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Zeal returns to earnings growth despite marketing splurge

| By Richard Mulligan
Zeal Network absorbed a significant increase in marketing expenses to post income and earnings growth in the first nine months of the year.

Zeal, an online provider of lottery products, raised marketing costs by 27% to €30.7m during the year to 30 September. This intensification of marketing was due to the Eurojackpot and Lotto 6aus49 draws hitting their maximum jackpot on five occasions.

While outgoings increased, the Germany-headquartered business remained on track to hit financial targets for 2023 as it significantly increased billings and revenue. The marketing splurge also resulted in gaining 518,000 new customers through the nine-month period.

Driven in part by a successful third quarter, Zeal’s billings grew by 16% to €633.2m ($677.8m/£551.6m) in the first nine months of 2023. At the same time, revenue also increased by 16% to €86.0m. At 12.5%, the group’s gross margin was close to the previous year’s figure of 12.8%.

Zeal also welcomed €1.2m from its new online games offering which launched in June 2023. Zeal now offers 28 games on the Lotto24 and Tipp24 platforms.

Zeal’s earnings boosted by successful campaigns

Even taking into account Zeal’s increased investment in marketing, EBITDA increased by 5% to €23.2m. The growth after Q3 was significant as marketing expenditure had led to a 15% dip in earnings after Q2.

EBIT amounted to €16.7m while the after-tax result for the period fell to €10.1m from €12.1m last year. This was, it said, due to a €1.1m decrease in the financial result and a significant increase in tax expenses compared to the previous year.

Raised marketing costs, including investment in brand-building through increased TV advertising, meant the acquisition costs per registered new customer was up 27% year-on-year to €46.81.

Personnel expenses grew by 9% to €15.2m. This was, Zeal said, due to the hiring of additional staff to support growth and develop new products. Zeal’s average number of employees rose from 159 to 170.

Direct operating expenses increased by 11% despite billings growth of 16% due to one-off costs relating to the set-up of lottery clubs in the previous year. Indirect operating expenses were up by 8%. This, it said, was mainly due to costs for strategic technical projects for its Spanish ONCE business, external legal advice, software costs and additional provisions for litigation.

Sebastian Bielski, who was appointed Zeal’s chief finance officer in August, said the group was benefitting from astute strategic decisions.

“The strong growth in our billings and revenue proves that we continue to expand our market leadership,” he said.

“The publication of the first figures for our online games business also show that Zeal has made the right decision to enter this new line of business. The initial success in the online games segment also makes us confident that we are on track for further growth with our attractive and growing games offering.”

Zeal on track to meet targets

For the 2023 financial year, Zeal said it continues to plan to expand its market leadership as an online provider of lottery products and introduce new products, including additional online games.

For the Germany segment, Zeal anticipates billings from lotteries (excluding games) in the range of €800m-€830m, assuming an average jackpot development.

In addition, Zeal continues to assume that revenue in the 2023 financial year will be between €110m-€120m. EBITDA, it said, will be in the range of €30m-€35m.

Zeal added: “The company continues to expect to invest significantly more in new customer acquisition compared to the previous year and expects marketing expenses of €34m to €39m.”

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