Zeal Network has cited the acquisition of a record number of new customers as the main reason behind year-on-year financial growth in 2018, describing the year as a “milestone” 12 months for the lottery brokerage.
Revenue in the 12 months through to December 31, 2018, amounted to €154.8m (£134.0m/$176.4m), up 15% on the €134.4m reported in 2017.
Zeal has put this down to a wider customer base spending more on its services, with total stakes up from €241.3m in 2017 to €254.5m in the past year. Zeal has said this was booted by improvements in the average jackpot for Deutsche LottoundTotoblock, as well as the release of new instant win games and the introduction of secondary lotteries on Powerball and Mega Millions in the US.
The digital lottery business said this also drove new customer acquisition to a record high, with the 614,000 new players that signed up in 2018 representing a jump of 49% on 411,00 in the previous year.
Personnel spending hit €28.8m, up from €28.6m in 2017, despite Zeal lowering the average number of full-time equivalent staff from 274 to 262. However, the lottery brokerage said this was offset by pay increases, one off payments to staff on termination of their contracts, and an increase in the annual bonus accrued in 2018, due to the improved performance of the group.
Looking at costs, Zeal reported a marginal decline in its operating expenses, while the business saw personnel expenses rise during the year.
In terms of operational expenses, marketing spend was up from €19.1m to €19.6m, which Zeal said is consistent with a strategy to grow its international via customer acquisition, with a specific focus on the UK.
Direct costs of operations increased from €43.4m to €44.3m due to €1.91m in Austrian gaming duty, offset by a reduction in non-deductible VAT of €1.46m. However, Zeal was able to make significant savings in terms of other costs of operation, which fell from €23.3m to €19.7m, primarily due to a €1.16m drop in legal costs.
Although operating income slipped from €7.0m to €4.9m, due to a decrease in income registered from hedged tickets over the past year, Zeal was able to post an improved profit of €26.7m for 2018, up from €17.2m in 2017. However, this is lower than Zeal anticipated in a profit guidance report published in January.
Earnings before interest, tax, depreciation and amortisation hiked from €26.4m to €47.4m, while adjusted earnings before tax climbed from €25.2m to €46.6m. Zeal also reported a year-on-year rise in statutory earnings before tax, up from €25.2m to €38.3m.
Profit before taxes for the full year amounted to €38.0m, compared to €25.2m in 2017.
Reflecting on the results, CEO Helmut Becker and chief financial officer Jonas Mattsson said in a joint statement that 2018 was a milestone year for Zeal, adding that its activities over the past 12 months have set the lottery brokerage up for further growth in 2019 and beyond.
“2018 was a milestone year for the Zeal Group; we delivered strong financial results, acquired a record number of new customers, laid the groundwork for continued international diversification and made ourselves more efficient,” Becker and Mattsson said.
“We acquired a record number of new registered customers for the group and our partners while significantly reducing our acquisition costs.
“In line with our evolved investment approach, we continued to lay the groundwork for our international diversification by making early stage investments into new companies and developing new products in new countries, and focusing on acquiring additional licences.”
Becker and Mattsson also noted Zeal’s pending acquisition of former subsidiary Lotto24. Zeal shareholders approved the deal on January 18 and Zeal published the all-share offer later in the month.
Last month, Zeal took a step towards completing its acquisition of Lotto24 after the Lower Saxony Ministry of the Interior approved a request to launch lottery brokerage services via its Tipp24 domains.
It remains unclear when the deal will go through, but Lotto24 shareholders have until April 10 to accept the offer by tendering their shares to Zeal at a rate of one new Zeal share in exchange for 1.604 shares of Lotto24.
Zeal has already received tender commitments for major shareholders including Günther Group, Working Capital and Zeal co-founder Jens Schumann. These shareholders collectively hold 65% of shares and voting rights in Lotto24. The current tender rate for all shareholders is around 74%.
“With the regulatory headwinds getting stronger the long term viability of secondary lottery betting is uncertain in Germany,” Becker and Mattsson said.
“With this transaction, we will substantially derisk our business model by transforming our core German lottery betting business into a locally licensed online brokerage model, after acquiring from the Swiss Foundation the shares it holds in the myLotto24 and Tipp24 subsidiaries, aligning the companies’ legal ownership and control.”