwork.de

ZEAL

Straßenbahnring 11 20251 Hamburg