Lottery brokerage Zeal Network has reported a 26.3% year-on-year increase in adjusted earnings before interest and tax in the first quarter, despite being hit by a drop in revenue.
Revenue for the three months through to March 31, 2019, amounted to €36.5m (£31.2m/$40.9m), down 5.8% on €38.7m in the corresponding period last year.
Frankfurt-listed Zeal put this decline primarily down to a drop in the average jackpots offered on German state lottery products over the quarter, while the closure of the Lotto Network and the Spanish brokerage Ventura24 saw revenue slip €960,000 as a result.
Both of these factors also had an impact on total operating performance during the quarter, dropping 6.2% from €39.8m to €37.4m.
However, Zeal was able to cut spending in several areas of the business in Q1, with personnel expenses down from €7.7m to €5.5m due to a fall in the total number of full-time equivalent staff from 272 to 192. This comes as a result of a wider restructuring effort in preparation for the acquisition of Lotto24 and the closure of Ventura24.
Other operating expenses were down from €22.5m to €19.5m, while direct costs of operation dropped from €11.6m to €10.6m and other costs of operations from €6.2m to €3.7m. Marketing was the only area where Zeal spent more, with this total up from €4.7m to €5.2m.
This seemingly helped to offset lower revenue during the quarter, with adjusted earnings before interest and tax (EBIT) up by 26.3% year-on-year to €11.6m. Statutory EBIT also increased by 6.7% to €9.8m, while net cash was up 36.2% to €102.1m. Once finance-related costs were stripped out, and €61,000 from financing and investing activites was factored in, profit before tax stood at €9.8m, up 9.2% from the prior year.
After income taxes of €3.0m, Zeal's profit for the quarter was up 9.6% year-on-year at €6.9m.
Zeal chief finanical officer Jonas Mattsson spoke positively about the results, saying that the Q1 performance sets up the business for its reunification with former subsidiary Lotto24. Mattsson said this is likely to be finalised next week.
“We delivered a positive EBIT performance, reduced our cost base and further improved our net cash position,” he said. “These results highlight the strong position we have created for ZEAL and set us up well as we prepare to complete our acquisition of Lotto24.
“I look forward to next week’s reunification of ZEAL and Lotto24 and, together, building our Group’s future.”
Last month, it was revealed that over 91% of Lotto24 shareholders had endorsed a takeover offer by Zeal within the regular acceptance period. Following the conclusion of the initial deadline on April 10, remaining shareholders were given an additional two-week acceptance period until April 29, with 93% of shareholders now backing the deal. Zeal tabled an all-share offer of one Zeal share for 1.604 Lotto24 shares.